DELAWARE GROUP INCOME FUNDS INC, 485BPOS, 1997-09-29

DELAWARE GROUP INCOME FUNDS INC
485BPOS, 1997-09-29

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
File No. 2-37707
File No. 811-2071

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. / /
------
Post-Effective Amendment No. 58 /X/
------
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 58
------

DELAWARE GROUP INCOME FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (215) 255-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)

Approximate Date of Public Offering: September 29, 1997
------------------
It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
---------
X on September 29, 1997 pursuant to paragraph (b)
---------
60 days after filing pursuant to paragraph (a)(1)
---------
on (date) pursuant to paragraph (a)(1)
---------
75 days after filing pursuant to paragraph (a)(2)
---------
on (date) pursuant to paragraph (a)(2) of Rule 485
---------

Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year was filed on September 29, 1997.

<PAGE>

--- C O N T E N T S ---

This Post-Effective Amendment No. 58 to Registration File No. 2-37707 includes
the following:

1. Facing Page

2. Contents Page

3. Cross-Reference Sheet

4. Part A - Prospectuses*

5. Part B - Statement of Additional Information*

6. Part C - Other Information*

7. Signatures

* This Post-Effective Amendment relates to the Registrant's three series of
shares and their classes: Delchester Fund - Delchester Fund A Class,
Delchester Fund B Class, Delchester Fund C Class and Delchester Fund
Institutional Class; Strategic Income Fund - Strategic Income Fund A Class,
Strategic Income Fund B Class, Strategic Income Fund C Class and Strategic
Income Fund Institutional Class; and High-Yield Opportunities Fund -
High-Yield Opportunities Fund A Class, High-Yield Opportunities Fund B
Class, High-Yield Opportunities Fund C Class and High-Yield Opportunities
Fund Institutional Class. Shares of each Series are described in separate
prospectuses, however, they share a common Statement of Additional
Information and Part C.

<PAGE>

CROSS-REFERENCE SHEET*
PART A

Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Delchester Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>
1 Cover Page. . . . . . . . . . . . . . . . . . . . . . . Cover Page Cover Page

2 Synopsis. . . . . . . . . . . . . . . . . . . . . . . . Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses

3 Condensed Financial Information . . . . . . . . . . . . Financial Financial
Highlights Highlights

4 General Description of Registrant . . . . . . . . . . . Investment Investment
Objective and Objective and
Policies; Shares; Policies; Shares;
Other Investment Other Investment
Policies and Risk Policies and Risk
Considerations Considerations

5 Management of the Fund. . . . . . . . . . . . . . . . . Management Management
of the Fund of the Fund

6 Capital Stock and Other Securities. . . . . . . . . . . The Delaware Dividends and
Difference; Distributions;
Dividends and Taxes; Shares
Distributions;
Taxes; Shares
</TABLE>

<PAGE>

CROSS-REFERENCE SHEET*
PART A**
(Continued)

Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Delchester Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>
7 Purchase of Securities Being Offered. . . . . . . . . . Cover; How Cover; How
to Buy Shares; to Buy Shares;
Calculation of Calculation of
Offering Price Net Asset
and Net Asset Value
Value Per Share; Per Share;
Management Management
of the Fund of the Fund

8 Redemption or Repurchase . . . . . . . . . . . . . . . How to Buy How to Buy
Shares; Shares;
Redemption Redemption
and Exchange and Exchange

9 Legal Proceedings . . . . . . . . . . . . . . . . . . . None None
</TABLE>

* This filing relates to Registrant's Delchester Fund A Class, Delchester
Fund B Class, Delchester Fund C Class and Delchester Fund Institutional
Class of Delchester Fund; Strategic Income Fund A Class, Strategic Income
Fund B Class, Strategic Income Fund C Class and Strategic Income Fund
Institutional Class of Strategic Income Fund; and High-Yield Opportunities
Fund A Class, High-Yield Opportunities Fund B Class, High-Yield
Opportunities Fund C Class and High-Yield Opportunities Fund Institutional
Class of High-Yield Opportunities Fund. Shares of each Series are
described in separate prospectuses, however, they share a common Statement
of Additional Information and Part C.

<PAGE>

CROSS-REFERENCE SHEET*
PART A
(Continued)

Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Strategic Income Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>
1 Cover Page. . . . . . . . . . . . . . . . . . . . . . . Cover Page Cover Page

2 Synopsis. . . . . . . . . . . . . . . . . . . . . . . . Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses

3 Condensed Financial Information . . . . . . . . . . . . Financial Financial
Highlights Highlights

5 Management of the Fund. . . . . . . . . . . . . . . . . Management Management
of the Fund of the Fund

6 Capital Stock and Other Securities. . . . . . . . . . . The Delaware Dividends and
Difference; Distributions;
Dividends and Taxes; Shares
Distributions;
Taxes; Shares
</TABLE>

<PAGE>

CROSS-REFERENCE SHEET*
PART A
(Continued)
<TABLE>
<CAPTION>

Location in
Item No. Description Prospectuses
- -------- ----------- ------------
Strategic Income Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>

7 Purchase of Securities Being Offered. . . . . . . . . . Cover; How to Cover; How to
Buy Shares; Buy Shares;
Calculation of Calculation of
Offering Price Net Asset
and Net Asset Value
Value Per Share; Per Share;
Management Management
of the Fund of the Fund

8 Redemption or Repurchase. . . . . . . . . . . . . . . . How to Buy How to Buy
Shares; Shares;
Redemption and Redemption and
Exchange Exchange

9 Legal Proceedings . . . . . . . . . . . . . . . . . . . None None
</TABLE>

<PAGE>

CROSS-REFERENCE SHEET*
PART A
(Continued)

<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
High-Yield Opportunities Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>

1 Cover Page. . . . . . . . . . . . . . . . . . . . . . . Cover Page Cover Page

2 Synopsis. . . . . . . . . . . . . . . . . . . . . . . . Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses

3 Condensed Financial Information . . . . . . . . . . . . Financial Financial
Highlights Highlights

4 General Description of Registrant . . . . . . . . . . . Investment Investment
Objective and Objective and
Policies; Policies;
Shares; Other Shares; Other
Investment Investment
Policies Policies
and Risk and Risk
Considerations Considerations

5 Management of the Fund. . . . . . . . . . . . . . . . . Management Management
of the Fund of the Fund

6 Capital Stock and Other Securities. . . . . . . . . . . The Delaware Dividends and
Difference; Distributions;
Dividends and Taxes; Shares
Distributions; Taxes;
Shares
</TABLE>

<PAGE>

CROSS-REFERENCE SHEET*
PART A
(Continued)

Location in
Item No. Description Prospectuses
- -------- ----------- ------------
High-Yield Opportunities Fund
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>

7 Purchase of Securities Being Offered. . . . . . . . . . Cover; How to Cover; How to
Buy Shares; Buy Shares;
Calculation of Calculation of
Offering Price and Net Asset Value
Net Asset Value Per Share;
Per Share; Management of
Management of the Fund
the Fund

8 Redemption or Repurchase. . . . . . . . . . . . . . . . How to Buy How to Buy
Shares; Shares;
Redemption and Redemption and
Exchange Exchange

9 Legal Proceedings. . . . . . . . . . . . . . . . . . . None None
</TABLE>

<PAGE>

CROSS REFERENCE SHEET
PART B

<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
10 Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . Cover Page

11 Table of Contents . . . . . . . . . . . . . . . . . . . . . Table of Contents

12 General Information and History . . . . . . . . . . . . . . General Information

13 Investment Objectives and Policies. . . . . . . . . . . . . Investment Objectives
and Policies

14 Management of the Registrant. . . . . . . . . . . . . . . . Officers and Directors

15 Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . . . . Officers and Directors

16 Investment Advisory and Other Services. . . . . . . . . . . Plans Under Rule 12b-1
for the Fund Classes
(under Purchasing Shares);
Investment Management
Agreements and
Sub-Advisory Agreement;
Officers and Directors;
General Information;
Financial Statements

17 Brokerage Allocation. . . . . . . . . . . . . . . . . . . . Trading Practices
and Brokerage

18 Capital Stock and Other Securities. . . . . . . . . . . . . Capitalization and
Noncumulative Voting
(under General Information)

19 Purchase, Redemption and Pricing of
Securities Being Offered. . . . . . . . . . . . . . . . . . Purchasing Shares;
Determining Offering Price
and Net Asset Value;
Redemption and Repurchase;
Exchange Privilege

20 Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . Taxes

21 Underwriters . . . . . . . . . . . . . . . . . . . . . . . Purchasing Shares

22 Calculation of Performance Data . . . . . . . . . . . . . . Performance Information

23 Financial Statements. . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>

<PAGE>

CROSS REFERENCE SHEET
PART C

Location
Item No. Description in Part C
- -------- ----------- ---------
<S> <C> <C>
24 Financial Statements and Exhibits . . . . . . . . . . . . . Item 24

25 Persons Controlled by or under Common
Control with Registrant . . . . . . . . . . . . . . . . . . Item 25

26 Number of Holders of Securities . . . . . . . . . . . . . . Item 26

27 Indemnification . . . . . . . . . . . . . . . . . . . . . . Item 27

28 Business and Other Connections of
Investment Adviser. . . . . . . . . . . . . . . . . . . . . Item 28

29 Principal Underwriters. . . . . . . . . . . . . . . . . . . Item 29

30 Location of Accounts and Records. . . . . . . . . . . . . . Item 30

31 Management Services . . . . . . . . . . . . . . . . . . . . Item 31

32 Undertakings. . . . . . . . . . . . . . . . . . . . . . . . Item 32
</TABLE>

<PAGE>

DELCHESTER FUND
A CLASS SHARES
B CLASS SHARES PROSPECTUS
C CLASS SHARES SEPTEMBER 29, 1997

1818 MARKET STREET, PHILADELPHIA, PA 19103

FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640

INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918

DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500

REPRESENTATIVES OF FINANCIAL INSTITUTIONS:
NATIONWIDE 800-659-2265

This PROSPECTUS describes shares of Delchester Fund series (the "Fund") of
Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a professionally-
managed mutual fund of the series type. The Fund's objective is to seek as high
a current income as is consistent with providing reasonable safety.

THIS FUND INVESTS UP TO 100% OF ITS ASSETS IN LOWER RATED FIXED-INCOME
SECURITIES, COMMONLY KNOWN AS "JUNK BONDS," WHICH INVOLVE GREATER RISKS,
INCLUDING DEFAULT RISKS, THAN HIGHER RATED FIXED-INCOME SECURITIES. PURCHASERS
SHOULD CAREFULLY ASSESS THESE RISKS BEFORE INVESTING IN THIS FUND. SEE
INVESTMENT OBJECTIVE AND POLICIES, RISK FACTORS, AND APPENDIX C--RATINGS.

The Fund offers Delchester Fund A Class ("Class A Shares"), Delchester Fund
B Class ("Class B Shares") and Delchester Fund C Class ("Class C Shares")
(individually, a "Class" and collectively, the "Classes").

This PROSPECTUS relates only to the classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART
B" of Income Funds, Inc.'s registration statement), dated September 29, 1997, as
it may be amended from time to time, contains additional information about the
Fund and has been filed with the Securities and Exchange Commission. PART B is
incorporated by reference into this PROSPECTUS and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. The Fund's financial statements appear in its ANNUAL REPORT,
which will accompany any response to requests for PART B.

<PAGE>

The Fund also offers Delchester Fund Institutional Class, which is
available for purchase only by certain investors. A prospectus for Delchester
Fund Institutional Class can be obtained by writing to Delaware Distributors,
L.P. at the above address or by calling the above number.

TABLE OF CONTENTS

Cover Page The Delaware Difference
Synopsis Plans and Services
Summary of Expenses Retirement Planning
Financial Highlights Classes of Shares
Investment Objective and Policies How to Buy Shares
Suitability Redemption and Exchange
Investment Strategy Dividends and Distributions
Risk Factors Taxes
Youth and Volatility Calculation of Offering Price
of the High-Yield Market and Net Asset Value Per Share
Redemptions Management of the Fund
Liquidity and Valuation Other Investment Policies
and Risk Considerations
Appendix A - Investment Illustrations
Appendix B - Classes Offered
Appendix C - Ratings

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.

2
<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE AND RISK FACTORS

The investment objective of the Fund is to seek as high a current income as
is consistent with providing reasonable safety by investing principally in
corporate bonds, and also in U.S. government securities and commercial paper.
For further details, see INVESTMENT OBJECTIVE AND POLICIES and OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS. This Fund invests primarily in high-yield
securities (junk bonds) and greater risks may be involved with an investment in
the Fund than an investment in a mutual fund comprised primarily of investment
grade bonds. See RISK FACTORS.

INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
the Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for the Fund and for
all of the other mutual funds in the Delaware Group. See SUMMARY OF EXPENSES
and MANAGEMENT OF THE FUND for further information regarding the Manager and
the fees payable under the Fund's Investment Management Agreement.

SALES CHARGES

The price of Class A Shares includes a maximum front-end sales charge of
4.75% of the offering price, which, based on the net asset value per share of
Class A Shares as of the end of Income Funds, Inc.'s most recent fiscal year, is
equivalent to 5.02% of the amount invested. The front-end sales charge is
reduced on certain transactions of at least $100,000 but under $1,000,000. For
purchases of $1,000,000 or more, the front-end sales charge is eliminated
(subject to a CDSC of 1% if shares are redeemed within 12 months of purchase if
in connection with such purchase a dealer commission was paid). Class A Shares
are subject to annual 12b-1 Plan expenses for the life of the investment.

The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class B Shares are subject to annual 12b-1 Plan expenses
for approximately eight years after purchase. See DEFERRED SALES CHARGE
ALTERNATIVE - CLASS B SHARES and AUTOMATIC CONVERSION OF CLASS B SHARES under
CLASSES OF SHARES.

The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses
for the life of the investment.

See CLASSES OF SHARES and DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT
OF THE FUND.

PURCHASE AMOUNTS

Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must be at least $100.

3
<PAGE>

Each purchase of Class B Shares is subject to a maximum purchase limitation
of $250,000. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
for Class B Shares and Class C Shares by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced front-
end sales charges apply to investments of $100,000 or more in Class A Shares,
and that Class A Shares are subject to lower annual 12b-1 Plan expenses than
Class B and Class C Shares and generally are not subject to a CDSC. The minimum
and maximum purchase amounts for retirement plans may vary. See HOW TO BUY
SHARES.

REDEMPTION AND EXCHANGE

Class A Shares of the Fund may be redeemed or exchanged at the net asset
value calculated after receipt of the redemption or exchange request. Neither
the Fund nor the Distributor assesses a charge for redemptions or exchanges of
Class A Shares, except for certain redemptions of shares purchased at net asset
value, which may be subject to a CDSC if a dealer's commission was paid in
connection with such purchases. See FRONT-END SALES CHARGE ALTERNATIVE - CLASS
A SHARES under CLASSES OF SHARES.

Class B Shares and Class C Shares may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See REDEMPTION AND EXCHANGE.

OPEN-END INVESTMENT COMPANY

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the Investment Company
Act of 1940 (the "1940 Act"). Income Funds, Inc. was first organized as a
Delaware corporation in 1970 and subsequently reorganized as a Maryland
corporation on March 4, 1983. See SHARES under MANAGEMENT OF THE FUND.

4
<PAGE>

SUMMARY OF EXPENSES

A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:

CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES
------ ------ -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price). . . . . 4.75% None None

Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price). . . . . None None None

Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable). . . . . . . . . . None* 4.00%* 1.00%*

Redemption Fees. . . . . . . . . . . . . . . . . . . . None** None** None**

ANNUAL OPERATING EXPENSES CLASS A CLASS B CLASS C
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS). . . . . SHARES SHARES SHARES
------ ------ -------

Management Fees. . . . . . . . . . . . . . . . . . . . 0.57% 0.57% 0.57%

12b-1 Plan Expenses (including service fees) . . . . . 0.25%+/++ 1.00%++ 1.00%++

Other Operating Expenses . . . . . . . . . . . . . . . 0.22% 0.22% 0.22%

Total Operating Expenses. . . . . . . . . . . . . 1.04%+ 1.79% 1.79%

</TABLE>

*Class A purchases of $1,000,000 or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid
to the financial adviser through whom such purchase is effected, a CDSC of 1%
will be imposed on certain redemptions within 12 months of purchase ("Limited
CDSC"). Class B Shares are subject to a CDSC of: (i) 4% if shares are
redeemed within two years of purchase; (ii) 3% if shares are redeemed during
the third or fourth year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; (iv) 1% if shares are redeemed
during the sixth year following purchase; and (v) 0% thereafter. Class C
Shares are subject to a CDSC of 1% if the shares are redeemed within 12
months of purchase. See CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN
REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under REDEMPTION
AND EXCHANGE; DEFERRED SALES CHARGE ALTERNATIVE -CLASS B SHARES and LEVEL
SALES CHARGE ALTERNATIVE - CLASS C SHARES under CLASSES OF SHARES.

**CoreStates Bank, N.A. currently charges $7.50 per redemption for
redemptions payable by wire.

+The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of Class A Shares, may vary because of the formula adopted by
the Board of Directors for use in calculating the 12b-1

5
<PAGE>

Plan expenses for this Class beginning June 1, 1992, but the 12b-1 Plan expenses
will not be more than 0.30% nor less than 0.10%. See DISTRIBUTION (12B-1) AND
SERVICE under MANAGEMENT OF THE FUND, and PART B.

++Class A Shares, Class B Shares and Class C Shares are subject to separate
12b-1 Plans. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charges permitted by rules of the National
Association of Securities Dealers, Inc. (the "NASD"). See DISTRIBUTION (12B-1)
AND SERVICE under MANAGEMENT OF THE FUND.

For expense information about Delchester Fund Institutional Class, see the
separate prospectus relating to that class.

Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an Individual
Retirement Account ("IRA") will pay an annual IRA fee of $15 per Social Security
number. See DELAWARE GROUP ASSET PLANNER in PART B.

6
<PAGE>

ASSUMING REDEMPTION ASSUMING NO REDEMPTION

1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
Shares $58(1) $79 $102 $169 $58 $79 $102 $169

Class B
Shares $58 $86 $117 $191(2) $18 $56 $97 $191(2)

Class C
Shares $28 $56 $97 $211 $18 $56 $97 $211

</TABLE>

(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See CONTINGENT DEFERRED SALES
CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET
VALUE under REDEMPTION AND EXCHANGE.

(2) At the end of approximately eight years after purchase, Class B Shares will
be automatically converted into Class A Shares. The example above assumes
conversion of Class B Shares at the end of the eighth year. However, the
conversion may occur as late as three months after the eighth anniversary
of purchase, during which time the higher 12b-1 Plan fees payable by Class
B Shares will continue to be assessed. Information for the ninth and tenth
years reflects expenses of Class A Shares. See AUTOMATIC CONVERSION OF
CLASS B SHARES under CLASSES OF SHARES for a description of the automatic
conversion feature.

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The purpose of the above tables is to assist the investor in understanding
the various costs and expenses that an investor in each Class will bear directly
or indirectly.

7
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
Delchester Fund of Delaware Group Income Funds, Inc. and have been audited by
Ernst & Young LLP, independent auditors. The data should be read in conjunction
with the financial statements, related notes, and the report of Ernst & Young
LLP, all of which are incorporated by reference into PART B. Further
information about the Fund's performance is contained in its ANNUAL REPORT to
shareholders. A copy of the Fund's ANNUAL REPORT (including the report of Ernst
& Young LLP) may be obtained from Income Funds, Inc. upon request at no charge.

- --------------------------------------------------------------------------------

8
<PAGE>

CLASS A SHARES

YEAR ENDED

7/31/97 7/31/96 7/31/95 7/31/94 7/31/93 7/31/92
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . $6.140 $6.280 $6.450 $7.070 $6.900 $6.260

Income From Investment Operations
Net Investment Income . . . . . . . . . . 0.598 0.628 0.668 0.744 0.774 0.781
Net Gains (Losses) on Securities
(both realized and unrealized) . . . . . . 0.430 (0.141) (0.167) (0.618) 0.165 0.640
Total From Investment Operations . . . . 1.028 0.487 0.501 0.126 0.939 1.421

Less Distributions
Dividends from Net
Investment Income (Loss). . . . . . . . . (0.598) (0.627) (0.671) (0.746) (0.769) (0.781)
Distributions from Capital Gains . . . . . none none none none none none
Total Distributions. . . . . . . . . . . . (0.598) (0.627) (0.671) (0.746) (0.769) (0.781)

Net Asset Value, End of Period . . . . . . $6.570 $6.140 $6.280 $6.450 $7.070 $6.900
- ----------------------------------------

Total Return(3). . . . . . . . . . . . . . 17.53% 8.10% 8.46% 1.60% 14.46% 23.94%
- ----------------------------------------

Ratios/Supplemental Data
Net Assets, End of
Period (000's omitted)(4) . . . . . . . . $1,030,328 $973,939 $1,020,763 $983,569 $955,113 $760,290
Ratio of Expenses to
Average Daily Net Assets. . . . . . . . . 1.04% 1.02% 1.09% 1.05% 1.04% 1.08%
Ratio of Net Investment Income
to Average Daily Net Assets. . . . . . . . 9.48% 10.11% 10.77% 10.48% 11.17% 11.58%
Portfolio Turnover Rate. . . . . . . . . . 154% 108% 92% 92% 72% 101%

7/31/91(2) 7/31/90(2) 7/31/89(2) 7/31/88(1)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . $6.300 $7.480 $7.750 $7.940

Income From Investment Operations
Net Investment Income . . . . . . . . . . 0.805 0.880 0.911 0.923
Net Gains (Losses) on Securities
(both realized and unrealized) . . . . . . (0.040) (1.180) (0.270) (0.188)
Total From Investment Operations . . . . 0.765 (0.300) 0.641 0.735

Less Distributions
Dividends from Net
Investment Income (Loss). . . . . . . . . (0.805) (0.880) (0.911) (0.925)
Distributions from Capital Gains . . . . . none none none none
Total Distributions. . . . . . . . . . . . (0.805) (0.880) (0.911) (0.925)

Net Asset Value, End of Period . . . . . . $6.260 $6.300 $7.480 $7.750
- ----------------------------------------

Total Return(3). . . . . . . . . . . . . . 14.51% (3.80%) 8.78% 10.04%
- ----------------------------------------

Ratios/Supplemental Data
Net Assets, End of
Period (000's omitted)(4) . . . . . . . . $505,530 $531,802 $708,215 $572,690
Ratio of Expenses to
Average Daily Net Assets. . . . . . . . . 1.20% 1.15% 1.15% 1.17%
Ratio of Net Investment Income
to Average Daily Net Assets. . . . . . . . 14.15% 13.17% 12.00% 11.88%
Portfolio Turnover Rate. . . . . . . . . . 38% 72% 66% 139%

</TABLE>

- ------------------------------------

(1) For the period ended 1988, the data are derived from Delchester I class,
restated to reflect the maximum 12b-1 accrual of 0.30% payable by the
Delchester Fund A Class (formerly designated Delchester II class).
Delchester I class was converted into Delchester Fund class (known as
Delchester Fund A Class beginning May 2, 1994) on June 1, 1992, pursuant to
a Plan of Recapitalization approved by shareholders of Delchester I class.

(2) For the periods 1989-1991, the historical information for Delchester Fund A
Class has been shown. Delchester Fund A Class was initially offered on
November 2, 1987. To simplify the presentation of fiscal year 1988 data,
for the period November 2, 1987 through July 31, 1988, Delchester I class
data have been substituted for that of Delchester Fund A Class. With the
exception of the applicable 12b-1 payments, Delchester I class and
Delchester Fund A Class were identical for purposes of data presentations.

(3) Does not reflect maximum front-end sales charge of 4.75% nor the 1% Limited
CDSC that would apply in the event of certain redemptions within 12 months
of purchase. See CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS
OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under REDEMPTION AND
EXCHANGE.

(4) All net assets of Delchester I class and Delchester Fund A Class have been
aggregated for the periods prior to June 1, 1992.

<PAGE>

Class B Shares Class C Shares

Period Period
5/2/94(1) 11/29/95(2)
Year Ended through Year Ended through
7/31/97 7/31/96 7/31/95 7/31/94 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period . . . . . . . . . . . . . . . $6.140 $6.280 $6.450 $6.730 $6.140 $6.210

Income From Investment Operations
Net Investment Income . . . . . . . . . 0.550 0.581 0.624 0.120 0.550 0.385
Net Gains (Losses) on Securities
(both realized and unrealized) . . . . . 0.430 (0.141) (0.170) (0.280) 0.430 (0.069)
Total from Investment Operations . . . 0.980 0.440 0.454 (0.160) 0.980 0.316
Less Distributions
Dividends from Net Investment Income . . (0.550) (0.580) (0.624) (0.120) (0.550) (0.386)
Distributions from Capital Gains . . . . none none none none none none
Total Distributions. . . . . . . . . . (0.550) (0.580) (0.624) (0.120) (0.550) (0.386)
Net Asset Value, End of Period. . . . . $6.570 $6.140 $6.280 $6.450 $6.570 $6.140
- ---------------------------------

Total Return . . . . . . . . . . . . . . 16.66%(3) 7.30%(3) 7.64%(3) (1) 16.66%(3) 5.20%(2)(3)
- ----------------------------------------

Ratios/Supplemental Data
Net Assets, End of
Period (000's omitted). . . . . . . . . $273,499 $176,266 $111,860 $21,776 $19,094 $4,953
Ratio of Expenses to Average
Daily Net Assets. . . . . . . . . . . . 1.79% 1.77% 1.82% 1.83%(1) 1.79% 1.77%(2)
Ratio of Net Investment Income
to Average Daily Net Assets. . . . . . . 8.73% 9.36% 10.14% 9.70%(1) 8.73% 9.36%(2)
Portfolio Turnover Rate. . . . . . . . . 154% 108% 92% 92% 154% 108%

</TABLE>

- ----------------------------------------
(1) Date of initial public offering. Ratios have been annualized. Total
return has been omitted as management believes that such information for
this relatively short period is not meaningful.

(2) 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.

(3) Does not include any applicable CDSC. See CONTINGENT DEFERRED SALES CHARGE
- CLASS B SHARES AND CLASS C SHARES.

10
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

SUITABILITY

The Fund may be suitable for investors interested in high current income
flow. The net asset value of each Class may fluctuate in response to the
condition of individual companies and general market and economic conditions
and, as a result, the Fund is not appropriate for a short-term investor.

The types of securities in which the Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated, lower-
rated and restricted securities have the potential for higher yields, they are
more speculative and increase the credit risk of the Fund's portfolio. Changes
in the market value of portfolio securities will not affect interest income from
such securities, but will be reflected in the Fund's net asset value. Investors
should be willing to accept the risks, including the risk of net asset value
fluctuations, associated with investing in these securities.

The Fund's objective of high current income also may be suited for longer
term investments, such as tax-deferred retirement plans (e.g., IRA, 401(k),
Profit Sharing, etc.), where the income stream can be left to compound on a tax-
deferred basis.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchases of the types of
securities in which the Fund invests.

Investors should not consider a purchase of Fund shares as equivalent to a
complete investment program. The Delaware Group includes a family of funds,
generally available through registered investment dealers, which may be used in
concert to create a more complete investment program.

INVESTMENT STRATEGY

The objective of the Fund is to seek as high a current income as is
consistent with providing reasonable safety. The strategy is to invest
primarily in those securities having a liberal and consistent yield and those
tending to reduce the risk of market fluctuations. The Fund will invest at
least 80% of its assets at the time of purchase in:

(1) CORPORATE BONDS. The Fund will invest in both rated and unrated bonds.
Unrated bonds may be more speculative in nature than rated bonds; or

(2) GOVERNMENT SECURITIES. Securities of, or guaranteed by, the U.S.
government, its agencies or instrumentalities; or

(3) COMMERCIAL PAPER. Commercial paper of companies having, at the time of
purchase, an issue of outstanding debt securities rated as described above or
commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's").

The Fund has consistently invested more than 80% of its assets in these
securities. The Fund must invest the remaining assets, if any, in
income-producing securities, including common stocks and preferred stocks, some
of which may have convertible features or attached warrants. Currently, the
Fund's assets are invested primarily in unrated corporate bonds and bonds rated
BB or lower by S&P or Ba or lower by Moody's.

11
<PAGE>

The market values of fixed-income securities generally fall when interest
rates rise and, conversely, rise when interest rates fall. Lower-rated and
unrated fixed-income securities tend to reflect short-term corporate and market
developments to a greater extent than higher-rated fixed-income securities,
which react primarily to fluctuations in the general level of interest rates.
These lower-rated or unrated securities generally have higher yields, but, as a
result of factors such as reduced creditworthiness of issuers, increased risks
of default and a more limited and less liquid secondary market, are subject to
greater volatility and risk of loss of income and principal than are higher-
rated securities. The Manager will attempt to reduce such risk through
portfolio diversification, credit analysis, and attention to trends in the
economy, industries and financial markets.

The Fund may purchase privately-placed debt and other securities the resale
of which is restricted under applicable securities laws. Such securities may be
less liquid than securities that are not subject to resale restrictions. The
Fund will not purchase illiquid assets if more than 10% of its assets would
consist of such illiquid securities.

For temporary defensive purposes, the Fund may hold a substantial portion
of its assets in cash or short-term obligations. While the Fund is permitted,
it normally does not borrow money or invest in repurchase agreements, except to
invest cash balances.

Although the Fund will constantly strive to attain its objective, there can
be no assurance that it will be attained. The objective of the Fund may not be
changed without shareholder approval. For a description of the Fund's other
investment policies, see OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS in
this PROSPECTUS. PART B sets forth other investment restrictions.

12
<PAGE>

RISK FACTORS

The Fund's assets may be invested primarily in bonds rated BBB or lower by
S&P or Baa or lower by Moody's and in unrated corporate bonds. See APPENDIX C--
RATINGS in this PROSPECTUS for more rating information. Investing in these
so-called "junk" or "high-yield" bonds entails certain risks, including the risk
of loss of principal, which may be greater than the risks involved in investment
grade bonds, and which should be considered by investors contemplating an
investment in the Fund. Such bonds are sometimes issued by companies whose
earnings at the time of issuance are less than the projected debt service on the
junk bonds. In addition to the considerations discussed elsewhere in this
PROSPECTUS, those risks include the following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET

Although the market for high-yield bonds has been in existence for many
years, including periods of economic downturns, the high-yield market grew
rapidly during the long economic expansion which took place in the United States
during the 1980s. During that economic expansion, the use of high-yield debt
securities to fund highly leveraged corporate acquisitions and restructurings
increased dramatically. As a result, the high-yield market grew substantially
during that economic expansion. Although experts disagree on the impact
recessionary periods have had and will have on the high-yield market, some
analysts believe a protracted economic downturn would severely disrupt the
market for high-yield bonds, would adversely affect the value of outstanding
bonds and would adversely affect the ability of high-yield issuers to repay
principal and interest. Those analysts cite volatility experienced in the high-
yield market in the past as evidence for their position. It is likely that
protracted periods of economic uncertainty would result in increased volatility
in the market prices of high-yield bonds, an increase in the number of high-
yield bond defaults and corresponding volatility in the Fund's net asset value.
At times in the past, uncertainty and volatility in the high-yield market
resulted in volatility in the Fund's net asset value.

REDEMPTIONS

If, as a result of volatility in the high-yield market or other factors,
the Fund experiences substantial net redemptions of the Fund's shares for a
sustained period of time (i.e., more shares of the Fund are redeemed than are
purchased), the Fund may be required to sell securities without regard to the
investment merits of the securities to be sold. If the Fund sells a substantial
number of securities to generate proceeds for redemptions, the asset base of the
Fund will decrease and the Fund's expense ratio may increase.

LIQUIDITY AND VALUATION

The secondary market for high-yield securities is currently dominated by
institutional investors, including mutual funds and certain financial
institutions. There is generally no established retail secondary market for
high-yield securities. As a result, the secondary market for high-yield
securities is more limited and less liquid than other secondary securities
markets. The high-yield secondary market is particularly susceptible to
liquidity problems when the institutions that dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for high-
yield securities is also generally considered to be more likely to be disrupted
by adverse publicity and investor perceptions than the more

13
<PAGE>

established secondary securities markets. The Fund's privately placed high-
yield securities are particularly susceptible to the liquidity and valuation
risks outlined above.

THE DELAWARE DIFFERENCE

PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.

SHAREHOLDER PHONE DIRECTORY

INVESTOR INFORMATION CENTER
800-523-4640

Fund Information; Literature; Price; Yield and Performance Figures

SHAREHOLDER SERVICE CENTER
800-523-1918

Information on Existing Regular Investment Accounts and Retirement Plan
Accounts; Wire Investments; Wire Liquidations; Telephone Liquidations and
Telephone Exchanges

DELAPHONE
800-362-FUND
(800-362-3863)

PERFORMANCE INFORMATION
You can call the Investor Information Center at any time for current yield
information. Current yield and total return information may also be included in
advertisements and information given to shareholders. Yields are computed on an
annual basis over a 30-day period.

SHAREHOLDER SERVICES
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your
account, the Fund, various service features and other funds in the Delaware
Group.

DELAPHONE SERVICE
Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than
the mailed statements and confirmations. Delaphone also provides current
performance information on the Fund, as well as other funds in the Delaware
Group. Delaphone is available seven days a week, 24 hours a day.

STATEMENTS AND CONFIRMATIONS
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of

14
<PAGE>

dividends. You should examine statements and confirmations immediately and
promptly report any discrepancy by calling the Shareholder Service Center.

DUPLICATE CONFIRMATIONS

If your financial adviser or investment dealer is noted on your investment
application, we will send a duplicate confirmation to him or her. This makes it
easier for your adviser to help you manage your investments.

TAX INFORMATION

Each year, Income Funds, Inc. will mail to you information on the tax
status of your dividends and distributions.

DIVIDEND PAYMENTS

Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.

For more information, see ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT -
DIVIDEND REINVESTMENT PLAN under HOW TO BUY SHARES or call the Shareholder
Service Center.

MONEYLINE-SM- SERVICES

Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account.

1. MONEYLINE-SM- DIRECT DEPOSIT SERVICE

If you elect to have your dividends and distributions paid in cash and such
dividends and distributions are in an amount of $25 or more, you may choose the
MoneyLine-SM- Direct Deposit Service and have such payments transferred from
your Fund account to your predesignated bank account. See DIVIDENDS AND
DISTRIBUTIONS. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See SYSTEMATIC WITHDRAWAL PLANS under REDEMPTION
AND EXCHANGE. This service is not available for certain retirement plans.

2. MONEYLINE-SM- ON DEMAND

You or your investment dealer may request purchases and redemptions of Fund
shares by phone using MoneyLine-SM- On Demand. When you authorize the Fund to
accept such requests from you or your investment dealer, funds will be withdrawn
from (for share purchases) or deposited to (for share redemptions) your
predesignated bank account. Your request will be processed the same day if you
call prior to 4 p.m., Eastern time. There is a $25 minimum and $50,000 maximum
limit for MoneyLine-SM- On Demand transactions. This service is not available
for retirement plans, except for purchases of shares by IRAs.

For each MoneyLine-SM- Service, it may take up to four business days for
the transactions to be completed. You can initiate either service by completing
an Account Services form. If your name and address are not identical to the
name and address on your Fund account, you must have your signature guaranteed.
The Fund does not charge a fee for any MoneyLine-SM- Service; however, your
bank may charge a fee. Please call the Shareholder Service Center for
additional information about these services.

15
<PAGE>

RIGHT OF ACCUMULATION

With respect to Class A Shares, the Right of Accumulation feature allows
you to combine the value of your current holdings of Class A Shares, Class B
Shares and Class C Shares of the Fund with the dollar amount of new purchases of
Class A Shares of the Fund to qualify for a reduced front-end sales charge on
such purchases of Class A Shares. Under the COMBINED PURCHASES PRIVILEGE, you
may also include certain shares that you own in other funds in the Delaware
Group. See CLASSES OF SHARES.

LETTER OF INTENTION

The Letter of Intention feature permits you to obtain a reduced front-end
sales charge on purchases of Class A Shares by aggregating certain of your
purchases of Delaware Group fund shares over a 13-month period. See CLASSES OF
SHARES and PART B.

12-MONTH REINVESTMENT PRIVILEGE

The 12-Month Reinvestment Privilege permits you to reinvest proceeds from a
redemption of Class A Shares, within one year of the date of the redemption,
without paying a front-end sales charge. See PART B.

EXCHANGE PRIVILEGE

The Exchange Privilege permits you to exchange all or part of your shares
into shares of the other funds in the Delaware Group, subject to certain
exceptions and limitations. For additional information on exchanges, see
INVESTING BY EXCHANGE under HOW TO BUY SHARES, and REDEMPTION AND EXCHANGE.

WEALTH BUILDER OPTION

You may elect to invest in the Fund through regular liquidations of shares
in your accounts in other funds in the Delaware Group. Investments under this
feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See ADDITIONAL METHODS OF ADDING
TO YOUR INVESTMENT - WEALTH BUILDER OPTION and INVESTING BY EXCHANGE under HOW
TO BUY SHARES, and REDEMPTION AND EXCHANGE.

FINANCIAL INFORMATION ABOUT THE FUND

Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Income Funds, Inc.'s fiscal year ends
on July 31.

16
<PAGE>

RETIREMENT PLANNING

An investment in the Fund may be suitable for tax-deferred retirement
plans. Among the retirement plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, SIMPLE IRAs, Simplified
Employee Pension Plans, Salary Reduction Simplified Employee Pension Plans and
403(b)(7) and 457 Deferred Compensation Plans.

Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are based
upon the number of participants in the plan as well as the services selected.
Additional information about fees is included in retirement plan materials.
Fees are quoted upon request.

Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of Delchester Fund Institutional
Class. For additional information on any of the plans and Delaware's retirement
services, call the Shareholder Service Center or see PART B.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

Individuals, even if they participate in an employer-sponsored retirement
plan, may establish their own retirement program for investments in each of the
Classes. Contributions to an IRA may be tax-deductible and earnings are tax-
deferred. The tax deductibility of IRA contributions is restricted, and in some
cases eliminated, for individuals who participate in certain employer-sponsored
retirement plans and whose annual income exceeds certain limits. Existing IRAs
and future contributions up to the IRA maximums, whether deductible or not,
still earn on a tax-deferred basis.

SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")

A SEP/IRA may be established by an employer who wishes to sponsor a tax-
sheltered retirement program by making contributions on behalf of all eligible
employees. Each of the Classes is available for investment by a SEP/IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")

Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may be maintained by employers having 25 or fewer employees . An
employer may elect to make additional contributions to such existing plans.

403(b)(7) DEFERRED COMPENSATION PLAN

Permits employees of public school systems or of certain types of non-profit
organizations to enter into a deferred compensation arrangement for the purchase
of shares of each of the Classes.

457 DEFERRED COMPENSATION PLAN

Permits employees of state and local governments and certain other entities
to enter into a deferred compensation arrangement for the purchase of shares of
each of the Classes.

PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLAN

Offers self-employed individuals, partnerships and corporations a tax-
qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.

17
<PAGE>

PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN

Permits employers to establish a tax-qualified plan based on salary deferral
contributions for investment in Class A or Class C Shares. Class B Shares are
not available for purchase by such plans.

SIMPLE IRA

A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan but
is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis.

SIMPLE 401(k)

A SIMPLE 401(k) is like a regular 401(k) except that plan sponsors are
limited to 100 employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required. Class B Shares are
not available for purchase by such plans.

The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Group funds. See CONTINGENT
DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET
ASSET VALUE under REDEMPTION AND EXCHANGE.

ALLIED PLANS

Class A Shares are available for purchase by participants in certain 401(k)
Defined Contribution Plans ("Allied Plans") which are made available under a
joint venture agreement between the Distributor and another institution through
which mutual funds are marketed and which allow investments in Class A Shares of
designated Delaware Group funds ("eligible Delaware Group fund shares"), as well
as shares of designated classes of non-Delaware Group funds ("eligible non-
Delaware Group fund shares"). CLASS B SHARES AND CLASS C SHARES ARE NOT
ELIGIBLE FOR PURCHASE BY ALLIED PLANS.

With respect to purchases made in connection with an Allied Plan, the value
of eligible Delaware Group and eligible non-Delaware Group fund shares held by
the Allied Plan may be combined with the dollar amount of new purchases by that
Allied Plan to obtain a reduced front-end sales charge on additional purchases
of eligible Delaware Group fund shares. See FRONT-END SALES CHARGE ALTERNATIVE
- - CLASS A SHARES under CLASSES OF SHARES.

Participants in Allied Plans may exchange all or part of their eligible
Delaware Group fund shares for other eligible Delaware Group fund shares or for
eligible non-Delaware Group fund shares at net asset value without payment of a
front-end sales charge. However, exchanges of eligible fund shares, both
Delaware Group and non-Delaware Group, which were not subject to a front-end
sales charge, will be subject to the applicable sales charge if exchanged for
eligible Delaware Group fund shares to which a sales charge applies. No sales
charge will apply if the eligible fund shares were previously acquired through
the exchange of eligible shares on which a sales charge was already paid or
through the reinvestment of dividends. See INVESTING BY EXCHANGE.

A dealer's commission may be payable on purchases of eligible Delaware Group
fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See FRONT-END SALES CHARGE
ALTERNATIVE - CLASS A SHARES under CLASSES OF SHARES.

18
<PAGE>

The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under WAIVER OF LIMITED CONTINGENT
DEFERRED SALES CHARGE - CLASS A SHARES under REDEMPTION AND EXCHANGE, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Group and non-Delaware Group fund shares. When
eligible Delaware Group fund shares are exchanged into eligible non-Delaware
Group fund shares, the Limited CDSC will be imposed at the time of the exchange,
unless the joint venture agreement specifies that the amount of the Limited CDSC
will be paid by the financial adviser or selling dealer. See CONTINGENT
DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET
ASSET VALUE under REDEMPTION AND EXCHANGE.

19
<PAGE>

CLASSES OF SHARES

ALTERNATIVE PURCHASE ARRANGEMENTS

Shares may be purchased at a price equal to the next determined net asset
value per share, subject to a sales charge which may be imposed, at the election
of the purchaser, at the time of the purchase for Class A Shares ("front-end
sales charge alternative"), or on a contingent deferred basis for Class B Shares
("deferred sales charge alternative") or Class C Shares ("level sales charge
alternative").

CLASS A SHARES. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See FRONT-END
SALES CHARGE ALTERNATIVE - CLASS A SHARES, below. See also CONTINGENT DEFERRED
SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET
VALUE UNDER REDEMPTION AND EXCHANGE and DISTRIBUTION (12b-1) AND SERVICE under
MANAGEMENT OF THE FUND.

CLASS B SHARES. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Class B Shares are subject
to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are
service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of such shares for approximately eight years after purchase. Class B
Shares permit all of the investor's dollars to work from the time the investment
is made. The higher 12b-1 Plan expenses paid by Class B Shares will cause such
shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. At the end of approximately eight years after purchase, Class B Shares
will automatically be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% for Class A Shares will apply. See AUTOMATIC CONVERSION OF CLASS B
SHARES, below.

CLASS C SHARES. An investor who elects the level sales charge alternative
acquires Class C Shares, which do not incur a front-end sales charge when they
are purchased, but are subject to a contingent deferred sales charge if they are
redeemed within 12 months of purchase. Class C Shares are subject to annual
12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service fees to
be paid to the Distributor, dealers or others for providing personal service
and/or maintaining shareholder accounts) of average daily net assets of such
shares for the life of the investment. The higher 12b-1 Plan expenses paid by
Class C Shares will cause such shares to have a higher expense ratio and to pay
lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares do
not convert to another class.

The alternative purchase arrangements described above permit investors to
choose the method of purchasing shares that is most suitable given the amount of
their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of such

20
<PAGE>

shares. However, there can be no assurance as to the return, if any, that will
be realized on such additional money, and the effect of earning a return on such
additional money will diminish over time. In comparing Class B Shares to Class
C Shares, investors should consider the duration of the annual 12b-1 Plan
expenses to which each of the classes is subject and the desirability of an
automatic conversion feature, which is available only for Class B Shares.

Prospective investors should refer to APPENDIX A--INVESTMENT ILLUSTRATIONS
in this PROSPECTUS for an illustration of the potential effect that each of the
purchase options may have on a long-term shareholder's investment.

For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and 12b-
1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A, Class B and Class C Shares. INVESTORS SHOULD UNDERSTAND THAT THE
PURPOSE AND FUNCTION OF THE RESPECTIVE 12b-1 PLANS AND THE CDSCS APPLICABLE TO
CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE 12b-1 PLAN AND
THE FRONT-END SALES CHARGE APPLICABLE TO CLASS A SHARES IN THAT SUCH FEES AND
CHARGES ARE USED TO FINANCE THE DISTRIBUTION OF THE RESPECTIVE CLASSES. See
DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

Dividends paid on Class A, Class B and Class C Shares, to the extent any
dividends are paid, will be calculated in the same manner, at the same time, on
the same day and will be in the same amount, except that the additional amount
of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will be
borne exclusively by such shares. See CALCULATION OF OFFERING PRICE AND NET
ASSET VALUE PER SHARE.

The NASD has adopted certain rules relating to investment company sales
charges. Income Funds, Inc. and the Distributor intend to operate in compliance
with these rules.

21
<PAGE>

FRONT-END SALES CHARGE ALTERNATIVE - CLASS A SHARES

Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE.

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

Delchester Fund A Class

Front-End Sales Charge Dealer's
as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- --------------------------------------------------------------------------------

Less than $100,000 4.75% 5.02% 4.00%
$100,000 but under $250,000 3.75 3.95 3.00
$250,000 but under $500,000 2.50 2.58 2.00
$500,000 but under $1,000,000* 2.00 2.00 1.60

* There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.

** Based upon the net asset value per share of Class A Shares as of the end of
Income Funds, Inc.'s most recent fiscal year.

*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the front-
end sales charge shown above. In addition, certain dealers who enter into
an agreement to provide extra training and information on Delaware Group
products and services and who increase sales of Delaware Group funds may
receive an additional commission of up to 0.15% of the offering price.
Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933.

22
<PAGE>

For initial purchases of Class A Shares of $1,000,000 or more, a dealer's
commission may be paid by the Distributor to financial advisers through whom
such purchases are made in accordance with the following schedule:

DEALER'S COMMISSION
(AS A PERCENTAGE OF
AMOUNT OF PURCHASE AMOUNT PURCHASED)
------------------ -----------------

Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of Class A Shares of
the Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.

An exchange from other Delaware Group funds will not qualify for payment of
the dealer's commission, unless a dealer's commission or similar payment has not
been previously paid on the assets being exchanged. The schedule and program
for payment of the dealer's commission are subject to change or termination at
any time by the Distributor at its discretion.

Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See CONTINGENT DEFERRED
SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET
VALUE under REDEMPTION AND EXCHANGE.

COMBINED PURCHASES PRIVILEGE

By combining your holdings of Class A Shares with your holdings of Class B
Shares and/or Class C Shares of the Fund and shares of other funds in the
Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Assets held by investment advisory clients of the Manager or its affiliates in a
stable value account may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.

This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.

It also permits you to use these combinations under a Letter of Intention.
A Letter of Intention allows you to make purchases over a 13-month period and
qualify the entire purchase for a reduction in front-end sales charges on Class
A Shares.

23
<PAGE>

Combined purchases of $1,000,000 or more, including certain purchases made
at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See FRONT-END SALES CHARGE ALTERNATIVE - CLASS A SHARES, above.

BUYING CLASS A SHARES AT NET ASSET VALUE

Class A Shares of the Fund may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain circumstances, the
Exchange Privilege and the 12-Month Reinvestment Privilege. See THE DELAWARE
DIFFERENCE and REDEMPTION AND EXCHANGE for additional information.

Purchases of Class A Shares may be made at net asset value by current and
former officers, directors and employees (and members of their families) of the
Manager, any affiliate, any of the funds in the Delaware Group, certain of their
agents and registered representatives and employees of authorized investment
dealers and by employee benefit plans for such entities. Individual purchases,
including those in retirement accounts, must be for accounts in the name of the
individual or a qualifying family member.

Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.

Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Delaware Investment & Retirement Services, Inc. ("DIRSI")
proprietary record keeping system that (i) has in excess of $500,000 of plan
assets invested in Class A Shares of Delaware Group funds and any stable value
account available to investment advisory clients of the Manager or its
affiliates, or (ii) is sponsored by an employer that has at any point after May
1, 1997 had more than 100 employees while such plan has held Class A Shares of a
Delaware Group fund and such employer has properly represented to DIRSI in
writing that it has the requisite number of employees and has received written
confirmation back from DIRSI.

Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares as a result of a change in distribution arrangements.

Investors in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
of the funds in the Delaware Group at net asset value.

24
<PAGE>

Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.

The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.

GROUP INVESTMENT PLANS

Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing, Money Purchase Pension, 401(k) Defined Contribution Plans, and
403(b)(7) and 457 Deferred Compensation Plans) may benefit from the reduced
front-end sales charges available on Class A Shares based on total plan assets.
If a company has more than one plan investing in the Delaware Group of funds,
then the total amount invested in all plans will be aggregated to determine the
applicable front-end sales charge reduction on each purchase, both initial and
subsequent, if, at the time of each such purchase, the company notifies the Fund
that it qualifies for the reduction. Employees participating in such Group
Investment Plans may also combine the investments held in their plan account to
determine the front-end sales charge applicable to purchases in non-retirement
Delaware Group investment accounts if, at the time of each such purchase, they
notify the Fund that they are eligible to combine purchase amounts held in their
plan account.

For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.

For other retirement plans and special services, see RETIREMENT PLANNING.

DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES

Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for the Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.

Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in THIS PROSPECTUS, even after the exchange. Such CDSC schedule may
be higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See REDEMPTION AND EXCHANGE.

AUTOMATIC CONVERSION OF CLASS B SHARES

25
<PAGE>

Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B
Shares falls on a Conversion Date, an investor's Class B Shares will be
converted on that date. If the eighth anniversary occurs between Conversion
Dates, an investor's Class B Shares will be converted on the next Conversion
Date after such anniversary. Consequently, if a shareholder's eighth
anniversary falls on the day after a Conversion Date, that shareholder will have
to hold Class B Shares for as long as three additional months after the eighth
anniversary of purchase before the shares will automatically convert into Class
A Shares.

Class B Shares of a fund acquired through a reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case of
Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.

All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See TAXES.

LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES

Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a
CDSC.

Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this PROSPECTUS. See REDEMPTION AND EXCHANGE.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES

Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage
of the dollar amount subject to the CDSC. The charge will be assessed on an
amount equal to the lesser of the net asset value at the time of purchase of the
shares being redeemed or the net asset value of those shares at the time of
redemption. No CDSC will be imposed on increases in net asset value above the
initial purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase" will be
the net asset value at purchase of Class B Shares or Class C Shares of the Fund,
even if those shares are later exchanged for shares of another Delaware Group
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.

26
<PAGE>

The following table sets forth the rates of the CDSC for Class B Shares of
the Fund:

CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
------------------------ ------------------

0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See AUTOMATIC CONVERSION OF CLASS B SHARES, above. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares.

In determining whether a CDSC applies to a redemption of Class B Shares, it
will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.

All investments made during a calendar month, regardless of what day of the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND
CLASS C SHARES under REDEMPTION AND EXCHANGE.

OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES

From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.

Subject to pending amendments to the NASD's Conduct Rules, in connection
with the promotion of Delaware Group fund shares, the Distributor may, from time
to time, pay to participate in dealer-sponsored seminars and conferences,
reimburse dealers for expenses incurred in connection with preapproved seminars,
conferences and advertising and may, from time to time, pay or allow additional
promotional incentives to dealers, which shall include non-cash concessions,
such as certain luxury merchandise or a trip to or attendance at

27
<PAGE>

a business or investment seminar at a luxury resort, as part of preapproved
sales contests. Payment of non-cash compensation to dealers is currently under
review by the NASD and the Securities and Exchange Commission. It is likely
that the NASD's Conduct Rules will be amended such that the ability of the
Distributor to pay non-cash compensation as described above will be restricted
in some fashion. The Distributor intends to comply with the NASD's Conduct
Rules as they may be amended.

DELCHESTER FUND INSTITUTIONAL CLASS

In addition to offering Class A, Class B and Class C Shares, the Fund also
offers Delchester Fund Institutional Class, which is described in a separate
prospectus and is available for purchase only by certain investors. Delchester
Fund Institutional Class shares generally are distributed directly by the
Distributor and do not have a front-end sales charge, a CDSC or a Limited CDSC,
and are not subject to 12b-1 Plan distribution expenses. To obtain the
prospectus that describes Delchester Fund Institutional Class, contact the
Distributor by writing to the address or by calling the telephone number listed
on the back of this PROSPECTUS.

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<PAGE>

HOW TO BUY SHARES

PURCHASE AMOUNTS

Generally, the minimum initial purchase is $1,000 for Class A Shares, Class
B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under the Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25. Minimum purchase requirements do not apply to retirement plans other than
IRAs, for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.

There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class B
Shares or Class C Shares by the plan.

INVESTING THROUGH YOUR INVESTMENT DEALER

You can make a purchase of shares of the Fund through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, the
Delaware Group can refer you to one.

INVESTING BY MAIL

1. INITIAL PURCHASES--An Investment Application or, in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to Delchester Fund A Class,
Delchester Fund B Class or Delchester Fund C Class, to Delaware Group at 1818
Market Street, Philadelphia, PA 19103.

2. SUBSEQUENT PURCHASES--Additional purchases may be made at any time by
mailing a check payable to the specific Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from Income Funds, Inc. Use of this
investment slip can help expedite processing of your check when making
additional purchases. Your investment may be delayed if you send additional
purchases by certified mail.

INVESTING BY WIRE

You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 1412893401 (include
your name(s) and your account number for the Class in which you are investing).

1. INITIAL PURCHASES--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, for the specific Class selected, to Delaware Group at 1818
Market Street, Philadelphia, PA 19103.

29
<PAGE>

2. SUBSEQUENT PURCHASES--You may make additional investments at any time by
wiring funds to CoreStates Bank, N.A., as described above. You should advise
the Shareholder Service Center by telephone of each wire you send.

If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.

INVESTING BY EXCHANGE

If you have an investment in another mutual fund in the Delaware Group, you
may write and authorize an exchange of part or all of your investment into
shares of the Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See REDEMPTION AND EXCHANGE for more complete information
concerning your exchange privileges.

Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See APPENDIX B - CLASSES OFFERED for a list of Delaware Group Funds and
the classes they offer. Class B Shares of the Fund and Class C Shares of the
Fund acquired by exchange will continue to carry the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the fund from which the
exchange is made. The holding period of Class B Shares of the Fund acquired by
exchange will be added to that of the shares that were exchanged for purposes of
determining the time of the automatic conversion into Class A Shares of the
Fund.

Permissible exchanges into Class A Shares of the Fund will be made without
a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.

See ALLIED PLANS under RETIREMENT PLANNING for information on exchanges by
participants in an Allied Plan.

ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT

Call the Shareholder Service Center for more information if you wish to use
the following services:

1. AUTOMATIC INVESTING PLAN

The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Income Funds,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.

This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.

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2. DIRECT DEPOSIT

YOU MAY HAVE YOUR EMPLOYER OR BANK MAKE REGULAR INVESTMENTS DIRECTLY TO
YOUR FUND ACCOUNT FOR YOU (for example: payroll deduction, pay by phone,
annuity payments). The Fund also accepts preauthorized recurring government and
private payments by Electronic Fund Transfer, which avoids mail time and check
clearing holds on payments such as social security, federal salaries, Railroad
Retirement benefits, etc.

* * *

Should investments through an automatic investing plan or by direct deposit
be reclaimed or returned for some reason, Income Funds, Inc. has the right to
liquidate your shares to reimburse the government or transmitting bank. If
there are insufficient funds in your account, you are obligated to reimburse the
Fund.

3. MONEYLINE-SM- ON DEMAND

Through the MoneyLine-SM- On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your predesignated bank
account to your Fund account. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for additional information about this service.

4. WEALTH BUILDER OPTION

You can use our Wealth Builder Option to invest in the Fund through regular
liquidations of shares in your accounts in other funds in the Delaware Group.
You may also elect to invest in other mutual funds in the Delaware Group through
the Wealth Builder Option through regular liquidations of shares in your Fund
account.

Under this automatic exchange program, you can authorize regular monthly
amounts (minimum of $100 per fund) to be liquidated from your account in one or
more funds in the Delaware Group and invested automatically into any other
account in a Delaware Group mutual fund that you may specify. If in connection
with the election of the Wealth Builder Option, you wish to open a new account
to receive the automatic investment, such new account must meet the minimum
initial purchase requirements described in the prospectus of the fund that you
select. All investments under this option are exchanges and are therefore
subject to the same conditions and limitations as other exchanges noted above.
You can terminate your participation in Wealth Builder at any time by giving
written notice to the fund from which the exchanges are made. See REDEMPTION
AND EXCHANGE.

5. DIVIDEND REINVESTMENT PLAN

You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your Fund account. Or, you may
invest your distributions in certain other funds in the Delaware Group, subject
to the exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.

Reinvestments of distributions into Class A Shares of the Fund or of other
Delaware Group funds are made without a front-end sales charge. Reinvestments
of distributions into Class B Shares of the Fund or of other Delaware Group
funds or into Class C Shares of the Fund or of other Delaware Group funds are
also made without any sales charge and will not be subject to a CDSC if later
redeemed. See AUTOMATIC CONVERSION OF CLASS

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B SHARES under CLASSES OF SHARES for information concerning the automatic
conversion of Class B Shares acquired by reinvesting dividends.

Holders of Class A Shares of the Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Group,
including the Fund. Holders of Class B Shares of the Fund may reinvest their
distributions only into Class B Shares of the funds in the Delaware Group which
offer that class of shares. Similarly, holders of Class C Shares of the Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See APPENDIX B - CLASSES
OFFERED for the funds in the Delaware Group offering those classes of shares.
For more information about reinvestments, call the Shareholder Service Center.

Capital gains and/or dividend distributions to participants in the
following retirement plans are automatically reinvested into the same Delaware
Group fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE IRA,
SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans or 403(b)(7) or 457 Deferred Compensation Plans.

PURCHASE PRICE AND EFFECTIVE DATE

The offering price and net asset value of Class A, Class B and Class C
Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The effective date of a purchase made through an investment dealer is the
date the order is received by the Fund, its agent or designee. The effective
date of a direct purchase is the day your wire, electronic transfer or check is
received, unless it is received after the time the offering price or net asset
value of shares is determined, as noted above. Purchase orders received after
such time will be effective the next business day.

THE CONDITIONS OF YOUR PURCHASE

The Fund reserves the right to reject any purchase order. If a purchase is
canceled because your check is returned unpaid, you are responsible for any loss
incurred. The Fund can redeem shares from your account(s) to reimburse itself
for any loss, and you may be restricted from making future purchases in any of
the funds in the Delaware Group. The Fund reserves the right to reject purchase
orders paid by third-party checks or checks that are not drawn on a domestic
branch of a United States financial institution. If a check drawn on a foreign
financial institution is accepted, you may be subject to additional bank charges
for clearance and currency conversion.

The Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts that, as a result of redemption,
have remained below the minimum stated account balance for a period of three or
more consecutive months. Holders of such accounts may be notified of their
insufficient account balance and advised that they have until the end of the
current calendar quarter to raise their balance to the stated minimum. If the
account has not reached the minimum balance requirement by that time, the Fund
will charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining low-
balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.

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<PAGE>

initial investment may be subject to involuntary redemption without the
imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or
her account.

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<PAGE>

REDEMPTION AND EXCHANGE

YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other bond funds, equity funds, tax-advantaged funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each
fund and all exchanges of shares constitute taxable events. See TAXES.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.

Your shares will be redeemed or exchanged at a price based on the net asset
value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. See PURCHASE PRICE AND EFFECTIVE DATE under
HOW TO BUY SHARES. A shareholder submitting a redemption request may indicate
that he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, and in the case of certain redemptions
from retirement plan accounts, the Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B and Class C
Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.

Except as noted below, for a redemption request to be in "good order," you
must provide your account number, account registration, and the total number of
shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.

The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may take up to 15
days from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. The Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.

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<PAGE>

There is no front-end sales charge or fee for exchanges made between shares
of funds which both carry a front-end sales charge. Any applicable front-end
sales charge will apply to exchanges from shares of funds not subject to a
front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this PROSPECTUS and any CDSC assessed upon redemption will be charged by the
fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class
B Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of the Fund for a longer period of time than if the investment in New
Shares were made directly.

Various redemption and exchange methods are outlined below. Except for the
CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares
redeemed or exchanged. Your investment dealer may charge for this service.

All authorizations given by shareholders, including selection of any of the
features described below, shall continue in effect until such time as a written
revocation or modification has been received by the Fund or its agent.

WRITTEN REDEMPTION

You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your shares. The request must be signed by all owners of
the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied
by an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.

WRITTEN EXCHANGE

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<PAGE>

You may also write to the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Group, subject to the same conditions and limitations as
other exchanges noted above.

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<PAGE>

TELEPHONE REDEMPTION AND EXCHANGE

To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.

The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are automatically
provided unless you notify the Fund in writing that you do not wish to have such
services available with respect to your account. The Fund reserves the right to
modify, terminate or suspend these procedures upon 60 days' written notice to
shareholders. It may be difficult to reach the Fund by telephone during periods
when market or economic conditions lead to an unusually large volume of
telephone requests.

Neither the Fund nor its Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.

TELEPHONE REDEMPTION--CHECK TO YOUR ADDRESS OF RECORD

THE TELEPHONE REDEMPTION FEATURE IS A QUICK AND EASY METHOD TO REDEEM
SHARES. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.

TELEPHONE REDEMPTION--PROCEEDS TO YOUR BANK

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the
next business day after receipt of your redemption request to your predesignated
bank account. There are no separate fees for this redemption method, but the
mail time may delay getting funds into your bank account. Simply call the
Shareholder Service Center prior to the time the offering price and net asset
value are determined, as noted above.

MONEYLINE-SM- ON DEMAND

Through the MoneyLine-SM- On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your Fund account to your
predesignated bank account. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for additional information about this service.

TELEPHONE EXCHANGE

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<PAGE>

The Telephone Exchange feature is a convenient and efficient way to adjust
your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.

SYSTEMATIC WITHDRAWAL PLANS

1. REGULAR PLANS

This plan provides shareholders with a consistent monthly (or quarterly)
payment. THIS IS PARTICULARLY USEFUL TO SHAREHOLDERS LIVING ON FIXED INCOMES,
SINCE IT CAN PROVIDE THEM WITH A STABLE SUPPLEMENTAL AMOUNT. With accounts of
at least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or
more. The Fund does not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check.
In the alternative, you may elect to have your payments transferred from your
Fund account to your predesignated bank account through the MoneyLine-SM-
Direct Deposit Service. Your funds will normally be credited to your bank
account up to four business days after the payment date. There are no separate
fees for this redemption method. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for more information about this service.

2. RETIREMENT PLANS

For shareholders eligible under the applicable retirement plan to receive
benefits in periodic payments, the Systematic Withdrawal Plan provides you with
maximum flexibility. A number of formulas are available for calculating your
withdrawals depending upon whether the distributions are required or optional.
Withdrawals must be for $25 or more; however, no minimum account balance is
required. The MoneyLine-SM- Direct Deposit Service described above is not
available for certain retirement plans.

* * *

Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.

Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS
OF CLASS A SHARES PURCHASED AT NET ASSET VALUE, below.

The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the ANNUAL amount selected to be withdrawn is less than 12% of the
account balance. If the ANNUAL amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, ALL redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will
be reset on the date that any Systematic Withdrawal Plan is modified (for
example, a change in the amount selected to be withdrawn or the frequency or
date of withdrawals), based on the balance in the account on that date. See
WAIVER OF CONTINGENT DEFERRED SALES CHARGE - - CLASS B AND CLASS C SHARES,
below.

For more information on Systematic Withdrawal Plans, call the Shareholder
Service Center.

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<PAGE>

CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES
PURCHASED AT NET ASSET VALUE

A Limited CDSC will be imposed on certain redemptions of Class A Shares (or
shares into which such Class A Shares are exchanged) made within 12 months of
purchase, IF SUCH PURCHASES WERE MADE AT NET ASSET VALUE AND TRIGGERED THE
PAYMENT BY THE DISTRIBUTOR OF THE DEALER'S COMMISSION PREVIOUSLY DESCRIBED. See
CLASSES OF SHARES.

The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of: (1) the net asset value at the time of purchase of Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of Class A Shares even
if those shares are later exchanged for shares of another Delaware Group fund
and, in the event of an exchange of Class A Shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.

Redemptions of such Class A Shares held for more than 12 months will not be
subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of the Fund or Class A Shares acquired in the exchange.

In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.

WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES

The Limited CDSC for Class A Shares on which a dealer's commission has been
paid will be waived in the following instances: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2 and IRA distributions qualifying under Section 72(t) of
the Internal Revenue Code; (v) returns of excess contributions to an IRA; (vi)
distributions by other employee benefit plans to pay benefits; (vii)
distributions described in (ii), (iv), and (vi) above pursuant to a systematic
withdrawal plan; and (viii) redemptions by the classes of shareholders who are
permitted to purchase shares at net asset value, regardless of the size of the
purchase (see BUYING CLASS A SHARES AT NET ASSET VALUE under CLASSES OF SHARES).

WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES

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<PAGE>

of excess contributions to an IRA, SIMPLE IRA, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plans; (iii) distributions from an IRA, SIMPLE IRA,
SEP/IRA, 403(b)(7) or 457 Deferred Compensation Plan, and IRA distributions
qualifying under Section 72(t) of the Internal Revenue Code; and (iv)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.

The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Pension Plan, or 401(k) Defined Contribution Plan upon attainment
of age 70 1/2 and IRA distributions qualifying under Section 72(t) of the
Internal Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan,
under hardship provisions of the plan; (v) distributions from a 403(b)(7) or 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or
a 401(k) Defined Contribution Plan upon attainment of normal retirement age
under the plan or upon separation from service; (vi) periodic distributions from
an IRA or SIMPLE IRA on or after attainment of age 59 ; and (vii) distributions
from an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the Uniform
Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the
waiver applies upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered owners
occurring after the purchase of the shares being redeemed.

In addition, the CDSC will be waived on Class B and Class C Shares redeemed
in accordance with a Systematic Withdrawal Plan if the annual amount selected to
be withdrawn under the Plan does not exceed 12% of the value of the account on
the date that the Systematic Withdrawal Plan was established or modified.

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<PAGE>

DIVIDENDS AND DISTRIBUTIONS

The Fund declares a dividend to all shareholders of record at the time the
offering price of shares is determined. See PURCHASE PRICE AND EFFECTIVE DATE
under HOW TO BUY SHARES. Thus, when redeeming shares, dividends continue to be
credited up to and including the date of redemption.

The Fund's dividends are declared daily and paid monthly. Payment by check
of cash dividends will ordinarily be mailed within three business days after the
payable date. Distributions from net realized securities profits, if any, will
be distributed twice a year. The first payment normally would be made during
the first quarter of the next fiscal year. The second payment would be made
near the end of the calendar year to comply with certain requirements of the
Code.

Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.

Each class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will vary
due to the expenses under the 12b-1 Plan applicable to each Class. Generally,
the dividends per share on Class B Shares and Class C Shares can be expected to
be lower than the dividends per share on Class A Shares because the expenses
under the 12b-1 Plans relating to Class B and Class C Shares will be higher than
the expenses under the 12b-1 Plan relating to Class A Shares. See DISTRIBUTION
(12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

Both dividends and distributions, if any, are automatically reinvested in
your account at net asset value unless you elect otherwise. Any check in
payment of dividends or other distributions which cannot be delivered by the
United States Post Office or which remains uncashed for a period of more than
one year may be reinvested in your account at the then-current net asset value
and the dividend option may be changed from cash to reinvest. If you elect to
take your dividends and distributions in cash and such dividends and
distributions are in an amount of $25 or more, you may choose the MoneyLine-SM-
Direct Deposit Service and have such payments transferred from your Fund account
to your predesignated bank account. This service is not available for certain
retirement plans. See MONEYLINE-SM- SERVICES under THE DELAWARE DIFFERENCE for
more information about this service.

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TAXES

The tax discussion set forth below is included for general information
only. Investors should consult their own advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.

The Fund has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Code. As such, the Fund will not
be subject to federal income tax, or to any excise tax, to the extent its
earnings are distributed as provided in the Code.

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. No portion of the Fund's distributions will be eligible for the
dividends-received deduction for corporations.

Distributions paid by the Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Fund does not seek to
realize any particular amount of capital gains during a year; rather, realized
gains are a by-product of Fund management activities. Consequently, capital
gains distributions may be expected to vary considerably from year to year.
Also, for those investors subject to tax, if purchases of shares in the Fund are
made shortly before the record date for a dividend or capital gains
distribution, a portion of the investment will be returned as a taxable
distribution.

Dividends which are declared in October, November or December to
shareholders of record on a specified date in one of those months, but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.

The sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may
be realized from an ordinary redemption of shares or an exchange of shares
between the Fund and any other fund in the Delaware Group. Any loss incurred on
a sale or exchange of Fund shares that had been held for six months or less will
be treated as a long-term capital loss to the extent of capital gains dividends
received with respect to such shares. All or a portion of the sales charge
incurred in acquiring Fund shares will be excluded from the federal tax basis of
any of such shares sold or exchanged within 90 days of their purchase (for
purposes of determining gain or loss upon the sale of such shares) if the sale
proceeds are reinvested in the Fund or in another fund in the Delaware Group of
funds and a sales charge that would otherwise apply to the reinvestment is
reduced or eliminated. Any portion of such sales charge excluded from the tax
basis of the shares sold will be added to the tax basis of the shares acquired
in the reinvestment.

The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal tax
purposes. See AUTOMATIC CONVERSION OF CLASS B SHARES under CLASSES OF SHARES.

In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital
gains realized from certain types of U.S. government securities may be exempt
from state personal income taxes. Shares of the Fund are exempt from
Pennsylvania county personal property taxes.

42
<PAGE>

Each year, Income Funds, Inc. will mail to you information on the tax
status of the Fund's dividends and distributions. Shareholders will also
receive each year information as to the portion of dividend income that is
derived from U.S. government securities that are exempt from state income tax.
Of course, shareholders who are not subject to tax on their income would not be
required to pay tax on amounts distributed to them by the Fund.

Income Funds, Inc. is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Investment Application your proper
Taxpayer Identification Number and by certifying that you are not subject to
backup withholding.

See TAXES in PART B for additional information on tax matters relating to
the Fund and its shareholders.

43
<PAGE>

CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by the Fund's Board of
Directors. Short-term investments having a maturity of less than 60 days are
valued at amortized cost, which approximates market value. All other securities
are valued at their fair value as determined in good faith and in a method
approved by Income Funds, Inc.'s Board of Directors.

Class A Shares are purchased at the offering price per share, while Class B
Shares and Class C Shares are purchased at the NAV per share. The offering
price per share of Class A Shares consists of the NAV per share next computed
after the order is received, plus any applicable front-end sales charges.

The offering price and NAV are computed as of the close of regular trading
on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when
the Exchange is open.

The net asset values of all outstanding shares of each class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that Delchester Fund Institutional Class will not incur any of the
expenses under Income Funds, Inc.'s 12b-1 Plans and Class A, Class B and Class C
Shares alone will bear the 12b-1 Plan expenses payable under their respective
12b-1 Plans. Due to the specific distribution expenses and other costs that may
be allocable to each class, the dividends paid to each class of the Fund may
vary. However, the NAV per share of each class is expected to be equivalent.

44
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER

The Manager furnishes investment management services to the Fund.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,844,101,000) and
investment company (approximately $15,869,009,000) accounts. The directors of
Income Funds, Inc. annually review fees paid to the Manager.

The Manager is an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a wholly
owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, a new
Investment Management Agreement between Income Funds, Inc., on behalf of the
Fund, and the Manager was executed following shareholder approval.

The Manager manages the Fund's portfolio and makes investment decisions
which are implemented by Income Funds, Inc.'s Trading Department. The Manager
also administers Income Funds, Inc.'s affairs and pays the salaries of all the
directors, officers and employees of Income Funds, Inc. who are affiliated with
the Manager. For these services, the Manager is paid an annual fee of 0.60% on
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 in excess of $750
million, less the Fund's proportionate share of all directors' fees paid to the
unaffiliated directors by Income Funds, Inc. Investment management fees paid by
the Fund for the fiscal year ended July 31, 1997 were 0.57% of average daily net
assets.

Paul A. Matlack and Gerald T. Nichols have primary responsibility for
making day-to-day investment decisions for the Fund. Mr. Matlack and Mr.
Nichols have been members of the Fund's management team since 1990 and were
named co-managers of the Fund in January 1993. A CFA charterholder, Mr. Matlack
is a graduate of the University of Pennsylvania with an MBA in Finance from
George Washington University. He began his career at Mellon Bank as a credit
specialist, and later served as a corporate loan officer for Mellon Bank and
then Provident National Bank.

Mr. Nichols is a graduate of the University of Kansas, where he received a
BS in Business Administration and an MS in Finance. Prior to joining the
Delaware Group, he was a high-yield credit analyst at Waddell & Reed, Inc. and
subsequently the investment officer for a private merchant banking firm. He is
a CFA charterholder.

45
<PAGE>

A CFA charterholder, he is a graduate of Bradley University with an MBA from
Western Illinois University. Mr. Suckow was a fixed-income portfolio manager at
the Delaware Group from 1981 to 1985. He returned to the Delaware Group in 1993
after eight years with Oppenheimer Management Corporation where he served as
Executive Vice President and Director of Fixed Income.

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 150%. A turnover rate of 100% occurs, for
example, when all the investments in the Fund's portfolio at the beginning of
the year were replaced by the end of the year. During the past two fiscal
years, the Fund's portfolio turnover rates were 108% for 1996 and 154% for 1997.

The Fund uses its best efforts to obtain the best available price and most
favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing
any of its accounts. Subject to best price and execution, the Fund may consider
a broker/dealer's sales of shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, such as custodian fees.

PERFORMANCE INFORMATION

From time to time, the Fund may quote yield or total return performance of
the Classes in advertising and other types of literature.

The current yield for each Class will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.

Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions at net asset value and: (i) in the case
of Class A Shares, the impact of the maximum front-end sales charge at the
beginning of each specified period; and (ii) in the case of Class B Shares and
Class C Shares, the deduction of any applicable CDSC at the end of the relevant
period. Each presentation will include the average annual total return for one-
, five- and ten-year (or life-of-fund, if applicable) periods. The Fund may
also advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, the Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information
would be more favorable than total return information that includes the
deductions of the maximum front-end sales charge or any applicable CDSC.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

DISTRIBUTION (12b-1) AND SERVICE

<PAGE>

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated April 3, 1995, as amended on November 29, 1995.

Income Funds, Inc. has adopted a separate distribution plan under Rule 12b-
1 for each of the Class A Shares, Class B Shares and Class C Shares (the
"Plans"). The Plans permit the Fund to pay the Distributor from the assets of
the respective Classes a monthly fee for the Distributor's services and expenses
in distributing and promoting sales of shares.

These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in dealer-
sponsored seminars and conferences, and reimburse dealers for expenses incurred
in connection with preapproved seminars, conferences, and advertising. The
Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and who increase sales of the Class. In
addition, the Fund may make payments from the 12b-1 Plan fees of its respective
Classes directly to others, such as banks, who aid in the distribution of Class
shares or provide services in respect of a Class, pursuant to service agreements
with Income Funds, Inc.

The 12b-1 Plan expenses relating to each of the Class B Shares and Class C
Shares of the Fund are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.

The aggregate fees paid by the Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets in any year.
The actual 12b-1 Plan expenses assessed against Class A Shares may be less than
0.30%, but may not be less than 0.10%, because of the formula for calculating
the fee adopted by Income Funds, Inc.'s Board of Directors. See PART B. The
Fund's Class A, Class B and Class C Shares will not incur any distribution
expenses beyond these limits, which may not be increased without shareholder
approval.

While payments pursuant to the Plans may not exceed 0.30% annually with
respect to Class A Shares, and 1% annually with respect to each of the Class B
Shares and Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The Distributor may incur such additional expenses and make
additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
under the Plans are subject to the review and approval of Income Funds, Inc.'s
unaffiliated directors, who may reduce the fees or terminate the Plans at any
time.

The Plans do not apply to Delchester Fund Institutional Class . Those
shares are not included in calculating the Plans' fees, and the Plans are not
used to assist in the distribution and marketing of Delchester Fund
Institutional Class .

47
<PAGE>

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an amended and restated agreement dated as of September 30, 1996. The Transfer
Agent also provides accounting services to the Fund pursuant to the terms of a
separate Fund Accounting Agreement.

The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

EXPENSES

The Fund is responsible for all of its own expenses other than those borne
by the Manager under the Investment Management Agreement and those borne by the
Distributor under the Distribution Agreement. For the fiscal year ended July
31, 1997, the ratios of expenses to average daily net assets for Class A Shares,
Class B Shares and Class C Shares were 1.04%, 1.79% and 1.79%, respectively.
The expense ratio of each Class reflects the impact of its 12b-1 Plan.

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1970. In addition to the Fund, Income Funds, Inc. presently
offers two other series of shares, the Strategic Income Fund series and the
High-Yield Opportunities Fund series.

Fund shares have a par value of $1.00, equal voting rights, except as noted
below, and are equal in all other respects. Income Funds, Inc.'s shares have
noncumulative voting rights which means that the holders of more than 50% of
Income Funds, Inc.'s shares voting for the election of directors can elect 100%
of the directors if they choose to do so. Under Maryland law, Income Funds,
Inc. is not required, and does not intend, to hold annual meetings of
shareholders unless, under certain circumstances, it is required to do so under
the 1940 Act. Shareholders of 10% or more of Income Funds, Inc.'s outstanding
shares may request that a special meeting be called to consider the removal of a
director.

In addition to Class A Shares, Class B Shares and Class C Shares, the Fund
also offers Delchester Fund Institutional Class. Shares of each class
represent proportionate interests in the assets of the Fund and have the same
voting and other rights and preferences as the other classes of the Fund, except
that shares of Delchester Fund Institutional Class are not subject to, and may
not vote on matters affecting, the Distribution Plans under Rule 12b-1 relating
to Class A, Class B and Class C Shares. Similarly, as a general matter, the
shareholders of Class A Shares, Class B Shares and Class C Shares may vote only
on matters affecting the 12b-1 Plan that relates to the class of shares that
they hold. However, Class B Shares may vote on any proposal to increase
materially the fees to be paid by the Fund under the Rule 12b-1 Plan relating to
Class A Shares.

Prior to September 30, 1996, Delaware Group Income Funds, Inc. was known as
Delaware Group Delchester High-Yield Bond Fund, Inc. Prior to September 30,
1996, Delaware Group Delchester High-Yield Bond Fund, Inc. offered a single
series of shares, the Common Stock Series, which was known as and did business
as Delchester Fund.

48
<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

RULE 144A SECURITIES

The Fund may invest in restricted securities, including securities eligible
for resale without registration pursuant to Rule 144A ("Rule 144A Securities")
under the Securities Act of 1933. Rule 144A permits many privately placed and
legally restricted securities to be freely traded among certain institutional
buyers such as the Fund. The Fund may invest no more than 10% of the value of
its net assets in illiquid securities.

While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of the Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; (iv) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund's 10% limit on investments in
such securities, the Manager will determine what action to take to ensure that
the Fund continues to adhere to such limitation.

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

The Fund may acquire zero coupon bonds and, to a lesser extent, pay-in-kind
(PIK) bonds. Zero coupon bonds and PIK bonds are generally considered to be
more interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to the Fund. For example, the Fund accrues,
and is required to distribute to shareholders, income on its zero coupon bonds.
However, the Fund may not receive the cash associated with this income until the
bonds are sold or mature. If the Fund did not have sufficient cash to make the
required distribution of accrued income, the Fund could be required to sell
other securities in its portfolio or to borrow to generate the cash required.

PORTFOLIO LOAN TRANSACTIONS

The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other security
transactions.

The major risk to which the Fund would be exposed on a loan transaction is
the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, subject to overall
supervision by the Board of Directors, including the creditworthiness of the
borrowing broker, dealer or institution and then only if the consideration to be
received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.

49
<PAGE>

APPENDIX A - INVESTMENT ILLUSTRATIONS
ILLUSTRATIONS OF THE POTENTIAL IMPACT ON INVESTMENT BASED ON PURCHASE OPTION
$10,000 PURCHASE

Scenario 1 Scenario 2 Scenario 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
--------------------- --------------------- --------------------- -------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+ 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 12,012 12,012 11,669 11,712 12,012+ 11,669 12,012 12,012
4 12,485 12,768 12,768 12,485 12,768 12,768
5 13,359 13,573 13,573 13,359 13,373 13,573+
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,422

*This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.

$250,000 PURCHASE

Scenario 1 Scenario 2 Scenario 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
--------------------- --------------------- --------------------- -------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+ 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 300,289 300,289 298,604 292,789 300,289+ 298,604 300,289 300,289
4 319,507+ 319,207 319,207 319,507+ 319,207 319,207
5 341,872 339,318 339,318 341,872 334,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546

</TABLE>

*This assumes that Class B Shares were converted to Class A Shares at the end of
the eighth year.

ASSUMES A HYPOTHETICAL RETURN FOR CLASS A OF 7% PER YEAR, A HYPOTHETICAL RETURN
FOR CLASS B OF 6.3% FOR YEARS 1-8 AND 7% FOR YEARS 9-10, AND A HYPOTHETICAL
RETURN FOR CLASS C OF 6.3% PER YEAR. HYPOTHETICAL RETURNS VARY DUE TO THE
DIFFERENT EXPENSE STRUCTURE FOR EACH CLASS AND DO NOT REPRESENT ACTUAL
PERFORMANCE.

CLASS A PURCHASE SUBJECT TO APPROPRIATE SALES CHARGE BREAKPOINT (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).

CLASS B PURCHASE ASSESSED APPROPRIATE CDSC UPON REDEMPTION (4%-4%-3%-3%-2%-1% IN
YEARS 1-2-3-4-5-6).

CLASS C PURCHASE ASSESSED 1% CDSC UPON REDEMPTION IN YEAR 1.
FIGURES MARKED "+" IDENTIFY WHICH CLASS OFFERS THE GREATER RETURN POTENTIAL
BASED ON INVESTMENT AMOUNT, THE HOLDING PERIOD AND THE EXPENSE STRUCTURE OF EACH
CLASS.

<PAGE>

APPENDIX B -- CLASSES OFFERED

GROWTH OF CAPITAL A Class B Class C Class Consultant Class
Aggressive Growth Fund x x x -
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Small Cap Value Fund x x x -
U.S. Growth Fund x x x -
Growth Stock Fund x x x -
Tax-Efficient Equity Fund x x x -

TOTAL RETURN
Blue Chip Fund x x x -
Quantum Fund x x x -
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -

INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund x x x -
New Pacific Fund x x x -
World Growth Fund x x x -
International Equity Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -

CURRENT INCOME
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Delaware-Voyageur US
Government Securities
Fund x x x -
Limited-Term Government Fund x x x -

51
<PAGE>

APPENDIX B--CLASSES OFFERED - (CON'T)

TAX PREFERRED INCOME A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
National High Yield Municipal Bond Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Arizona Insured Fund x x x -
Delaware-Voyageur Tax-Free Arizona Fund x x x -
Delaware-Voyageur Tax-Free California Insured Fund x x x -
Delaware-Voyageur Tax-Free California Fund x x x -
Delaware-Voyageur Tax-Free Colorado Fund x x x -
Delaware-Voyageur Tax-Free Florida Insured Fund x x x -
Delaware-Voyageur Tax-Free Florida Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Florida Fund x x x -
Delaware-Voyageur Tax-Free Idaho Fund x x x -
Delaware-Voyageur Tax-Free Iowa Fund x x x -
Delaware-Voyageur Tax-Free Kansas Fund x x x -
Delaware-Voyageur Minnesota High Yield Municipal
Bond Fund x x x -
Delaware-Voyageur Minnesota Insured Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Fund x x x -
Delaware-Voyageur Tax-Free Missouri Insured Fund x x x -
Delaware-Voyageur Tax-Free New Mexico Fund x x x -
Delaware-Voyageur Tax-Free New York Fund x x x -
Delaware-Voyageur Tax-Free North Dakota Fund x x x -
Delaware-Voyageur Tax-Free Oregon Insured Fund x x x -
Tax-Free Pennsylvania Fund x x x -
Delaware-Voyageur Tax-Free Utah Fund x x x -
Delaware-Voyageur Tax-Free Washington Insured Fund x x x -
Delaware-Voyageur Tax-Free Wisconsin Fund x x x -

MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x

</TABLE>

52
<PAGE>

APPENDIX C--RATINGS

The Fund's assets are invested primarily in bonds rated BBB or lower by S&P
or Baa or lower by Moody's and in unrated corporate bonds. These credit ratings
evaluate only the safety of principal and interest and do not consider the
market value risk associated with high-yield securities. The table set forth
below shows the percentage of the Fund's securities included in each of the
specified rating categories and shows the percentage of the Fund's assets held
in U.S. government securities. Certain securities may not be rated because the
rating agencies were either not asked to provide ratings (e.g., many issuers of
privately placed bonds do not seek ratings) or because the rating agencies
declined to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of the Fund's securities which are not rated.
The information contained in the table was prepared based on a dollar weighted
average of the Fund's portfolio composition based on month end data for the
Fund's fiscal year ended July 31, 1997. The paragraphs following the table
contain excerpts from Moody's and S&P's rating descriptions.

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio
- ------------------------- -----------------------

United States Treasury Obligations 12.77%
Aaa/AAA N/A
Aa/AA N/A
A/A N/A
Baa/BBB N/A
Ba/BB 8.17%
B/B 76.17%
Caa/CCC 1.26%
Not Rated/Other 1.63%

The Fund tends to invest primarily in bonds rated Ba or B by Moody's or
similarly rated by S&P or another rating agency. During the fiscal year ended
July 31, 1997, the Fund increased its exposure to bonds rated B from 74.50% to
76.10% and reduced its exposure to bonds rated Ba from 12.58% to 8.17%. The
Fund tends to emphasize B-rated bonds during periods of economic expansion.
During periods of economic slowdown, the Fund tends to emphasize bonds rated Ba,
which are generally considered to be of higher quality but lower yielding than
bonds rated B. In response to continuing signs of economic growth during 1997,
the Fund's managers increased the Fund's holdings of B-rated bonds in an effort
to increase investment income while maintaining a prudent risk profile,
consistent with their view of economic and market conditions at that time.

53
<PAGE>

GENERAL RATING INFORMATION

BONDS

Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small; Caa--are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest; Ca--represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings; C--the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.

Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.

COMMERCIAL PAPER

Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength; P-2--
second highest grade possessing less relative strength than the highest grade.

Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--judged to be the highest investment grade category possessing the
highest relative strength; A-2--investment grade category possessing less
relative strength than the highest rating.

54
<PAGE>

The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end equity
funds give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial
adviser or call Delaware Group at 800-523-4640.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

- --------------------------------------------------------------------------------
DELCHESTER FUND
- --------------------------------------------------------------------------------

A CLASS
B CLASS
C CLASS

- --------------------------------------------------------------------------------

PROSPECTUS

- --------------------------------------------------------------------------------

SEPTEMBER 29, 1997

DELAWARE
GROUP
---------------

<PAGE>

DELCHESTER FUND INSTITUTIONAL PROSPECTUS
CLASS SHARES SEPTEMBER 29, 1997

1818 Market Street, Philadelphia, PA 19103

For more information about
Delchester Fund Institutional Class
call Delaware Group at 800-828-5052.

The PROSPECTUS describes shares of Delchester Fund series (the "Fund") of
Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a
professionally-managed mutual fund of the series type. The Fund's investment
objective is to seek as high a current income as is consistent with providing
reasonable safety.

The Fund offers Delchester Fund Institutional Class (the "Class") of
shares.

This PROSPECTUS relates only to the Class and sets forth information that
you should read and consider before you invest. Please retain it for future
reference. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART B" of Income
Funds, Inc.'s registration statement), dated September 29, 1997, as it may be
amended from time to time, contains additional information about the Fund and
has been filed with the Securities and Exchange Commission. PART B is
incorporated by reference into this PROSPECTUS and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above number. The Fund's financial statements appear in its ANNUAL REPORT,
which will accompany any response to requests for PART B.

The Fund also offers Delchester Fund A Class, Delchester Fund B Class and
Delchester Fund C Class. Shares of these classes are subject to sales charges
and other expenses, which may affect their performance. A prospectus for these
classes can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling 800-523-4640.

<PAGE>

TABLE OF CONTENTS

Cover Page Classes of Shares
Synopsis How to Buy Shares
Summary of Expenses Redemption and Exchange
Financial Highlights Dividends and Distributions
Investment Objective and Policies Taxes
Suitability Calculation of Net Asset Value
Per Share
Investment Strategy Management of the Fund
Risk Factors Other Investment Policies and
Youth and Volatility of the Risk Considerations
High-Yield Market Appendix A - Ratings
Redemptions
Liquidity and Valuation

-2-
<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE AND RISK FACTORS

INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
the Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for the Fund and for
all of the other mutual funds in the Delaware Group. See SUMMARY OF EXPENSES
and MANAGEMENT OF THE FUND for further information regarding the Manager and the
fees payable under the Fund's Investment Management Agreement.

PURCHASE PRICE

Shares of the Class offered by this PROSPECTUS are available at net asset
value, without a front-end or contingent deferred sales charge, and are not
subject to distribution fees under a Rule 12b-1 distribution plan. See CLASSES
OF SHARES.

REDEMPTION AND EXCHANGE

Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See REDEMPTION
AND EXCHANGE.

OPEN-END INVESTMENT COMPANY

Income Funds, Inc. is an open-end management investment company The
Fund's portfolio of assets is diversified as defined by the Investment Company
Act of 1940 (the "1940 Act"). Income Funds, Inc. was first organized as a
Delaware corporation in 1970 and subsequently reorganized as a Maryland
corporation on March 4, 1983. See SHARES under MANAGEMENT OF THE FUND.

-3-
<PAGE>

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES
----------------------------------------------------------------------

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price). . . . . . . . . . . . . . None

Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price). . . . . . . . . None

Exchange Fees. . . . . . . . . . . . . . . . . . . . . . . . . None*

ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
----------------------------------------------------------------------

Management Fees. . . . . . . . . . . . . . . . . . . . . . . . 0.57%

12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . None

Other Operating Expenses . . . . . . . . . . . . . . . . . . . 0.22%

Total Operating Expenses. . . . . . . . . . . . . . . . . 0.79%

*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.

For expense information about Delchester Fund A Class, Delchester Fund B
Class and Delchester Fund C Class, see the separate prospectus relating to those
classes.

The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return and (2) redemption at the end of each time period. The Fund charges
no redemption fees.

1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $44 $98

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The purpose of these tables is to assist the investor in understanding
the various costs and expenses that an investor in the Class will bear directly
or indirectly.

-4-
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

-5-
<PAGE>

YEAR ENDED
7/31/97 7/31/96 7/31/95 7/31/94 7/31/93 7/31/92(1)(2) 7/31/91

<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $6.140 $6.280 $6.450 $7.070 $6.900 $6.260 $6.300

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.614 0.644 0.685 0.758 0.787 0.798 0.822
Net Gains or Losses on Securities
(both realized and unrealized) 0.429 (0.142) (0.169) (0.617) 0.165 0.640 (0.040)
Total from Investment Operations 1.043 0.502 0.516 0.141 0.952 1.438 0.782

LESS DISTRIBUTIONS
Dividends (from net investment income) (0.613) (0.642) (0.686) (0.761) (0.782) (0.798) (0.822)
Distributions (from capital gains) none none none none none none none
Total Distributions (0.613) (0.642) (0.686) (0.761) (0.782) (0.798) (0.822)

Net Asset Value, End of Period $6.570 $6.140 $6.280 $6.450 $7.070 $6.900 $6.260

Total Return 17.82% 8.37% 8.72% 1.82% 14.67% 24.28% 14.85%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $44,065 $59,513 $61,742 $71,122 $35,909 $18,746 $113,414
Ratio of Expenses to Average Daily Net Assets 0.79% 0.77% 0.82% 0.83% 0.86% 0.86% 0.90%
Ratio of Net Investment Income
to Average Daily Net Assets 9.73% 10.36% 11.14% 10.70% 11.35% 12.17% 14.45%
Portfolio Turnover Rate 154% 108% 92% 92% 72% 101% 38%

7/31/90 7/31/89 7/31/88

Net Asset Value, Beginning of Period $7.480 $7.750 $7.940

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.900 0.934 0.946
Net Gains or Losses on Securities
(both realized and unrealized) (1.180) (0.270) (0.188)
Total from Investment Operations (0.280) 0.664 0.758

LESS DISTRIBUTIONS
Dividends (from net investment income) (0.900) (0.934) (0.948)
Distributions (from capital gains) none none none
Total Distributions (0.900) (0.934) (0.948)

Net Asset Value, End of Period $6.300 $7.480 $7.750

Total Return (3.58%) 9.10% 10.37%

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $96,161 $84,800 $37,639
Ratio of Expenses to Average Daily Net Assets 0.85% 0.85% 0.87%
Ratio of Net Investment Income
to Average Daily Net Assets 13.47% 12.30% 12.18%
Portfolio Turnover Rate 72% 66% 139%
</TABLE>

- ---------------------------------------
(1) The financial highlights for the period prior to June 1, 1992 (the date
Delchester Fund Institutional Class was first offered for public sale) are
derived from data of the Delchester I class, which like Delchester Fund
Institutional Class, was not subject to Rule 12b-1 distribution expenses.
Shares of Delchester I class were converted into shares of Delchester II
class (now referred to as Delchester Fund A Class) on June 1, 1992,
pursuant to a Plan of Recapitalization approved by shareholders of
Delchester I class. Prior to May 2, 1994, Delchester Fund A Class was
known as Delchester Fund class and Delchester Fund Institutional Class was
known as Delchester Fund (Institutional) class.

(2) The data for Delchester I class and Delchester Fund Institutional Class
have 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.

-6-
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

SUITABILITY

The types of securities in which the Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated,
lower-rated and restricted securities have the potential for higher yields, they
are more speculative and increase the credit risk of the Fund's portfolio.
Changes in the market value of portfolio securities will not affect interest
income from such securities, but will be reflected in the Fund's net asset
value. Investors should be willing to accept the risks, including the risk of
net asset value fluctuations, associated with investing in these securities.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchases of the types of
securities in which the Fund invests.

INVESTMENT STRATEGY

(1) CORPORATE BONDS. The Fund will invest in both rated and unrated
bonds. Unrated bonds may be more speculative in nature than rated bonds; or

(2) GOVERNMENT SECURITIES. Securities of, or guaranteed by, the U.S.
government, its agencies or instrumentalities; or

(3) COMMERCIAL PAPER. Commercial paper of companies having, at the time
of purchase, an issue of outstanding debt securities rated as described above or
commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's").

-7-
<PAGE>

factors such as reduced creditworthiness of issuers, increased risks of default
and a more limited and less liquid secondary market, are subject to greater
volatility and risk of loss of income and principal than are higher-rated
securities. The Manager will attempt to reduce such risk through portfolio
diversification, credit analysis, and attention to trends in the economy,
industries and financial markets.

Although the Fund will constantly strive to attain its objective, there can
be no assurance that it will be attained. The objective of the Fund may not be
changed without shareholder approval.

For a description of the Fund's other investment policies, see OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS in this PROSPECTUS. PART B sets
forth other investment restrictions.

-8-
<PAGE>

RISK FACTORS

The Fund's assets may be invested primarily in bonds rated BBB or lower by
S&P or Baa or lower by Moody's and in unrated corporate bonds. See APPENDIX
A--RATINGS in this PROSPECTUS for more rating information. Investing in these
so-called "junk" or "high-yield" bonds entails certain risks, including the risk
of loss of principal, which may be greater than the risks involved in investment
grade bonds, and which should be considered by investors contemplating an
investment in the Fund. Such bonds are sometimes issued by companies whose
earnings at the time of issuance are less than the projected debt service on the
junk bonds. In addition to the considerations discussed elsewhere in this
PROSPECTUS, those risks include the following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET

Although the market for high-yield bonds has been in existence for many
years, including periods of economic downturns, the high-yield market grew
rapidly during the long economic expansion which took place in the United States
during the 1980s. During that economic expansion, the use of high-yield debt
securities to fund highly leveraged corporate acquisitions and restructurings
increased dramatically. As a result, the high-yield market grew substantially
during that economic expansion. Although experts disagree on the impact
recessionary periods have had and will have on the high-yield market, some
analysts believe a protracted economic downturn would severely disrupt the
market for high-yield bonds, would adversely affect the value of outstanding
bonds and would adversely affect the ability of high-yield issuers to repay
principal and interest. Those analysts cite volatility experienced in the
high-yield market in the past as evidence for their position. It is likely that
protracted periods of economic uncertainty would result in increased volatility
in the market prices of high-yield bonds, an increase in the number of
high-yield bond defaults and corresponding volatility in the Fund's net asset
value. At times in the past, uncertainty and volatility in the high-yield
market resulted in volatility in the Fund's net asset value.

REDEMPTIONS

LIQUIDITY AND VALUATION

The secondary market for high-yield securities is currently dominated by
institutional investors, including mutual funds and certain financial
institutions. There is generally no established retail secondary market for
high-yield securities. As a result, the secondary market for high-yield
securities is more limited and less liquid than other secondary securities
markets. The high-yield secondary market is particularly susceptible to
liquidity problems when the institutions that dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. The Fund's privately placed
high-yield securities are particularly susceptible to the liquidity and
valuation risks outlined above.

-9-
<PAGE>

CLASSES OF SHARES

The Distributor serves as the national distributor for the Fund. Shares of
the Class may be purchased directly by contacting the Fund or its agent or
through authorized investment dealers. All purchases of shares of the Class are
at net asset value. There is no front-end or contingent deferred sales charge.

INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES CONSIDERING PURCHASING SHARES OF THE CLASS
AS PART OF THEIR RETIREMENT PROGRAM SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.

Shares of the Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager, or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution
investing for its own account or for the account of its trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of the Class, except where the investment is part of a program
that requires payment to the financial institution of a Rule 12b-1 Plan fee; and
(e) registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.

DELCHESTER FUND A CLASS, DELCHESTER FUND B CLASS AND DELCHESTER FUND C CLASS

In addition to offering Delchester Fund Institutional Class, the Fund
also offers Delchester Fund A Class, Delchester Fund B Class and
Delchester Fund C Class, which are described in a separate prospectus. Shares
of Delchester Fund A Class, Delchester Fund B Class and Delchester Fund C
Class may be purchased through authorized investment dealers or directly by
contacting the Fund or the Distributor. Delchester Fund A Class carries a
front-end sales charge and has annual 12b-1 expenses equal to a maximum of
0.30%. The maximum front-end sales charge as a percentage of the offering price
is 4.75% and is reduced on certain transactions of $100,000 or more.
Delchester Fund B Class and Delchester Fund C Class have no front-end sales
charge but are subject to annual 12b-1 expenses equal to a maximum of 1%.
Shares of Delchester Fund B Class and Delchester Fund C Class and certain
shares of Delchester Fund A Class may be subject to a contingent deferred
sales charge upon redemption. To obtain a prospectus relating to such classes,
contact the Distributor by writing to the address or by calling the phone
numbers listed on the cover of this PROSPECTUS.

-10-
<PAGE>

HOW TO BUY SHARES

The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.

INVESTING DIRECTLY BY MAIL

1. INITIAL PURCHASES--An Investment Application, or in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to Delchester Fund Institutional
Class, to Delaware Group at 1818 Market Street, Philadelphia, PA 19103.

2. SUBSEQUENT PURCHASES--Additional purchases may be made at any time by
mailing a check payable to Delchester Fund Institutional Class. Your check
should be identified with your name(s) and account number.

INVESTING DIRECTLY BY WIRE

You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 1412893401 (include
your name(s) and your account number).

1. INITIAL PURCHASES--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement account, an
appropriate retirement plan application, for Delchester Fund Institutional
Class, to Delaware Group at 1818 Market Street, Philadelphia, PA 19103.

2. SUBSEQUENT PURCHASES--You may make additional investments at any time by
wiring funds to CoreStates Bank, N.A., as described above. You must advise your
Client Services Representative by telephone at 800-828-5052 prior to sending
your wire.

INVESTING BY EXCHANGE

If you have an investment in another mutual fund in the Delaware Group and
you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Fund. However, shares of
Delchester Fund B Class and Delchester Fund C Class and Class B Shares and
Class C Shares of the other funds in the Delaware Group offering such a class of
shares may not be exchanged into the Class. If you wish to open an account by
exchange, call your Client Services Representative at 800-828-5052 for more
information. See REDEMPTION AND EXCHANGE for more complete information
concerning your exchange privileges.

INVESTING THROUGH YOUR INVESTMENT DEALER

You can make a purchase of Fund shares through most investment dealers who,
as part of the service they provide, must transmit orders promptly to the Fund.
They may charge for this service.

PURCHASE PRICE AND EFFECTIVE DATE

The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.

The effective date of a purchase is the date the order is received by the
Fund, its agent or designee. The effective date of a direct purchase is the day
your wire, electronic transfer or check is received, unless it is received after
the time the share price is determined, as noted above. Purchase orders
received after such time will be effective the next business day.

THE CONDITIONS OF YOUR PURCHASE

-11-
<PAGE>

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.

-12-
<PAGE>

REDEMPTION AND EXCHANGE

REDEMPTION AND EXCHANGE REQUESTS MADE ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES SHOULD THEREFORE CONTACT THEIR EMPLOYER FOR
DETAILS.

Your shares will be redeemed or exchanged based on the net asset value next
determined after the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined will be processed on the next business day.
See PURCHASE PRICE AND EFFECTIVE DATE under HOW TO BUY SHARES. Except as
otherwise noted below, for a redemption request to be in "good order," you must
provide your account number, account registration, and the total number of
shares or dollar amount of the transaction. With regard to exchanges, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.

Shares of the Class may be exchanged into any other Delaware Group mutual
fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of
the fund being acquired are in a state where that fund is registered. If
exchanges are made into other shares that are eligible for purchase only by
those permitted to purchase shares of the Class, such exchange will be exchanged
at net asset value. Shares of the Class may not be exchanged into Class B
Shares or Class C Shares of the funds in the Delaware Group. The Fund may
suspend, terminate or amend the terms of the exchange privilege upon 60 days'
written notice to shareholders.

Various redemption and exchange methods are outlined below. No fee is
charged by the Fund or the Distributor for redeeming or exchanging your shares,
although in the case of an exchange, a sales charge may apply. You may also
have your investment dealer arrange to have your shares redeemed or exchanged.
Your investment dealer may charge for this service.

WRITTEN REDEMPTION AND EXCHANGE

You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your shares or to request an exchange of any or all of
your shares into another mutual fund in the Delaware Group, subject to the same
conditions and limitations as other exchanges noted above. The request must be
signed by all owners of the account or your investment dealer of record.

-13-
<PAGE>

For redemptions of more than $50,000, or when the proceeds are not sent to
the shareholder(s) at the address of record, the Fund requires a signature by
all owners of the account and may require a signature guarantee. Each signature
guarantee must be supplied by an eligible guarantor institution. The Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.

You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.

TELEPHONE REDEMPTION AND EXCHANGE

To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.

The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are automatically
provided unless you notify the Fund in writing that you do not wish to have such
services available with respect to your account. The Fund reserves the right
to modify, terminate or suspend these procedures upon 60 days' written notice to
shareholders. It may be difficult to reach the Fund by telephone during periods
when market or economic conditions lead to an unusually large volume of
telephone requests.

Neither the Fund nor its Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.

TELEPHONE REDEMPTION-CHECK TO YOUR ADDRESS OF RECORD

You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request.

TELEPHONE REDEMPTION-PROCEEDS TO YOUR BANK

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your redemption request to your predesignated bank account. There
are no fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call your Client Services Representative
prior to the time the net asset value is determined, as noted above.

TELEPHONE EXCHANGE
-14-
<PAGE>

You or your investment dealer of record can exchange shares into any fund
in the Delaware Group under the same registration. As with the written exchange
service, telephone exchanges are subject to the same conditions and limitations
as other exchanges noted above. Telephone exchanges may be subject to
limitations as to amounts or frequency.

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<PAGE>

DIVIDENDS AND DISTRIBUTIONS

The Fund declares a dividend to all shareholders of record at the time the
net asset value per share is determined. See PURCHASE PRICE AND EFFECTIVE DATE
under HOW TO BUY SHARES. Thus, when redeeming shares, dividends continue to be
credited up to and including the date of redemption.

Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if the Fund is given prior notice of a Federal Funds
wire and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.

Each class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that the Class will not incur distribution fees
under the Rule 12b-1 Plans which apply to Delchester Fund A Class,
Delchester Fund B Class and Delchester Fund C Class.

The Fund's dividends are declared daily and paid monthly. Distributions
from net realized securities profits, if any, will be distributed twice a year.
The first payment normally would be made during the first quarter of the next
fiscal year. The second payment would be made near the end of the calendar year
to comply with certain requirements of the Internal Revenue Code (the "Code").
Both dividends and distributions, if any, are automatically reinvested in your
account at net asset value.

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<PAGE>

TAXES

The tax discussion set forth below is included for general information
only. Investors should contact their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, even though received in additional shares.
No portion of the Fund's distributions will be eligible for the
dividends-received deduction for corporations.

Distributions paid by the Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. The Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in the Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.

See TAXES in PART B for additional information on tax matters relating to
the Fund and its shareholders.

-17-
<PAGE>

CALCULATION OF NET ASSET VALUE PER SHARE

The purchase and redemption price of Class shares is the net asset value
("NAV") per share of Class shares next computed after the order is received.
The NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The NAV is computed by adding the value of all securities and other assets
in the portfolio, deducting any liabilities (expenses and fees are accrued
daily) and dividing by the number of shares outstanding. Debt securities are
priced on the basis of valuations provided by an independent pricing service
using methods approved by the Fund's Board of Directors. Short-term investments
having a maturity of less than 60 days are valued at amortized cost, which
approximates market value. All other securities are valued at their fair value
as determined in good faith and in a method approved by Income Funds, Inc.'s
Board of Directors.

The net asset values of all outstanding shares of each class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under Income Funds,
Inc.'s 12b-1 Plans and Delchester Fund A, B and C Classes alone will bear the
12b-1 Plan fees payable under their respective Plans. Due to the specific
distribution expenses and other costs that may be allocable to each class, the
dividends paid to each class of the Fund may vary. However, the NAV per share
of each class is expected to be equivalent.

-18-
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER

The Manager furnishes investment management services to the Fund.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1997, the Manager and its affiliates
in the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,844,101,000) and
investment company (approximately $15,869,009,000) accounts. The directors of
Income Funds, Inc. annually review fees paid to the Manager.

Paul A. Matlack and Gerald T. Nichols have primary responsibility for
making day-to-day investment decisions for the Fund. Mr. Matlack and Mr.
Nichols have been members of the Fund's management team since 1990, and were
named co-managers of the Fund in January 1993. A CFA charterholder, Mr.
Matlack is a graduate of the University of Pennsylvania with an MBA in Finance
from George Washington University. He began his career at Mellon Bank as a
credit specialist, and later served as a corporate loan officer for Mellon Bank
and then Provident National Bank.

In making investment decisions for the Fund, Mr. Matlack and Mr. Nichols
regularly consult with Paul E. Suckow. Mr. Suckow is Executive Vice
President/Chief Investment Officer, Fixed Income of Income Funds, Inc. A CFA
charterholder, he is a graduate of Bradley University with an MBA from Western
Illinois University. Mr. Suckow was a fixed income portfolio manager at the
Delaware Group from 1981 to 1985. He returned to the Delaware Group in 1993
after eight years with Oppenheimer Management Corporation where he served as
Executive Vice President and Director of Fixed Income.

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<PAGE>

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 150%. A turnover rate of 100% occurs,
for example, when all the investments in the Fund's portfolio at the beginning
of the year were replaced by the end of the year. For the past two fiscal
years, the Fund's portfolio turnover rates were 108% for 1996 and 154% for
1997.

PERFORMANCE INFORMATION

From time to time, the Fund may quote yield or total return performance of
the Class in advertising and other types of literature.

The current yield for the Class will be calculated by dividing the
annualized net investment income earned by the Class during a recent 30-day
period by the net asset value per share on the last day of the period. The
yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.

Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions. Each presentation will include the
average annual total return for one-, five- and ten-year (or life-of-fund, if
applicable) periods. The Fund may also advertise aggregate and average total
return information concerning the Class over additional periods of time.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

STATEMENTS AND CONFIRMATIONS

You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling your Client Services Representative.

FINANCIAL INFORMATION ABOUT THE FUND

DISTRIBUTION AND SERVICE

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<PAGE>

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an agreement dated September 30, 1996. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a separate Fund
Accounting Agreement. Certain recordkeeping services and other shareholder
services that otherwise would be performed by the Transfer Agent may be
performed by certain other entities and the Transfer Agent may elect to enter
into an agreement to pay such other entities for their services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
provided as part of retirement plan and administration service packages. These
fees are based on the number of participants in the plan and the various
services selected. Fees will be quoted upon request and are subject to change.

The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

EXPENSES

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983. Income Funds, Inc. was previously organized as a
Delaware corporation in 1970. In additio n to the Fund, Income Funds, Inc.
presently offers two other series of shares, the Strategic Income Fund series
and the High-Yield Opportunities Fund series.

Fund shares have a par value of $1.00, equal voting rights, except as noted
below, and are equal in all other respects.

Income Funds, Inc. shares have noncumulative voting rights which means
that the holders of more than 50% of Income Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Maryland law, Income Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Income
Funds, Inc.'s outstanding shares may request that a special meeting be called to
consider the removal of a director.

In addition to the Class, the Fund also offers Delchester Fund A Class,
Delchester Fund B Class and Delchester Fund C Class which represent
proportionate interests in the assets of the Fund and have the same voting and
other rights and preferences as the Class, except that shares of the Class are
not subject to, and may not vote on matters affecting, the Distribution Plans
under Rule 12b-1 relating to Delchester Fund A Class, Delchester Fund B
Class and Delchester Fund C Class.

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<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

RULE 144A SECURITIES

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

PORTFOLIO LOAN TRANSACTIONS

The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other security
transactions.

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<PAGE>

APPENDIX A - RATINGS

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio

United States Treasury Obligations 12.77%
Aaa/AAA N/A
Aa/AA N/A
A/A N/A
Baa/BBB N/A
Ba/BB 8.17%
B/B 76.17%
Caa/CCC 1.26%
Not Rated/Other 1.63%

The Fund tends to invest primarily in bonds rated Ba or B by Moody's or
similarly rated by S&P or another rating agency. During the fiscal year ended
July 31, 1997, the Fund increased its exposure to bonds rated B from 74.50%
to 76.10% and reduced its exposure to bonds rated Ba from 12.58% to 8.17%.
The Fund tends to emphasize B-rated bonds during periods of economic expansion.
During periods of economic slowdown, the Fund tends to emphasize bonds rated Ba,
which are generally considered to be of higher quality but lower yielding than
bonds rated B. In response to continuting signs of economic growth during
1997, the Fund's managers increased the Fund's holdings of B-rated bonds in an
effort to increase investment income while maintaining a prudent risk profile,
consistent with their view of economic and market conditions at that time.

GENERAL RATING INFORMATION

BONDS
Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small; Caa--are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest;

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<PAGE>

Ca--represent obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings; C--the lowest rated
class of bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

COMMERCIAL PAPER

Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength;
P-2--second highest grade possessing less relative strength than the highest
grade.

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<PAGE>

For more information, contact Delaware Group at 800-828-5052.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

- --------------------------------------------------------------------------------

DELCHESTER FUND INSTITUTIONAL

- --------------------------------------------------------------------------------

PROSPECTUS

- --------------------------------------------------------------------------------

SEPTEMBER 29, 1997

DELAWARE
GROUP
_____________

<PAGE>

STRATEGIC INCOME FUND A CLASS SHARES
STRATEGIC INCOME FUND B CLASS SHARES PROSPECTUS
STRATEGIC INCOME FUND C CLASS SHARES SEPTEMBER 29, 1997

1818 MARKET STREET, PHILADELPHIA, PA 19103

FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640

INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918

DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500

REPRESENTATIVES OF FINANCIAL INSTITUTIONS:
NATIONWIDE 800-659-2265

This PROSPECTUS describes shares of Strategic Income Fund series (the
"Fund") of Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a
professionally-managed mutual fund of the series type. The Fund's objective is
to seek to provide investors with high current income and total return.

THIS FUND MAY INVEST UP TO 60% OF ITS ASSETS IN HIGH-YIELDING, LOWER-RATED
OR UNRATED FIXED-INCOME SECURITIES ISSUED BY U.S. COMPANIES, COMMONLY KNOWN AS
"JUNK BONDS." IN ADDITION, THE FUND MAY INVEST A PORTION OF ITS ASSETS IN
FIXED-INCOME SECURITIES OF ISSUERS IN FOREIGN COUNTRIES AND DENOMINATED IN
FOREIGN CURRENCIES AND IN U.S. EQUITY SECURITIES, WHICH MAY BE UNRATED OR RATED
BELOW INVESTMENT GRADE. JUNK BONDS AND LOWER RATED SECURITIES INVOLVE GREATER
RISKS, INCLUDING DEFAULT RISKS, THAN HIGHER RATED SECURITIES. PURCHASERS SHOULD
CAREFULLY ASSESS THESE RISKS BEFORE INVESTING IN THIS FUND. SEE INVESTMENT
OBJECTIVE AND POLICIES, SPECIAL RISK CONSIDERATIONS AND APPENDIX C - RATINGS.

The Fund offers Strategic Income Fund A Class ("Class A Shares"),
Strategic Income Fund B Class ("Class B Shares") and Strategic Income Fund C
Class ("Class C Shares") (individually, a "Class" and collectively, the
"Classes").

This PROSPECTUS relates only to the classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART
B" of Income Funds, Inc.'s registration statement), dated September 29, 1997,
as it may be amended from time to time, contains additional information about
the Fund and has been filed with the Securities and Exchange Commission. PART B
is incorporated by reference into this PROSPECTUS and is available, without
charge, by writing to Delaware Distributors, L.P. at the above address or by
calling the above numbers. The Fund's financial statements appear in its ANNUAL
REPORT, which will accompany any response to requests for PART B.

<PAGE>

The Fund also offers Strategic Income Fund Institutional Class, which is
available for purchase only by certain investors. A prospectus for Strategic
Income Fund Institutional Class can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling the above numbers.

TABLE OF CONTENTS

COVER PAGE
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND DISTRIBUTIONS
INVESTMENT OBJECTIVE AND POLICIES TAXES
SUITABILITY CALCULATION OF OFFERING PRICE AND
INVESTMENT STRATEGY NET ASSET VALUE PER SHARE
SPECIAL RISK CONSIDERATIONS MANAGEMENT OF THE FUND
HIGH-YIELD SECURITIES OTHER INVESTMENT POLICIES AND
FOREIGN SECURITIES RISK CONSIDERATIONS
THE DELAWARE DIFFERENCE APPENDIX A -- INVESTMENT ILLUSTRATIONS
PLANS AND SERVICES APPENDIX B -- CLASSES OFFERED
RETIREMENT PLANNING APPENDIX C -- RATINGS
CLASSES OF SHARES
HOW TO BUY SHARES

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<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek to provide investors with
high current income and total return. The Fund seeks to achieve its objective
by using a multi-sector investment approach, investing principally in three
sectors of the fixed-income securities markets: high-yield, higher risk
securities; investment grade fixed-income securities; and foreign government and
other foreign fixed-income securities. In addition, the Fund may invest in U.S.
equity securities. For further details, see INVESTMENT OBJECTIVE AND POLICIES,
SPECIAL RISK CONSIDERATIONS and OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS.

RISK FACTORS

Prospective investors should consider the following:

1. The Fund may invest up to 60% of its assets in high-yield, higher risk
fixed-income securities issued by U.S. companies ("junk bonds"). In addition,
a portion of the Fund's foreign fixed-income securities and U.S. equity
securities may be rated below investment grade. Such securities may increase
the risks of an investment in this Fund. See HIGH-YIELD SECURITIES under
SPECIAL RISK CONSIDERATIONS.

2. Investing in securities of non-United States companies which are
generally denominated in foreign currencies and the utilization of forward
foreign currency exchange contracts involve certain risk and opportunity
considerations not typically associated with investing in United States
companies. See SPECIAL RISK CONSIDERATIONS and OTHER INVESTMENT POLICIES AND
RISK CONSIDERATIONS.

3. The Fund has the ability to engage in options transactions for hedging
purposes to counterbalance portfolio volatility. While the Fund does not engage
in options transactions for speculative purposes, there are risks which result
from the use of options, and an investor should carefully review the
descriptions of these risks in this PROSPECTUS. Certain options may be
considered to be derivative securities. See OPTIONS under OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS.

4. The Fund may invest up to 15% of its net assets in issuers located or
operating in markets of emerging countries. The securities in these countries
may be subject to a greater degree of economic, political and social instability
than is the case in the United States, Western European and other developed
markets. See SPECIAL RISK CONSIDERATIONS.

INVESTMENT MANAGER, SUB-ADVISER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager has entered into a
sub-advisory agreement with Delaware International Advisers Ltd. (the
"Sub-Adviser"), an affiliate of the Manager, with respect to the management of
the Fund's investments in foreign government and other foreign fixed-income
securities. The Manager and the Sub-Adviser also provide investment management
services to certain other funds in the Delaware Group. Delaware Distributors,
L.P. (the "Distributor") is the national distributor for the Fund and for all of
the other mutual funds in the Delaware Group. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing,
accounting services and transfer agent for the Fund and for all of the other
mutual funds in the Delaware Group. See SUMMARY OF EXPENSES and MANAGEMENT OF
THE FUND for further information regarding the Manager and the Sub-Adviser and
the fees payable under the Fund's Investment Management and Sub-Advisory
Agreements.

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<PAGE>

SALES CHARGES

The price of Class A Shares includes a maximum front-end sales charge of
4.75% of the offering price, which based on the net asset value per share of
Class A Shares as of the end of Income Funds, Inc.'s most recent fiscal year is
equivalent to 4.91% of the amount invested. The front-end sales charge is
reduced on certain transactions of at least $100,000 but under $1,000,000. For
purchases of $1,000,000 or more, the front-end sales charge is eliminated
(subject to a CDSC of 1% if shares are redeemed within 12 months of purchase if
in connection with such purchase a dealer commission was paid). Class A Shares
are subject to annual 12b-1 Plan expenses for the life of the investment.

See CLASSES OF SHARES and DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT
OF THE FUND.

PURCHASE AMOUNTS

Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must be at least $100.

Each purchase of Class B Shares is subject to a maximum purchase limitation
of $250,000. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
for Class B Shares and Class C Shares by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See HOW TO
BUY SHARES.

REDEMPTION AND EXCHANGE

-4-
<PAGE>

OPEN-END INVESTMENT COMPANY

-5-
<PAGE>

SUMMARY OF EXPENSES

A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:

CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) . . . . . . . . . . . . 4.75% None None

Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . . . . . None None None

Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption proceeds,
as applicable) . . . . . . . . . . . . . . None* 4.00%* 1.00%*

Redemption Fees. . . . . . . . . . . . . . . None** None** None**

ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF CLASS A CLASS B CLASS C
AVERAGE DAILY NET ASSETS) SHARES SHARES SHARES

Management Fees (after voluntary waivers). . 0.00% 0.00% 0.00%

12b-1 Plan Expenses (including service fees) . . 0.25%+ 1.00%+ 1.00%+

Other Operating Expenses++
(after voluntary payments) . . . . . . . . 0.75% 0.75% 0.75%

Total Operating Expenses++
(after voluntary waivers and payments). . 1.00% 1.75% 1.75%

*Class A purchases of $1,000,000 or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class C Shares are subject to a
CDSC of 1% if the shares are redeemed within 12 months of purchase. See
CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES
PURCHASED AT

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<PAGE>

NET ASSET VALUE under REDEMPTION AND EXCHANGE; DEFERRED SALES CHARGE ALTERNATIVE
- - CLASS B SHARES and LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES under
CLASSES OF SHARES.

**CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.

+Class A Shares, Class B Shares and Class C Shares are subject to separate 12b-1
Plans. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules of the National Association
of Securities Dealers, Inc. (the "NASD"). The annual 12b-1 Plan expenses for
Class A Shares have been set by the Board of Directors at 0.25% of the average
daily net assets of such Class. The maximum annual 12b-1 Plan expenses permitted
under the 12b-1 Plan for Class A Shares are 0.30% of the average daily net
assets of such Class. See DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF
THE FUND.

++The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total Operating
Expenses of each Class of the Fund, excluding each such Class' 12b-1 fees, do
not exceed 0.75%, during the commencement of the public offering of the Classes
through December 3, 1997. If the voluntary expense waivers were not in effect
the Total Operating Expenses, as a percentage of average daily net assets, would
have been 2.12%, 2.87%, and 2.87%, respectively, for Class A Shares, Class B
Shares and Class C Shares, reflecting management fees of 0.65% for each Class.

For expense information about the Strategic Income Fund Institutional
Class of shares, see the separate prospectus relating to that class.

The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver
of the management fee and/or other payments of expenses by the Manager as
discussed in this PROSPECTUS.

ASSUMING REDEMPTION ASSUMING NO REDEMPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES $57(1) $78 $100 $164 $57 $78 $100 $164
CLASS B SHARES(2) $58 $85 $115 $186 $18 $55 $95 $186
CLASS C SHARES $28 $55 $95 $206 $18 $55 $95 $206
</TABLE>

-7-
<PAGE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in each Class will
bear directly or indirectly.

-8-
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
Strategic Income Fund of Delaware Group Income Funds, Inc. and have been audited
by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes, and the report of
Ernst & Young LLP, all of which are incorporated by reference into PART B.
Further information about the Fund's performance is contained in its ANNUAL
REPORT to shareholders. A copy of the Fund's ANNUAL REPORT (including the
report of Ernst & Young LLP) may be obtained from Income Funds, Inc. upon
request at no charge.

- --------------------------------------------------------------------------------

-9-
<PAGE>

Strategic Strategic Strategic
Income Fund Income Fund Income Fund
A Class B Class C Class

For the For the For the
period period period
10/1/96(1) 10/1/96(1) 10/1/96(1)
through through through
7/31/97 7/31/97 7/31/97

<S> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . $5.500 $5.500 $5.500
Income From Investment Operations
Net Investment Income 0.3373 0.3076 0.3131
Net Gains (Losses) on Securities
(both realized and unrealized) . . . . . . . 0.2037 0.2036 0.1981

Total From Investment Operations. . . . . 0.5410 0.5112 0.5112

Less Distributions
Dividends from Net Investment Income . . . . . . (0.3410) (0.3112) (0.3112)
Distributions from Capital Gains . . . . . . . . none none none
Total Distributions. . . . . . . . . . . . . (0.3410) (0.3112) (0.3112)
Net Asset Value, End of Period . . . . . . . . . $5.700 $5.700 $5.700

Total Return . . . . . . . . . . . . . . . . . . 10.11%(2)(3) 9.53%(2)(3) 9.53%(2)(3)

Ratios/Supplemental Data
Net Assets, End of Period (000's omitted). . . . $9,144 $6,878 $1,944
Ratio of Expenses to Average Daily Net Assets. . 1.00% 1.75% 1.75%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation. . . . . . . . . 2.12% 2.87% 2.87%
Ratio of Net Investment Income to Average
Daily Net Assets . . . . . . . . . . . . . . 7.76% 7.01% 7.01%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitation. . . . . . . . . 6.64% 5.89% 5.89%
Portfolio Turnover Rate. . . . . . . . . . . . . 183% 183% 183%
</TABLE>

(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) Does not reflect maximum sales charge of 4.75%, nor the 1% Limited CDSC
that would apply in the event of certain redemptions within 12 months of
purchase for Class A Shares. Does not reflect contingent deferred sales charge
which varies from 1%-4% depending upon the holding period for Class B Shares and
1% for Class C Shares for 12 months from the date of purchase.
(3) Total return reflects the expense limitations referenced under SUMMARY OF
EXPENSES in the PROSPECTUS.

-10-
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

SUITABILITY

The Fund may be suitable for the investor interested in high current
income and total return which, in part, is derived from such income. The net
asset value per share of each Class may fluctuate in response to the condition
of individual companies and general market and economic conditions and, as a
result, the Fund is not appropriate for a short-term investor. The Fund cannot
assure a specific rate of return or that principal will be protected. However,
through the cautious selection and supervision of its portfolio, the Manager and
the Sub-Adviser will strive to achieve the Fund's objective.

The types of securities in which the Fund may invest are subject to
price fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated,
lower-rated and certain restricted securities have the potential for higher
yields, they are more speculative and increase the credit risk of the Fund's
portfolio. Changes in the market value of portfolio securities will not affect
interest income from such securities, but will be reflected in a Class' net
asset value. In addition, investments in foreign fixed-income securities
involve special risks, including those related to currency fluctuations, as well
as to political, economic and social situations different from and potentially
more volatile than those in the United States. Investors should be willing to
accept the risks, including the risk of net asset value fluctuations, associated
with investing in these types of securities. See SPECIAL RISK CONSIDERATIONS
and OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS for a complete discussion
of the risk factors affecting the Fund's portfolio securities.

Ownership of Strategic Income Fund shares can reduce the bookkeeping
and administrative inconveniences that would be connected with direct purchases
of the types of securities in which the Fund invests.

INVESTMENT STRATEGY

The objective of the Fund is to seek to provide investors with high
current income and total return. The Manager will seek to achieve this
objective by allocating the Fund's investments principally among the following
three sectors of the fixed-income securities markets:

- a HIGH-YIELD SECTOR, consisting of high-yielding, lower-rated or
unrated fixed-income securities issued by U.S. companies;

- an INVESTMENT GRADE SECTOR, consisting of investment grade debt
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or by U.S. companies; and

- an INTERNATIONAL SECTOR, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other
fixed-income securities of issuers in foreign countries and
denominated in foreign currencies.

-11-
<PAGE>

the three sectors. The Manager will periodically reallocate the Fund's assets
as it deems necessary, and as little as 20% and as much as 60% of the Fund's
assets among sectors may be invested in each fixed-income sector. In addition,
the Fund may invest up to 10% of its assets in U.S. equity securities.

DOMESTIC HIGH-YIELD SECTOR

The Manager will invest the Fund's assets that are allocated to the
domestic high-yield sector primarily in those securities having a liberal and
consistent yield and those tending to reduce the risk of market fluctuations.
The Fund may invest in domestic corporate debt obligations, including, corporate
notes (including convertible notes), units consisting of bonds with stock or
warrants to buy stock attached, debentures, convertible debentures, zero coupon
bonds and pay-in-kind securities ("PIKs"). See ZERO COUPON BONDS AND
PAY-IN-KIND BONDS under OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS. The
Fund may also purchase preferred stock and convertible preferred stock.

The Fund will invest in both rated and unrated bonds. The rated bonds
that the Fund may purchase in this sector of its portfolio will generally be
rated BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch"), Ba or lower by Moody's Investors Service, Inc.
("Moody's"), or similarly rated by another nationally recognized statistical
rating organization. SEE APPENDIX C - RATINGS in this PROSPECTUS for more
rating information and HIGH-YIELD SECURITIES under SPECIAL RISK CONSIDERATIONS
for a description of the risks associated with investing in lower-rated
fixed-income securities. Unrated bonds may be more speculative in nature than
rated bonds.

INVESTMENT GRADE SECTOR

In managing the Fund's assets allocated to the investment grade
sector, the Manager will invest primarily in debt obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities and by U.S.
corporations. The corporate debt obligations in which the Fund may invest
include bonds, notes, debentures and commercial paper of U.S. companies.

The U.S. government securities in which the Fund may invest include a
variety of securities which are issued or guaranteed as to the payment of
principal and interest by the U.S. government, and by various agencies or
instrumentalities which have been established or sponsored by the U.S.
government. See U.S. GOVERNMENT SECURITIES under OTHER INVESTMENT POLICIES AND
RISK CONSIDERATIONS for a discussion of these types of securities.

The investment grade sector of the Fund's portfolio may also be
invested in mortgage-backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or by government sponsored
corporations. See MORTGAGE-BACKED SECURITIES under OTHER INVESTMENT POLICIES
AND RISK CONSIDERATIONS for a discussion of these types of securities. Other
mortgage-backed securities in which the Fund may invest are issued by certain
private, non-government entities. Two principal types of mortgage-backed
securities are collateralized mortgage obligations (CMOs) and real estate
mortgage investment conduits (REMICs). See CMOS AND REMICS under OTHER
INVESTMENT POLICES AND RISK CONSIDERATIONS for a discussion of these types of
mortgage-backed securities.

Subject to the quality limitations set forth in this PROSPECTUS, the
Fund may also invest in securities which are backed by assets such as
receivables on home equity and credit card loans, and receivables regarding
automobile, mobile home, recreational vehicle and other loans, wholesale dealer
floor plans and leases. See ASSET-BACKED SECURITIES under OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS. The Fund

-12-
<PAGE>

may also invest in futures contracts and options on futures contracts subject to
certain limitations. See FUTURES under OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS.

Securities purchased by the Fund within the investment grade sector
will be rated in one of the four highest rating categories or will be unrated
securities that are of comparable quality as determined by the Manager. The
four highest rating categories are AAA, AA, A or BBB by S&P and Fitch, or Aaa,
Aa, A or Baa by Moody's. Debt securities within the top three categories
comprise what are known as high-grade bonds and are regarded as having a strong
capacity to pay principal and interest. Securities in the fourth category,
known as medium-grade bonds, are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to adverse economic
conditions and speculative characteristics. See APPENDIX C - RATINGS in this
PROSPECTUS for more rating information.

INTERNATIONAL SECTOR

The Sub-Adviser will invest the assets of the Fund that are allocated
to the international sector primarily in fixed-income securities of issuers
organized or having a majority of their assets or deriving a majority of their
operating income in foreign countries. These fixed-income securities include
foreign government securities, debt obligations of foreign companies, and
securities issued by supranational entities.

A supranational entity is an entity established or financially
supported by the national governments of one or more countries to promote
reconstruction or development. Examples of supranational entities include,
among others, the International Bank for Reconstruction and Development (more
commonly known as the World Bank), the European Economic Community, the European
Coal and Steel Community, the European Investment Bank, the Inter-Development
Bank, the Export-Import Bank and the Asian Development Bank.

The Fund may invest in sponsored and unsponsored American Depositary
Receipts, European Depositary Receipts, or Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. "Sponsored" Depositary Receipts are issued jointly by
the issuer of the underlying security and a depository, and "unsponsored"
Depositary Receipts are issued without the participation of the issuer of the
deposited security. The Fund may also invest in Brady Bonds, which are
described more fully under FOREIGN SECURITIES in the SPECIAL RISK CONSIDERATIONS
section of this PROSPECTUS. The Fund may also invest in zero coupon bonds and
may purchase shares of other investment companies. See ZERO COUPON BONDS AND
PAY-IN-KIND BONDS and INVESTMENT COMPANY SECURITIES under OTHER INVESTMENT
POLICES AND RISK CONSIDERATIONS.

The Fund may invest in securities issued in any currency and may hold
foreign currencies. Securities of issuers within a given country may be
denominated in the currency of another country or in multinational currency
units, such as the European Currency Unit. The Fund will, from time to time,
purchase or sell foreign currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of Fund transactions and to
minimize currency value fluctuations. See OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS for a further description of the Fund's foreign currency
transactions.

While the Fund may purchase securities of issuers in any foreign
country, developed and underdeveloped, no more than 15% of the Fund's assets may
be invested in direct obligations of issuers located in emerging market
countries. See EMERGING MARKET SECURITIES under SPECIAL RISK CONSIDERATIONS.

-13-
<PAGE>

or lower by Moody's, or similarly rated by another nationally recognized
statistical rating organization. See APPENDIX C - RATINGS in this PROSPECTUS
for more rating information and FOREIGN SECURITIES and HIGH-YIELD SECURITIES
under SPECIAL RISK CONSIDERATIONS for a description of the risks associated with
investing in foreign securities and lower-rated fixed-income securities.

EQUITY SECTOR

Up to 10% of the Fund's assets may be invested in U.S. equity
securities. Such investments may include common stocks, preferred stocks
(including adjustable rate preferred stocks) and other equity securities, such
as convertible securities and warrants, which may be used to create other
permissible investments. Such investments must be consistent with the Fund's
objective of high current income and total return. In addition, the Fund may
invest in shares or convertible bonds of real estate investment trusts
("REITs"). See REITs under SPECIAL RISK CONSIDERATIONS for a discussion of
these types of securities.

In managing the Fund's assets allocated to the U.S. equity sector, the
Manager may invest in securities that are rated and unrated. The securities may
include those rated BBB or lower by S&P or Fitch, Baa or lower by Moody's or
similarly rated by another nationally recognized statistical rating
organization. See APPENDIX C -RATINGS in this PROSPECTUS for more rating
information and HIGH-YIELD SECURITIES under SPECIAL RISK CONSIDERATIONS for a
description of the risks associated with investing in lower-rated securities.

* * *

For a description of the Fund's other investment policies and for a
further description of some of the policies described above, see OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS.

In unusual market conditions, in order to meet redemption requests,
for temporary defensive purposes, and pending investment, the Fund may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. The Fund may invest in repurchase agreements, but it normally does
so only to invest cash balances. The Fund is permitted to borrow money.

Although the Fund will constantly strive to attain its objective,
there can be no assurance that it will be attained.

The Fund's investment objective, and its designation as an open-end
investment company and as a diversified fund, may not be changed unless
authorized by the vote of a majority of the Fund's outstanding voting
securities. A "majority vote of the outstanding voting securities" is the vote
by the holders of the lesser of a) 67% or more of the Fund's voting securities
present in person or represented by proxy if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy; or b) more than 50% of the outstanding voting securities. PART B lists
other more specific investment restrictions of the Fund which may not be changed
without a majority shareholder vote.

The remaining investment policies of the Fund not identified above or
in PART B as fundamental are not fundamental and may be changed by the Board of
Directors of Income Funds, Inc. without a shareholder vote.

-14-
<PAGE>

SPECIAL RISK CONSIDERATIONS

GENERALLY

The Fund invests a substantial portion of its assets in fixed-income
securities. The market values of fixed-income securities generally fall when
interest rates rise and, conversely, rise when interest rates fall. Lower-rated
and unrated fixed-income securities tend to reflect short-term corporate and
market developments to a greater extent than higher-rated fixed-income
securities, which react primarily to fluctuations in the general level of
interest rates. These lower-rated or unrated securities generally have higher
yields, but, as a result of factors such as reduced creditworthiness of issuers,
increased risk of default and a more limited and less liquid secondary market,
are subject to greater volatility and risk of loss of income and principal than
are higher-rated securities. The Manager will attempt to reduce such risk
through sector allocation, portfolio diversification, credit analysis, and
attention to trends in the economy, industries and financial markets.

HIGH-YIELD SECURITIES

The Fund may invest a significant portion of its assets in bonds and
other securities rated BBB or lower by S&P or Fitch, Baa or lower by Moody's, or
similarly rated by another rating organization, and in unrated corporate bonds.
See APPENDIX C - RATINGS in this PROSPECTUS for more rating information.
Investing in these so-called "junk" bonds or "high-yield" securities entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Fund. High-yield
bonds are sometimes issued by companies whose earnings at the time of issuance
are less than the projected debt service on the junk bonds. In addition to the
considerations discussed elsewhere in this PROSPECTUS, those risks include the
following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long economic
expansion which took place in the United States during the 1980s. During that
economic expansion, the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings increased dramatically. As
a result, the high-yield market grew substantially during that economic
expansion. Although experts disagree on the impact recessionary periods have
had and will have on the high-yield market, some analysts believe a protracted
economic downturn would severely disrupt the market for high-yield bonds, would
adversely affect the value of outstanding bonds and would adversely affect the
ability of high-yield issuers to repay principal and interest. Those analysts
cite volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in a Class' net asset value.

REDEMPTIONS. If, as a result of volatility in the high-yield market or other
factors, the Fund experiences substantial net redemptions of the Fund's shares
for a sustained period of time (i.e., more shares of the Fund are redeemed than
are purchased), the Fund may be required to sell certain of its high-yield
securities without regard to the investment merits of the securities to be sold.
If the Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Fund will decrease and the Fund's expense
ratios may increase.

-15-
<PAGE>

susceptible to liquidity problems when the institutions that dominate it
temporarily cease buying bonds for regulatory, financial or other reasons, such
as the savings and loan crisis. A less liquid secondary market may have an
adverse effect on the Fund's ability to dispose of particular issues, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the creditworthiness of the issuer.
In addition, a less liquid secondary market makes it more difficult for the Fund
to obtain precise valuations of the high-yield securities in its portfolio.
During periods involving such liquidity problems, judgment plays a greater role
in valuing high-yield securities than is normally the case. The secondary
market for high-yield securities is also generally considered to be more likely
to be disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. The privately placed high-yield
securities that the Fund may purchase are particularly susceptible to the
liquidity and valuation risks outlined above.

FOREIGN SECURITIES

The Fund has the ability to purchase debt securities in any foreign
country. Investors should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign nations.
These risks are in addition to the usual risks inherent in domestic investments.
There is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations.

In addition, in many countries, there is substantially less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Consequently, financial data about foreign companies may not
accurately reflect the real condition of those issuers and securities markets.

Further, the Fund may encounter difficulty or be unable to pursue
legal remedies and obtain judgments in foreign courts. Commission rates on
securities transactions in foreign countries, which are sometimes fixed rather
than subject to negotiation as in the United States, are likely to be higher.
Further, the settlement period of securities transactions in foreign markets may
be longer than in domestic markets, and may be subject to administrative
uncertainties. In many foreign countries, there is less government supervision
and regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States, and capital requirements for
brokerage firms are generally lower. The foreign securities markets of many of
the countries in which the Fund may invest may also be smaller, less liquid and
subject to greater price volatility than those in the United States.

-16-
<PAGE>

investment income and capital from several foreign countries is restricted and
controlled under certain regulations, including, in some cases, the need for
certain governmental consents. Countries such as those in which the Fund may
invest have historically experienced and may continue to experience,
substantial, and in some periods extremely high rates of inflation for many
years, high interest rates, exchange rate fluctuations or currency depreciation,
large amounts of external debt, balance of payments and trade difficulties and
extreme poverty and unemployment. Other factors which may influence the ability
or willingness to service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the economy as a
whole, its government's policy towards the International Monetary Fund, the
World Bank and other international agencies and the political constraints to
which a government debtor may be subject.

BRADY BONDS. Among the foreign fixed-income securities in which the
Fund may invest are Brady Bonds. Brady Bonds are debt securities issued under
the framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness (generally commercial bank
debt). In so restructuring its external debt, a debtor nation negotiates with
its existing bank lenders, as well as multilateral institutions such as the
World Bank and the International Monetary Fund, to exchange its commercial bank
debt for newly issued bonds (Brady Bonds). The Sub-Adviser believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment. Investors,
however, should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that solutions
must be negotiated on a case-by-case basis between debtor nations and their
creditors. In addition, Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history.

FOREIGN GOVERNMENT SECURITIES. With respect to investment in debt
issues of foreign governments, including Brady Bonds, the ability of a foreign
government or government-related issuer to make timely and ultimate payments on
its external debt obligations will also be strongly influenced by the issuer's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. If
foreign government or government-related issuers cannot generate sufficient
earnings from foreign trade to service its external debt, they may need to
depend on continuing loans and aid from foreign governments, commercial banks
and multilateral organizations, and inflows of foreign investment. The
commitment on the part of these foreign governments, multilateral organizations
and others to make such disbursements may be conditioned on the government's
implementation of economic reforms and/or economic performance and the timely
service of its obligations. Failure to implement such reforms, achieve such
levels of economic performance or repay principal or interest when due may
curtail the willingness of such third parties to lend funds, which may further
impair the issuer's ability or willingness to service its debts in a timely
manner. The cost of servicing external debt will also generally be adversely
affected by rising international interest rates because many external debt
obligations bear interest at rates which are adjusted based upon international
interest rates. The ability to service external debt will also depend on the
level of the relevant government's international currency reserves and its
access to foreign exchange. Currency devaluations may affect the ability of a
government issuer to obtain sufficient foreign exchange to service its external
debt. If a foreign governmental issuer defaults on its obligations, the Fund
may have limited legal recourse against the issuer and/or guarantor.

-17-
<PAGE>

See OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS for a further
description of certain risks associated with certain of the Fund's investments,
including the risks associated with engaging in foreign currency transactions
and options.

-18-
<PAGE>

THE DELAWARE DIFFERENCE

PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.

SHAREHOLDER PHONE DIRECTORY

INVESTOR INFORMATION CENTER
800-523-4640

FUND INFORMATION; LITERATURE PRICE; YIELD AND PERFORMANCE FIGURES

SHAREHOLDER SERVICE CENTER
800-523-1918

INFORMATION ON EXISTING REGULAR INVESTMENT ACCOUNTS AND RETIREMENT PLAN
ACCOUNTS; WIRE INVESTMENTS; WIRE LIQUIDATIONS; TELEPHONE LIQUIDATIONS AND
TELEPHONE EXCHANGES

DELAPHONE
800-362-FUND
(800-362-3863)

PERFORMANCE INFORMATION

You can call the Investor Information Center at any time for current
yield information. Current yield and total return information may also be
included in advertisements and information given to shareholders. Yields are
computed on an annual basis over a 30-day period.

SHAREHOLDER SERVICES

During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your
account, the Fund, various service features and other funds in the Delaware
Group.

DELAPHONE SERVICE

Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Fund, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.

STATEMENTS AND CONFIRMATIONS

DUPLICATE CONFIRMATIONS

-19-
<PAGE>

IF YOUR FINANCIAL ADVISER OR INVESTMENT DEALER IS NOTED ON YOUR
INVESTMENT APPLICATION, WE WILL SEND A DUPLICATE CONFIRMATION TO HIM OR HER.
THIS MAKES IT EASIER FOR YOUR ADVISER TO HELP YOU MANAGE YOUR INVESTMENTS.

TAX INFORMATION

EACH YEAR, INCOME FUNDS, INC. WILL MAIL TO YOU INFORMATION ON THE TAX
STATUS OF YOUR DIVIDENDS AND DISTRIBUTIONS.

DIVIDEND PAYMENTS

For more information, see ADDITIONAL METHODS OF ADDING TO YOUR
INVESTMENT - DIVIDEND REINVESTMENT PLAN under HOW TO BUY SHARES or call the
Shareholder Service Center.

MONEYLINE-SM- SERVICES
DELAWARE GROUP OFFERS THE FOLLOWING SERVICES FOR FAST AND CONVENIENT
TRANSFER OF FUNDS BETWEEN YOUR PERSONAL BANK ACCOUNT AND YOUR DELAWARE GROUP
FUND ACCOUNT.

1. MONEYLINE-SM- DIRECT DEPOSIT SERVICE

If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may choose
the MoneyLine-SM- Direct Deposit Service and have such payments transferred
from your Fund account to your predesignated bank account. See DIVIDENDS AND
DISTRIBUTIONS. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See SYSTEMATIC WITHDRAWAL PLANS under REDEMPTION
AND EXCHANGE. THIS SERVICE IS NOT AVAILABLE FOR CERTAIN RETIREMENT PLANS.

2. MONEYLINE-SM- ON DEMAND

You or your investment dealer may request purchases and redemptions of
Fund shares by phone using MoneyLine-SM- On Demand. When you authorize the
Fund to accept such requests from you or your investment dealer, funds will be
withdrawn from (for share purchases) or deposited to (for share redemptions)
your predesignated bank account. Your request will be processed the same day if
you call prior to 4 p.m., Eastern time. There is a $25 minimum and $50,000
maximum limit for MoneyLine-SM- On Demand transactions. This service is not
available for retirement plans, except for purchases of shares by IRAs.

For each MoneyLine-SM- Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not
identical to the name and address on your Fund account, you must have your
signature guaranteed. The Fund does not charge a fee for any MoneyLine-SM-
Service; however, your bank may charge a fee. Please call the Shareholder
Service Center for additional information about these services.

RIGHT OF ACCUMULATION

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<PAGE>

purchases of Class A Shares. Under the Combined Purchases Privilege, you may
also include certain shares that you own in other funds in the Delaware Group.
See CLASSES OF SHARES.

LETTER OF INTENTION

The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See
CLASSES OF SHARES and PART B.

12-MONTH REINVESTMENT PRIVILEGE

The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See PART B.

EXCHANGE PRIVILEGE

The Exchange Privilege permits you to exchange all or part of your
shares into shares of the other funds in the Delaware Group, subject to certain
exceptions and limitations. For additional information on exchanges, see
INVESTING BY EXCHANGE under HOW TO BUY SHARES, and REDEMPTION AND EXCHANGE.

WEALTH BUILDER OPTION

You may elect to invest in the Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See ADDITIONAL METHODS OF ADDING
TO YOUR INVESTMENT - WEALTH BUILDER OPTION and INVESTING BY EXCHANGE under HOW
TO BUY SHARES, and REDEMPTION AND EXCHANGE.

FINANCIAL INFORMATION ABOUT THE FUND

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RETIREMENT PLANNING

Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders.
Certain retirement plans may qualify to purchase shares of Strategic Income
Fund Institutional Class. For additional information on any of the plans and
Delaware's retirement services, call the Shareholder Service Center or see
PART B.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

Individuals, even if they participate in an employer-sponsored
retirement plan, may establish their own retirement program for investments in
each of the Classes. Contributions to an IRA may be tax-deductible and earnings
are tax-deferred. The tax deductibility of IRA contributions is restricted,
and in some cases eliminated, for individuals who participate in certain
employer-sponsored retirement plans and whose annual income exceeds certain
limits. Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn on a tax-deferred basis.

SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")

A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")

Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may be maintained by employers having 25 or fewer
employees . An employer may elect to make additional contributions to such
existing plans.

403(b)(7) DEFERRED COMPENSATION PLAN

Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.

457 DEFERRED COMPENSATION PLAN

Permits employees of state and local governments and certain other
entities to enter into a deferred compensation arrangement for the purchase of
shares of each of the Classes.

PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLAN

Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.

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<PAGE>

PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN

Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A or Class C Shares. Class B
Shares are not available for purchase by such plans.

SIMPLE IRA

A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers
to make contributions on behalf of their employees and also has a salary
deferral feature that permits employees to defer a portion of their salary into
the plan on a pre-tax basis.

SIMPLE 401(k)

A SIMPLE 401(k) is like a regular 401(k) except that plan sponsors
are limited to 100 employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required. Class B Shares are
not available for purchase by such plans.

ALLIED PLANS

Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware Group funds
("eligible non-Delaware Group fund shares"). CLASS B SHARES AND CLASS C SHARES
ARE NOT ELIGIBLE FOR PURCHASE BY ALLIED PLANS.

With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Group and eligible non-Delaware Group fund shares
held by the Allied Plan may be combined with the dollar amount of new purchases
by that Allied Plan to obtain a reduced front-end sales charge on additional
purchases of eligible Delaware Group fund shares. See FRONT-END SALES CHARGE
ALTERNATIVE - CLASS A SHARES under CLASSES OF SHARES.

Participants in Allied Plans may exchange all or part of their
eligible Delaware Group fund shares for other eligible Delaware Group fund
shares or for eligible non-Delaware Group fund shares at net asset value without
payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Group and non-Delaware Group, which were not subject to a
front-end sales charge, will be subject to the applicable sales charge if
exchanged for eligible Delaware Group fund shares to which a sales charge
applies. No sales charge will apply if the eligible fund shares were previously
acquired through the exchange of eligible shares on which a sales charge was
already paid or through the reinvestment of dividends. See INVESTING BY
EXCHANGE.

A dealer's commission may be payable on purchases of eligible Delaware
Group fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See FRONT-END SALES CHARGE
ALTERNATIVE - CLASS A SHARES under CLASSES OF SHARES.

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<PAGE>

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<PAGE>

CLASSES OF SHARES

ALTERNATIVE PURCHASE ARRANGEMENTS

Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").

CLASS A SHARES. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% (currently, no more than 0.25% pursuant to Board action) of
average daily net assets of such shares. Certain purchases of Class A Shares
qualify for reduced front-end sales charges. See FRONT-END SALES CHARGE
ALTERNATIVE - CLASS A SHARES, below. See also CONTINGENT DEFERRED SALES CHARGE
FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under
REDEMPTION AND EXCHANGE and DISTRIBUTION (12B-1) AND SERVICE under MANAGEMENT OF
THE FUND.

CLASS C SHARES. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject
to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are
service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of such shares for the life of the investment. The higher 12b-1 Plan
expenses paid by Class C Shares will cause such shares to have a higher expense
ratio and to pay lower dividends than Class A Shares. Unlike Class B Shares,
Class C Shares do not convert to another class.

The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon

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<PAGE>

purchase of such shares. However, there can be no assurance as to the return,
if any, that will be realized on such additional money, and the effect of
earning on such additional money will diminish over time. In comparing Class B
Shares to Class C Shares, investors should also consider the duration of the
annual 12b-1 Plan expenses to which each of the classes is subject and the
desirability of an automatic conversion feature, which is available only for
Class B Shares.

Prospective investors should refer to APPENDIX A--INVESTMENT
ILLUSTRATIONS in this PROSPECTUS for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.

For the distribution and related services provided to, and the
expenses borne on behalf of, the Fund, the Distributor and others will be paid,
in the case of Class A Shares, from the proceeds of the front-end sales charge
and 12b-1 Plan fees and, in the case of Class B Shares and Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. INVESTORS SHOULD UNDERSTAND THAT
THE PURPOSE AND FUNCTION OF THE RESPECTIVE 12b-1 PLANS AND THE CDSCS APPLICABLE
TO CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF THE 12b-1 PLAN AND
THE FRONT-END SALES CHARGE APPLICABLE TO CLASS A SHARES IN THAT SUCH FEES AND
CHARGES ARE USED TO FINANCE THE DISTRIBUTION OF THE RESPECTIVE CLASSES. See
DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that the additional
amount of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will
be borne exclusively by such shares. See CALCULATION OF OFFERING PRICE AND NET
ASSET VALUE PER SHARE.

The NASD has adopted certain rules relating to investment company
sales charges. Income Funds, Inc. and the Distributor intend to operate in
compliance with these rules.

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<PAGE>

Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE.

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

STRATEGIC INCOME FUND A CLASS
- --------------------------------------------------------------------------------

Dealer's
Front-End Sales Charge as % of Commission
Offering Amount As % of
Amount of Purchase Price Invested** Offering Price
- --------------------------------------------------------------------------------
Less than $100,000 4.75% 4.91% 4.00%

$100,000 but under $250,000 3.75 3.86 3.00

$250,000 but under $500,000 2.50 2.63 2.00

$500,000 but under $1,000,000* 2.00 2.11 1.60

* There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.

** Based upon the net asset value per share of Class A Shares as of
the end of Income Funds, Inc.'s most recent fiscal year.

*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.

- --------------------------------------------------------------------------------

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. In addition, certain dealers who enter
into an agreement to provide extra training and information on Delaware
Group products and services and who increase sales of Delaware Group funds
may receive an additional commission of up to 0.15% of the offering price.
Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933.

- --------------------------------------------------------------------------------

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<PAGE>

For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:

DEALER'S COMMISSION
(AS A PERCENTAGE OF
AMOUNT OF PURCHASE AMOUNT PURCHASED)
------------------ -------------------

Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The
schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.

Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See CONTINGENT
DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET
ASSET VALUE under REDEMPTION AND EXCHANGE.

COMBINED PURCHASES PRIVILEGE

By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other funds
in the Delaware Group, except those noted below, you can reduce the front-end
sales charges on any additional purchases of Class A Shares. Shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with ownership of
variable insurance products may be combined with other Delaware Group fund
holdings. Assets held by investment advisory clients of the Manager or its
affiliates in a stable value account may be combined with other Delaware Group
fund holdings. Shares of other funds that do not carry a front-end sales charge
or CDSC may not be included unless they were acquired through an exchange from a
Delaware Group fund that does carry a front-end sales charge or CDSC.

It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.

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<PAGE>

Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See FRONT-END SALES CHARGE ALTERNATIVE - CLASS A SHARES, above.

BUYING CLASS A SHARES AT NET ASSET VALUE

Class A Shares of the Fund may be purchased at net asset value under
the Delaware Group Dividend Reinvestment Plan and, under certain circumstances,
the Exchange Privilege and the 12-Month Reinvestment Privilege. See THE
DELAWARE DIFFERENCE and REDEMPTION AND EXCHANGE for additional information.

Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Group, certain of
their agents and registered representatives and employees of authorized
investment dealers and by employee benefit plans for such entities. Individual
purchases, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member.

Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.

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<PAGE>

a Delaware Group account in connection with loans originated from accounts
previously maintained by another investment firm will also be invested at net
asset value.

The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.

GROUP INVESTMENT PLANS

Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE
401(k), Profit Sharing, Money Purchase Pension , 401(k) Defined Contribution
Plans, and 403(b)(7) and 457 Deferred Compensation Plans) may benefit from the
reduced front-end sales charges available on Class A Shares based on total
plan assets. If a company has more than one plan investing in the Delaware
Group of funds, then the total amount invested in all plans will be aggregated
to determine the applicable front-end sales charge reduction on each purchase,
both initial and subsequent, if, at the time of each such purchase, the company
notifies the Fund that it qualifies for the reduction. Employees participating
in such Group Investment Plans may also combine the investments held in their
plan account to determine the front-end sales charge applicable to purchases in
non-retirement Delaware Group investment accounts if, at the time of each such
purchase, they notify the Fund that they are eligible to combine purchase
amounts held in their plan account.

For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.

For other retirement plans and special services, see RETIREMENT
PLANNING.

DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES

Holders of Class B Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for Class B
Shares described in THIS PROSPECTUS, even after the exchange. Such CDSC
schedule may be higher than the CDSC schedule for Class B Shares acquired as a
result of the exchange. See REDEMPTION AND EXCHANGE.

AUTOMATIC CONVERSION OF CLASS B SHARES

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<PAGE>

Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.

All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See TAXES.

LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES

Holders of Class C Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for Class C
Shares as described in this PROSPECTUS. See REDEMPTION AND EXCHANGE.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES

Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage
of the dollar amount subject to the CDSC. The charge will be assessed on an
amount equal to the lesser of the net asset value at the time of purchase of the
shares being redeemed or the net asset value of those shares at the time of
redemption. No CDSC will be imposed on increases in net asset value above the
initial purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase" will be
the net asset value at purchase of Class B Shares or Class C Shares of the
Fund, even if those shares are later exchanged for shares of another Delaware
Group fund. In the event of an exchange of the shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
that were acquired in the exchange.

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<PAGE>

The following table sets forth the rates of the CDSC for Class B
Shares of the Fund:

CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)

0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.

All investments made during a calendar month, regardless of what day
of the month the investment occurred, will age one month on the last day of that
month and each subsequent month.

The CDSC is waived on certain redemptions of Class B Shares and Class
C Shares. See WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND
CLASS C SHARES under REDEMPTION AND EXCHANGE.

OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES

Subject to pending amendments to the NASD's Conduct Rules , in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance

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<PAGE>

at a business or investment seminar at a luxury resort, as part of preapproved
sales contests. Payment of non-cash compensation to dealers is currently under
review by the NASD and the Securities and Exchange Commission. It is likely
that the NASD's Conduct Rules will be amended such that the ability of the
Distributor to pay non-cash compensation as described above will be restricted
in some fashion. The Distributor intends to comply with the NASD's Conduct
Rules as they may be amended.

STRATEGIC INCOME FUND INSTITUTIONAL CLASS

In addition to offering Class A, Class B and Class C Shares, the Fund
also offers Strategic Income Fund Institutional Class, which is described in a
separate prospectus and is available for purchase only by certain investors.
Strategic Income Fund Institutional Class shares generally are distributed
directly by the Distributor and do not have a front-end sales charge, a CDSC or
a Limited CDSC, and are not subject to 12b-1 Plan distribution expenses. To
obtain the prospectus that describes Strategic Income Fund Institutional Class,
contact the Distributor by writing to the address or by calling the telephone
number listed on the back cover of this PROSPECTUS.

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<PAGE>

HOW TO BUY SHARES

PURCHASE AMOUNTS

Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under the Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act or through an Automatic Investing
Plan, there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25. Minimum purchase requirements do not apply to retirement plans
other than IRAs, for which there is a minimum initial purchase of $250, and a
minimum subsequent purchase of $25, regardless of which Class is selected.

INVESTING THROUGH YOUR INVESTMENT DEALER

INVESTING BY MAIL

1. INITIAL PURCHASES--An Investment Application or, in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to Strategic Income Fund A
Class, Strategic Income Fund B Class or Strategic Income Fund C Class, to
Delaware Group at 1818 Market Street, Philadelphia, PA 19103.

2. SUBSEQUENT PURCHASES--Additional purchases may be made at any time by
mailing a check payable to the specific Fund and Class selected. Your check
should be identified with your name(s) and account number. An investment slip
(similar to a deposit slip) is provided at the bottom of transaction
confirmations and dividend statements that you will receive from Income Funds,
Inc. Use of this investment slip can help expedite processing of your check
when making additional purchases. Your investment may be delayed if you send
additional purchases by certified mail.

INVESTING BY WIRE

You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Class in which you are
investing).

1. INITIAL PURCHASES--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, for the specific Fund and Class selected, to Delaware Group
at 1818 Market Street, Philadelphia, PA 19103.

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<PAGE>

2. SUBSEQUENT PURCHASES--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.

If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.

INVESTING BY EXCHANGE

If you have an investment in another mutual fund in the Delaware
Group, you may write and authorize an exchange of part or all of your investment
into shares of the Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See REDEMPTION AND EXCHANGE for more complete information concerning
your exchange privileges.

Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See APPENDIX B -- CLASSES OFFERED for a list of Delaware Group Funds and
the classes they offer. Class B Shares of the Fund and Class C Shares of the
Fund acquired by exchange will continue to carry the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the fund from which the
exchange is made. The holding period of Class B Shares of the Fund acquired by
exchange will be added to that of the shares that were exchanged for purposes of
determining the time of the automatic conversion into Class A Shares of the
Fund.

Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.

See ALLIED PLANS under RETIREMENT PLANNING for information on
exchanges by participants in an Allied Plan.

Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish
to use the following services:

1. AUTOMATIC INVESTING PLAN

THE AUTOMATIC INVESTING PLAN ENABLES YOU TO MAKE REGULAR MONTHLY
INVESTMENTS WITHOUT WRITING OR MAILING CHECKS. You may authorize Income Funds,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.

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<PAGE>

2. DIRECT DEPOSIT

You may have your employer or bank make regular investments directly
to your Fund account for you (for example: payroll deduction, pay by phone,
annuity payments). The Fund also accepts preauthorized recurring government and
private payments by Electronic Fund Transfer, which avoids mail time and check
clearing holds on payments such as social security, federal salaries, Railroad
Retirement benefits, etc.

* * *

Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Income Funds, Inc. has the
right to liquidate your shares to reimburse the government or transmitting bank.
If there are insufficient funds in your account, you are obligated to reimburse
the Fund.

3. MONEYLINE-SM- ON DEMAND

Through the MoneyLine-SM- On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MONEYLINE-SM- SERVICES under THE
DELAWARE DIFFERENCE for additional information about this service.

4. WEALTH BUILDER OPTION

You can use our Wealth Builder Option to invest in the Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware Group
through the Wealth Builder Option through regular liquidations of shares in your
Fund account.

Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Group and invested automatically into any
other account in a Delaware Group mutual fund that you may specify. If in
connection with the election of the Wealth Builder Option, you wish to open a
new account to receive the automatic investment, such new account must meet the
minimum initial purchase requirements described in the prospectus of the fund
that you select. All investments under this option are exchanges and are
therefore subject to the same conditions and limitations as other exchanges
noted above. You can terminate your participation in Wealth Builder at any time
by giving written notice to the fund from which the exchanges are made. See
REDEMPTION AND EXCHANGE.

5. DIVIDEND REINVESTMENT PLAN

You can elect to have your distributions (capital gains and/or
dividend income) paid to you by check or reinvested in your Fund account. Or,
you may invest your distributions in certain other funds in the Delaware Group,
subject to the exceptions noted below as well as the eligibility and minimum
purchase requirements set forth in each fund's prospectus.

Reinvestments of distributions into Class A Shares of the Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of the Fund or of other
Delaware Group funds or into Class C Shares of the Fund or of other Delaware
Group funds are also made without any sales charge and will not be subject to a
CDSC if later redeemed. See AUTOMATIC CONVERSION OF

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CLASS B SHARES under CLASSES OF SHARES for information concerning the automatic
conversion of Class B Shares acquired by reinvesting dividends.

Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Fund. Holders of Class B Shares of the Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares. Similarly, holders of Class C Shares of the
Fund may reinvest their distributions only into Class C Shares of the funds in
the Delaware Group which offer that class of shares. See APPENDIX B -- CLASSES
OFFERED for the funds in the Delaware Group offering those classes of shares.
For more information about reinvestments, call the Shareholder Service Center.

PURCHASE PRICE AND EFFECTIVE DATE

The offering price and net asset value of Class A, Class B and Class
C Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund, its agent or designee. The
effective date of a direct purchase is the day your wire, electronic transfer or
check is received unless it is received after the time the offering price or net
asset value of shares is determined, as noted above. Purchase orders received
after such time will be effective the next business day.

THE CONDITIONS OF YOUR PURCHASE

The Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are responsible
for any loss incurred. The Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. The Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.

The Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no
CDSC will apply to such assessments.

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minimum initial investment may be subject to involuntary redemption without the
imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or
her account.

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REDEMPTION AND EXCHANGE

YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other bond funds, equity funds, tax-advantaged
funds or money market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of your investment
into a fund that has the checkwriting feature. Exchanges are subject to the
requirements of each fund and all exchanges of shares constitute taxable events.
See TAXES. Further, in order for an exchange to be processed, shares of the
fund being acquired must be registered in the state where the acquiring
shareholder resides. You may want to consult your financial adviser or
investment dealer to discuss which funds in the Delaware Group will best meet
your changing objectives, and the consequences of any exchange transaction. You
may also call the Delaware Group directly for fund information.

Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined, as noted
above, will be processed on the next business day. See PURCHASE PRICE AND
EFFECTIVE DATE under HOW TO BUY SHARES. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, the Fund will redeem the
number of shares necessary to deduct the applicable CDSC in the case of Class B
and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A
Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder
upon redemption will be reduced by the amount of the applicable CDSC or Limited
CDSC. Redemption proceeds will be distributed promptly, as described below, but
not later than seven days after receipt of a redemption request.

Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.

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There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.

Various redemption and exchange methods are outlined below. Except
for the CDSC applicable to certain redemptions of Class B and Class C Shares and
the Limited CDSC applicable to certain redemptions of Class A Shares purchased
at net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares
redeemed or exchanged. Your investment dealer may charge for this service.

All authorizations given by shareholders, including selection of any
of the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.

WRITTEN REDEMPTION

You can write to the Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Fund requires a signature by all owners of the
account and a signature guarantee for each owner. Each signature guarantee must
be supplied by an eligible guarantor institution. The Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.

WRITTEN EXCHANGE

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You may also write to the Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in the Delaware Group, subject to the same conditions and
limitations as other exchanges noted above.

TELEPHONE REDEMPTION AND EXCHANGE

The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in writing that you do not
wish to have such services available with respect to your account. The Fund
reserves the right to modify, terminate or suspend these procedures upon 60
days' written notice to shareholders. It may be difficult to reach the Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests.

Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.

TELEPHONE REDEMPTION--CHECK TO YOUR ADDRESS OF RECORD

TELEPHONE REDEMPTION--PROCEEDS TO YOUR BANK

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the
next business day after receipt of your redemption request to your predesignated
bank account. There are no fees for this redemption method, but the mail time
may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.

MONEYLINE-SM- ON DEMAND

Through the MoneyLine-SM- On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MONEYLINE-SM- SERVICES under THE
DELAWARE DIFFERENCE for additional information about this service.

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TELEPHONE EXCHANGE

The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.

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SYSTEMATIC WITHDRAWAL PLANS

1. REGULAR PLANS

This plan provides shareholders with a consistent monthly (or
quarterly) payment. THIS IS PARTICULARLY USEFUL TO SHAREHOLDERS LIVING ON FIXED
INCOMES, SINCE IT CAN PROVIDE THEM WITH A STABLE SUPPLEMENTAL AMOUNT. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Fund does not recommend any particular monthly amount, as
each shareholder's situation and needs vary. Payments are normally made by
check. In the alternative, you may elect to have your payments transferred from
your Fund account to your predesignated bank account through the MoneyLine-SM-
Direct Deposit Service. Your funds will normally be credited to your bank
account up to four business days after the payment date. There are no fees for
this redemption method. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for more information about this service.

2. RETIREMENT PLANS

For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the Systematic Withdrawal Plan provides
you with maximum flexibility. A number of formulas are available for
calculating your withdrawals depending upon whether the distributions are
required or optional. Withdrawals must be for $25 or more; however, no minimum
account balance is required. The MoneyLine-SM- Direct Deposit Service described
above is not available for certain retirement plans.

* * *

Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.

The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the ANNUAL amount selected to be withdrawn is less than 12% of the
account balance. If the ANNUAL amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, ALL redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will
be reset on the date that any Systematic Withdrawal Plan is modified (for
example, a change in the amount selected to be withdrawn or the frequency or
date of withdrawals), based on the balance in the account on that date. See
WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES, below.

For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.

CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES
PURCHASED AT NET ASSET VALUE

A Limited CDSC will be imposed on certain redemptions of Class A
Shares (or shares into which such Class A Shares are exchanged) made within 12
months of purchase, IF SUCH PURCHASES WERE MADE AT NET ASSET VALUE AND TRIGGERED
THE PAYMENT BY THE DISTRIBUTOR OF THE DEALER'S COMMISSION PREVIOUSLY DESCRIBED.
See CLASSES OF SHARES.

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The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of: (1) the net asset value at the time of purchase of Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.

Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of the Fund or Class A Shares acquired in the exchange.

In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.

WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES

The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that
result from the Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the shares held in the account is less than the
then-effective minimum account size; (ii) distributions to participants from a
retirement plan qualified under section 401(a) or 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), or due to death of a participant in such
a plan; (iii) redemptions pursuant to the direction of a participant or
beneficiary of a retirement plan qualified under section 401(a) or 401(k) of the
Code with respect to that retirement plan; (iv) periodic distributions from an
IRA, SIMPLE IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death,
disability, or attainment of age 59 1/2 and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; (v) returns of excess contributions
to an IRA; (vi) distributions by other employee benefit plans to pay benefits;
(vii) distributions described in (ii), (iv), and (vi) above pursuant to a
systematic withdrawal plan; and (viii) redemptions by the classes of
shareholders who are permitted to purchase shares at net asset value, regardless
of the size of the purchase (see BUYING CLASS A SHARES AT NET ASSET VALUE under
CLASSES OF SHARES).

WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES

The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plans; (iii) distributions
from an IRA, SIMPLE IRA, SEP/IRA, 403(b)(7) or 457 Deferred Compensation Plan,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Code) of all registered owners occurring after the purchase of the shares being
redeemed.

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The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or
457 Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing
Plan, Money Purchase Pension Plan, or 401(k) Defined Contribution Plan upon
attainment of age 70 1/2 and IRA distributions qualifying under Section 72(t) of
the Internal Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan,
under hardship provisions of the plan; (v) distributions from a 403(b)(7) or
457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan
or a 401(k) Defined Contribution Plan upon attainment of normal retirement age
under the plan or upon separation from service; (vi) periodic distributions from
an IRA or SIMPLE IRA on or after attainment of age 59 ; and (vii) distributions
from an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the Uniform
Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the
waiver applies upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered owners
occurring after the purchase of the shares being redeemed.

In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.

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DIVIDENDS AND DISTRIBUTIONS

The Fund expects to declare a dividend each day and to pay such
dividends once each month. Payment by check of cash dividends will ordinarily
be mailed within three business days after the payable date. Distributions from
net realized securities profits, if any, will be distributed twice a year. The
first payment normally would be made during the first quarter of the next fiscal
year. The second payment would be made near the end of the calendar year to
comply with certain requirements of the Code.

Purchases of shares by wire begin earning dividends when converted
into Federal Funds and are available for investment, normally the next business
day after receipt. However, if the Fund is given prior notice of Federal Funds
wire and an acceptable guarantee of timely receipt from an investor meeting the
Fund's credit policies, the purchase will start earning dividends on the day the
wire is received. Purchases by check earn dividends upon conversion to Federal
Funds, normally one business day after receipt.

Dividends will be declared each day to all shareholders of record as
of the time the offering price of shares is determined. See PURCHASE PRICE AND
EFFECTIVE DATE under HOW TO BUY SHARES. Thus, when redeeming shares, dividends
continue to be credited up to and including the date of redemption.

Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will
vary due to the expenses under the 12b-1 Plan applicable to each Class.
Generally, the dividends per share on Class B Shares and Class C Shares can be
expected to be lower than the dividends per share on Class A Shares because the
expenses under the 12b-1 Plans relating to Class B and Class C Shares will be
higher than the expenses under the 12b-1 Plan relating to Class A Shares. See
DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

Both dividends and distributions, if any, are automatically
reinvested in your account at net asset value unless you elect otherwise.
Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in your account at the
then-current net asset value and the dividend option may be changed from cash
to reinvest. If you elect to take your dividends and distributions in cash
and such dividends and distributions are in an amount of $25 or more, you may
choose the MoneyLine-SM- Direct Deposit Service and have such payments
transferred from your Fund account to your predesignated bank account. This
service is not available for certain retirement plans. See MONEYLINE-SM-
SERVICES under THE DELAWARE DIFFERENCE for more information about this
service.

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TAXES

The tax discussion set forth below is included for general information
only. Investors should contact their own advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). As such, the Fund will
not be subject to federal income tax, or to any excise tax, to the extent its
earnings are distributed as provided in the Code.

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. It is expected that either none or only a nominal portion of the Fund's
dividends will be eligible for the dividends-received deduction for
corporations.

Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared.

The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See AUTOMATIC CONVERSION OF CLASS B SHARES under CLASSES OF SHARES.

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<PAGE>

taxes paid by the Fund. If this election is made, shareholders will be (i)
required to include in their gross income their pro-rata share of foreign source
income (including any foreign taxes paid by the Fund), and (ii) entitled to
either deduct (as an itemized deduction in the case of individuals) their share
of such foreign taxes in computing their taxable income or to claim a credit for
such taxes against their U.S. income tax, subject to certain limitations under
the Code. Shareholders will be informed by the Fund at the end of each calendar
year of the availability of any credits on, and the amount of foreign source
income to be included in, their income tax returns.

See TAXES in PART B for additional information on tax matters relating
to the Fund and its shareholders.

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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The net asset value ("NAV") per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Income Funds, Inc.'s
Board of Directors. Equity securities for which market quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Income Funds, Inc.'s Board of Directors.

Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed after the order is received, plus any applicable front-end sales
charges.

The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.

The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that class. All income earned and expenses incurred by the Fund will be
borne on a pro-rata basis by each outstanding share of a class, based on each
class' percentage in the Fund represented by the value of shares of such
classes, except that Strategic Income Fund Institutional Class will not incur
any of the expenses under Income Funds Inc.'s 12b-1 Plans and Class A, Class B
and Class C Shares alone will bear the 12b-1 Plan expenses payable under their
respective 12b-1 Plans. Due to the specific distribution expenses and other
costs that may be allocable to each class, the NAV of each class is expected to
vary.

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MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER AND SUB-ADVISER

The Manager furnishes investment management services to the Fund.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1997, the Manager and its affiliates in
the Delaware Group, including the Sub-Adviser, were managing in the aggregate
more than $39 billion in assets in the various institutional or separately
managed (approximately $23,844,101,000) and investment company (approximately
$15,869,009,000) accounts. The directors of Income Funds, Inc. annually review
fees paid to the Manager.

The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.

The Manager manages the Fund's portfolio and makes investment
decisions for the Fund. The Manager also administers Income Funds, Inc.'s
affairs and pays the salaries of all the directors, officers and employees of
Income Funds, Inc. who are affiliated with the Manager. For these services, the
Manager is paid an annual fee equal to 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. Investment management fees
incurred by the Fund for the period October 1, 1996 (date of initial public
offering) were 0.65% (annualized) of average daily net assets, however no
management fee was paid after considering the voluntary waiver of fees by the
Manager.

Subject to the overall supervision of the Manager, the Sub-Adviser
manages the international sector of the Fund's portfolio and furnishes the
Manager with investment recommendations, asset allocation advice, research and
other investment services with respect to foreign securities. For the services
provided to the Manager, the Manager pays the Sub-Adviser a fee equal to
one-third of the fee paid to the Manager under the terms of the Investment
Management Agreement.

Paul A. Matlack has primary responsibility for allocating the Fund's
assets among the fixed-income and equity sectors and for making day-to-day
investment decisions for the Fund regarding its investments in the high-yield
sector. Mr. Matlack, a Vice President/Senior Portfolio Manager of Income Funds,
Inc., has been a member of the Fund's management team since its inception. A
CFA charterholder, Mr. Matlack is a graduate of the University of Pennsylvania
with an MBA in Finance from George Washington University. He began his career
at Mellon Bank as a credit specialist, and later served as a corporate loan
officer for Mellon Bank and then Provident National Bank.

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Inc., holds a BA in Business Management from North Carolina State University and
an MBA in Finance from Pace University. Prior to joining the Manager in 1993,
he served as mortgage strategist and trader at the Dreyfus Corporation. He also
served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as financial analyst at the Chemical Bank. Mr. Grillo is a
CFA charterholder.

Ian G. Sims, a Director and Senior Portfolio Manager with the
Sub-Adviser, has primary responsibility for making day-to-day investment
decisions for the Fund regarding its investments in foreign securities. Mr.
Sims has been a member of the Fund's management team since its inception. Mr.
Sims is a graduate of the University of Leicester and holds a postgraduate
degree in statistics from the University of Newcastle-Upon-Tyne. He joined the
Sub-Adviser in 1990 as a senior international fixed-income and currency manager.
Mr. Sims began his investment career with the Standard Life Assurance Co., and
subsequently moved to the Royal Bank of Canada Investment Management
International Company, where he was an international fixed-income manager.
Prior to joining the Sub-Adviser, he was a senior fixed-income and currency
portfolio manager with Hill Samuel Investment Advisers Ltd.

Babak Zenouzi has primary responsibility for making day-to-day
investment decisions for the Fund regarding its investments in U.S. equity
securities. Mr. Zenouzi, a Vice President/Portfolio Manager of Income Funds,
Inc., has been a member of the Fund's management team since its inception. Mr.
Zenouzi holds a BS in Finance and Economics from Babson College in Wellesley,
Massachusetts, and an MS in Finance from Boston College. Prior to joining the
Manager in 1992, he was with The Boston Company where he held the positions of
assistant vice president, senior financial analyst, financial analyst and
portfolio accountant.

The portfolio management team will from time to time consult with Paul
E. Suckow, Executive Vice President/Chief Investment Officer, Fixed Income of
Income Funds, Inc., with respect to security selection, evaluation of market and
economic trends, and sector allocation. A CFA charterholder, he is a graduate
of Bradley University with an MBA from Western Illinois University. Mr. Suckow
was a fixed-income portfolio manager at the Delaware Group from 1981 to 1985.
He returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 100%. A turnover rate of 100% occurs, for
example, when all the investments in the Fund's portfolio at the beginning of
the year were replaced by the end of the year. For the period October 1, 1996
(date of initial public offering) through July 31, 1997, the Fund's portfolio
turnover rate was 183% (annualized).

The Manager and Sub-Adviser use their best efforts to obtain the best
available price and most favorable execution for portfolio transactions. Orders
may be placed with brokers or dealers who provide brokerage and research
services to the Manager or to the Sub-Adviser, or to their advisory clients.
These services may be used by the Manager or Sub-Adviser in servicing any of
their respective accounts. Subject to best price and execution, the Manager and
the Sub-Adviser may consider a broker/dealer's sales of the shares of funds in
the Delaware Group of funds in placing portfolio orders and may place orders
with broker/dealers that have agreed to defray certain expenses of such funds,
such as custodian fees.

PERFORMANCE INFORMATION

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From time to time, the Fund may quote yield or total return
performance of the Classes in advertising and other types of literature.

Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year (or life-of-fund, if applicable) periods. The Fund
may also advertise aggregate and average total return information concerning a
Class over additional periods of time. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC. In this case, such total return
information would be more favorable than total return information that includes
the deductions of the maximum front-end sales charge or any applicable CDSC.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

DISTRIBUTION (12B-1) AND SERVICE

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated as of September 30, 1996.

Income Funds, Inc. has adopted a separate distribution plan under Rule
12b-1 for each of the Class A Shares, Class B Shares and Class C Shares (the
"Plans"). The Plans permit the Fund to pay the Distributor from the assets of
the respective Classes a monthly fee for the Distributor's services and expenses
in distributing and promoting sales of shares.

These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences, and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In
addition, the Fund may make payments from the 12b-1 Plan fees of its
respective Classes directly to others, such as banks, who aid in the
distribution of Class shares or provide services in respect of a Class, pursuant
to service agreements with Income Funds, Inc.

The 12b-1 Plan expenses relating to each of the Class B Shares and
Class C Shares of the Fund are also used to pay the Distributor for advancing
the commission costs to dealers with respect to the initial sale of such shares.

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The aggregate fees paid by the Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets in any year.
The Fund's Class A, Class B and Class C Shares will not incur any distribution
expenses beyond these limits, which may not be increased without shareholder
approval.

Although the maximum fee payable under the Plan relating to Class A
Shares is 0.30% of average daily net assets, the Board of Directors has
currently set the annual fee for the Class at 0.25% of the average daily net
assets. The Board of Directors may increase the fee to the full 0.30% on all
Class A Shares' assets at any time. See SHARES.

While payments pursuant to the Plans may not exceed 0.30% annually
with respect to Class A Shares, and 1% annually with respect to each of the
Class B Shares and Class C Shares, the Plans do not limit fees to amounts
actually expended by the Distributor. It is therefore possible that the
Distributor may realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will likely equal
or exceed payments to it under the Plans. The Distributor may, however incur
such additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes. The monthly
fees paid to the Distributor are subject to the review and approval of Income
Funds, Inc.'s unaffiliated directors, who may reduce the fees or terminate the
Plans at any time.

The Plans do not apply to Strategic Income Fund Institutional Class.
Those shares are not included in calculating the Plans' fees, and the Plans are
not used to assist in the distribution and marketing of Strategic Income Fund
Institutional Class.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for Income Funds,
Inc. under an agreement dated as of September 30, 1996. The Transfer Agent also
provides accounting services to the Fund pursuant to the terms of a separate
Fund Accounting Agreement.

The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

EXPENSES

The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. For the period October 1,
1996 (date of initial public offering) through July 31, 1997, the ratios of
expenses average daily net assets for Class A Shares, Class B Shares and Class C
Shares were 1.00% (annualized), 1.75% (annualized) and 1.75% (annualized),
respectively. The expense ratio of each Class reflects the impact of its 12b-1
Plan and the voluntary waivers and payments of fees by the Manager.

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1970. In addition to the Fund, Income Funds, Inc. presently
offers two other series of shares, the Delchester Fund series and the
High-Yield Opportunities Fund series.

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Fund shares have a par value of $1.00, equal voting rights, except as
noted below, and are equal in all other respects. Income Funds, Inc.'s shares
have noncumulative voting rights which means that the holders of more than 50%
of Income Funds, Inc.'s shares voting for the election of directors can elect
100% of the directors if they choose to do so. Under Maryland law, Income
Funds, Inc. is not required, and does not intend, to hold annual meetings of
shareholders unless, under certain circumstances, it is required to do so under
the 1940 Act. Shareholders of 10% or more of Income Funds, Inc.'s outstanding
shares may request that a special meeting be called to consider the removal of a
director.

In addition to Class A Shares, Class B Shares and Class C Shares, the
Fund also offers the Strategic Income Fund Institutional Class shares. Shares
of each class represent proportionate interests in the assets of the Fund and
have the same voting and other rights and preferences as the other classes of
the Fund, except that shares of the Strategic Income Fund Institutional Class
are not subject to, and may not vote on matters affecting, the Distribution
Plans under Rule 12b-1 relating to Class A, Class B and Class C Shares.
Similarly, as a general matter, the shareholders of Class A Shares, Class B
Shares and Class C Shares may vote only on matters affecting the 12b-1 Plan that
relates to the class of shares that they hold. However, Class B Shares may
vote on any proposal to increase materially the fees to be paid by the Fund
under the Rule 12b-1 Plan relating to Class A Shares.

Lincoln National Corporation Employees' Retirement Trust (the
"Trust") made an initial investment in the Fund, and as of July 31, 1997, the
Trust held no shares of the Fund's Class A Shares, Class B Shares and Class C
Shares, respectively, but the Trust held 97% of the outstanding shares of the
Fund's Institutional Class. Subject to certain limited exceptions, there are
no limitations on the Trust's ability to redeem its shares of the Fund and it
may elect to do so at any time.

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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

U.S. GOVERNMENT SECURITIES

U.S. Treasury securities are backed by the "full faith and credit" of
the United States. Securities issued or guaranteed by federal agencies and U.S.
government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, investors in such securities
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, the Federal Housing Administration, the Maritime
Administration, the Small Business Administration, and others. Certain agencies
and instrumentalities, such as the Government National Mortgage Association
("GNMA"), are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service its debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the U.S. Treasury to purchase certain amounts of their securities to assist the
institutions in meeting their debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System, the Tennessee Valley
Authority and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under U.S. government supervision, but their debt
securities are backed only by the creditworthiness of those institutions, not
the U.S. government.

An instrumentality of a U.S. government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal
Intermediate Credit Banks and the Federal National Mortgage Association.

The maturities of such securities usually range from three months to
thirty years. While such securities are guaranteed as to principal and interest
by the U.S. government or its instrumentalities, their market values may
fluctuate and are not guaranteed, which may, along with the other securities in
the Fund's portfolio, cause a Class' daily net asset value to fluctuate.

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

Although the Fund does not intend to purchase a substantial amount of
zero coupon bonds or PIK bonds, from time to time, the Fund may acquire zero
coupon bonds and, to a lesser extent, PIK bonds. Zero coupon bonds are debt
obligations which do not entitle the holder to any periodic payments of interest
prior to maturity or a specified date when the securities begin paying current
interest, and therefore are issued and traded at a discount from their face
amounts or par value. PIK bonds pay interest through the issuance to holders of
additional securities. Zero coupon bonds and PIK bonds are generally considered
to be more interest-sensitive than income bearing bonds, to be more speculative
than interest-bearing bonds, and to have certain tax consequences which could,
under certain circumstances, be adverse to the Fund. For example, with zero
coupon bonds, the Fund accrues, and is required to distribute to shareholders,
income on such bonds. However, the Fund may not receive the cash associated
with this income until the bonds are sold or mature. If the Fund did not have
sufficient cash to make the required distribution of accrued income, the Fund
could be required to sell other securities in its portfolio or to borrow to
generate the cash required.

MORTGAGE-BACKED SECURITIES

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The Fund may invest in mortgage-backed securities, including GNMA
certificates. Such securities differ from other fixed-income securities in that
principal is paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. When prevailing interest rates rise, the
value of a GNMA security may decrease as do other debt securities. When
prevailing interest rates decline, however, the value of GNMA securities may not
rise on a comparable basis with other debt securities because of the prepayment
feature of GNMA securities. Additionally, if a GNMA certificate is purchased at
a premium above its principal value because its fixed rate of interest exceeds
the prevailing level of yields, the decline in price to par may result in a loss
of the premium in the event of prepayment. Funds received from prepayments may
be reinvested at the prevailing interest rates which may be lower than the rate
of interest that had previously been earned.

The mortgages backing these securities include conventional 30-year
fixed rate mortgages, graduated payment mortgages and adjustable rate mortgages.
These mortgages may be supported by various types of insurance, may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by the
U.S. government, its agencies or instrumentalities. However, the guarantees do
not extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates. These certificates are in most
cases "pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the
certificate. Because the prepayment characteristics of the underlying mortgages
vary, it is not possible to predict accurately the average life or realized
yield of a particular issue of pass-through certificates. During periods of
declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. When the mortgage obligations are
prepaid, the Fund may reinvest the prepaid amounts in securities, the yield of
which reflects interest rates prevailing at the time. Moreover, prepayments of
mortgages which underlie securities purchased at a premium could result in
capital losses.

CMOS AND REMICS

CMOs are debt securities issued by U.S. government agencies or by
financial institutions and other mortgage lenders and collateralized by a pool
of mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities. To the extent any privately-issued
CMOs or REMICs in which the Fund may invest are considered by the Securities and
Exchange Commission to be investment companies, the Fund will limit its
investment in such securities in a manner consistent with the provisions of the
1940 Act.

Certain CMOs and REMICs may have variable or floating interest rates
and others may be stripped. Stripped mortgage securities have greater market
volatility than other types of mortgage securities in which the Fund may invest.

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prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.

Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet been fully developed and, accordingly,
these securities are generally illiquid and to such extent, together with any
other illiquid investments, will not exceed 15% of the Fund's net assets.

The Fund may invest in CMOs and REMICs issued by private entities
which are not collateralized by securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, so-called non-agency
mortgage-backed securities. Investments in these securities may be made only if
the securities (i) are rated at the time of purchase in the four top rating
categories by a nationally-recognized statistical rating organization (e.g., BBB
or better by S&P or Fitch, or Baa or better by Moody's) and (ii) represent
interests in whole-loan mortgages, multi-family mortgages, commercial mortgages
and other mortgage collateral supported by a first mortgage lien on real estate.
Non-agency mortgage-backed securities are subject to the interest rate and
prepayment risks, described above, to which other CMOs and REMICs issued by
private issuers are subject. Non-agency mortgage-backed securities may also be
subject to a greater risk of loss of interest and principal because they are not
collateralized by securities issued or guaranteed by the U.S. government. In
addition, timely information concerning the loans underlying these securities
may not be as readily available and the market for these securities may be less
liquid than other CMOs and REMICs.

ASSET-BACKED SECURITIES

The asset-backed securities in which the Fund may invest must be rated
in the four top rating categories by a nationally recognized statistical rating
organization (e.g., BBB or better by S&P and Fitch, or Baa or better by
Moody's). The receivables underlying asset-backed securities are typically
securitized in either a pass-through or a pay-through structure. Pass-through
securities provide investors with an income stream consisting of both principal
and interest payments in respect of the receivables in the underlying pool.
Pay-through asset-backed securities are debt obligations issued usually by a
special purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to pay the
debt service on the debt obligations issued. The Fund may invest in these and
other types of asset-backed securities structured in this way that may be
developed in the future.

The rate of principal payment on asset-backed securities generally
depends upon the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors such
as changes in interest rates. Therefore, the yield may be difficult to predict
and actual yield to maturity may be more or less than the anticipated yield to
maturity. Due to the shorter maturity of the collateral backing such
securities, there is less of a risk of substantial prepayment than with
mortgage-backed securities. Such asset-backed securities do, however, involve
certain risks not associated with mortgage-backed securities, including the risk
that security interests cannot be adequately or in many cases, ever,
established. In addition, with respect to credit card receivables, a number of
state and federal consumer credit laws give debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the outstanding balance. In
the case of automobile receivables, there is a risk that the holders may not
have either a proper or first security interest in all of the obligations
backing such receivables due to the large number of vehicles involved in a
typical issuance and technical requirements under state laws. Therefore,
recoveries on repossessed collateral may not always be available to support
payments on the securities.

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BORROWINGS

The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its custodian bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.

PORTFOLIO LOAN TRANSACTIONS

The Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors.

The major risk to which the Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, the Fund will only enter into loan
arrangements after a review of all pertinent facts by the Manager, subject to
overall supervision by the Board of Directors, including the creditworthiness of
the borrowing broker, dealer or institution and then only if the consideration
to be received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager.

RULE 144A SECURITIES

The Fund may invest in restricted securities, including privately
placed securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 15% of the value of its net assets in illiquid securities.

While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of the Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; (iv) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).

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If the Manager or Sub-Adviser determines that a Rule 144A Security
which was previously determined to be liquid is no longer liquid and, as a
result, the Fund's holdings of illiquid securities exceed the Fund's 15% limit
on investments in such securities, the Manager will determine what action to
take to ensure that the Fund continues to adhere to such limitation.

INVESTMENT COMPANY SECURITIES

Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, the Fund
may not (1) own more than 3% of the voting stock of another investment company;
(2) invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If the Fund elects to limit its
investment in other investment companies to closed-end investment companies, the
3% limitation described above is increased to 10%. These percentage limitations
also apply to the Fund's investments in unregistered investment companies.

REPURCHASE AGREEMENTS

In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e. the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund
will limit its investments in repurchase agreements to those which the Manager
under guidelines of the Board of Directors determines to present minimal credit
risks and which are of high quality. In addition, the Fund must have collateral
of at least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.

FOREIGN CURRENCY TRANSACTIONS

Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund will, however, from time to time, purchase or sell
foreign currencies and/or engage in forward foreign currency transactions in
order to expedite settlement of portfolio transactions and to minimize currency
value fluctuations. The Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. The Fund will convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion.

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itself against a possible loss resulting from an adverse change in currency
exchange rates during the period between the date the security is purchased or
sold and the date on which payment is made or received.

When the Sub-Adviser believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Fund may enter into a forward foreign currency contract to
sell, for a fixed amount of U.S. dollars or other appropriate currency, the
amount of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency.

The Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency.

At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is highly
uncertain.

It is impossible to forecast the market value of Fund securities at
the expiration of the contract. Accordingly, it may be necessary for the Fund
to purchase additional foreign currency on the spot market (and bear the expense
of such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.

OPTIONS

The Manager and Sub-Adviser may employ options techniques in an
attempt to protect appreciation attained and to take advantage of the liquidity
available in the options market. The Fund may purchase call options on foreign
or U.S. securities and indices and enter into related closing transactions and
the Fund may write covered call options on such securities. The Fund may also
purchase put options on such securities and indices and enter into related
closing transactions.

A call option enables the purchaser, in return for the premium paid,
to purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. The
Fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.

-60-
<PAGE>

options to the extent that the premiums on all outstanding put options do not
exceed 2% of its total assets. The advantage is that the purchaser can be
protected should the market value of the security decline or should a particular
index decline.

An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.

Closing transactions essentially let the Fund offset put options or
call options prior to exercise or expiration. If the Fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.

In purchasing put and call options, the premium paid by the Fund plus
any transaction costs will reduce any benefit realized by the Fund upon exercise
of the option. With respect to writing covered call options, the Fund may lose
the potential market appreciation of the securities subject to the option, if
the Manager's or the Sub-Adviser's judgment is wrong and the price of the
security moves in the opposite direction from what was anticipated.

The Fund may use both Exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. The Fund will only invest in
such options to the extent consistent with its 15% limitation on investment in
illiquid securities. The Fund will comply with Securities and Exchange
Commission asset segregation and coverage requirements when engaging in these
types of transactions.

FUTURES

Futures contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, the Fund incurs a
contractual obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A purchase
of a futures contract means the acquisition of a contractual right to obtain
delivery to the Fund of the securities called for by the contract at a specified
price during a specified future month.

While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When the Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by
the futures commission merchant in an account at the Fund's custodian bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund from, such account in accordance with controls set for such account,
depending upon changes in the price of the underlying securities subject to the
futures contract.

The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.

The purpose of the purchase or sale of futures contracts consisting of
U.S. government securities is to protect the Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. government securities at higher prices.

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<PAGE>

REITs
REITs are pooled investment vehicles which invest primarily in
income-producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets
in real estate mortgages and derive income from the collection of interest
payments. Like investment companies such as Income Funds, Inc., REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements in the Code. REITs are subject to substantial cash flow
dependency, defaults by borrowers, self-liquidation, and the risk of failing to
qualify for tax-free pass-through of income under the Code, and/or maintain
exemptions from the 1940 Act.

-62-
<PAGE>

APPENDIX A - INVESTMENT ILLUSTRATIONS
Illustrations of the Potential Impact on Investment Based on Purchase
Option
$10,000 Purchase
<TABLE>
<CAPTION>

Scenario 1 Scenerio 2 Scenerio 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
------------- --------------- --------------- ---------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------ ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,625 10,625 10,192 10,225 10,525+ 10,192 10,625 10,625 10,192 10,625 10,625
2 10,905 11,289 11,289 10,905 11,289 11,289 10,905 11,289 11,289
3 11,669 11,995 11,995 11,669 11,695 11,995+ 11,669 11,995 11,995
4 12,485 12,744 12,744 12,485 12,744 12,744
5 13,359 13,541 13,541 13,359 13,341 13,541+
6 14,294 14,387 14,387
7 15,295 15,286 15,286
8 16,366+ 16,242 16,242
9 17,511 17,379* 17,257
10 18,737 18,595* 18,335

*This assumes that Class B Shares were converted to Class A Shares at the end of the eighth year.

$250,000 Purchase
Scenario 1 Scenerio 2 Scenerio 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
------------- --------------- --------------- ---------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------ ------- ------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,625 265,625 260,813 255,625 263,125+ 260,813 265,625 265,625 260,813 265,625 265,625
2 279,069 282,227 282,227 279,069 282,227 282,227 279,069 282,227 282,227
3 298,604 299,866 299,866 298,604 292,366 300,866+ 298,604 299,866 299,866
4 319,507+ 318,607 318,607 319,507+ 318,607 318,607
5 341,872 338,520 338,520 341,872 333,520 338,520
6 365,803 359,678 359,678
7 391,409 382,158 382,158
8 418,808 406,043 406,043
9 448,124 434,466* 431,420
10 479,493 464,878* 458,384
*This assumes that Class B Shares were converted to Class A Shares at the end of the eighth year.
</TABLE>

ASSUMES A HYPOTHETICAL RETURN FOR CLASS A OF 7% PER YEAR, A HYPOTHETICAL
RETURN FOR CLASS B OF 6.25% FOR YEARS 1-8 AND 7% FOR YEARS 9-10, AND A
HYPOTHETICAL RETURN FOR CLASS C OF 6.25% PER YEAR. HYPOTHETICAL RETURNS
VARY DUE TO THE DIFFERENT EXPENSE STRUCTURE FOR EACH CLASS AND DO NOT
REPRESENT ACTUAL PERFORMANCE.

CLASS A PURCHASE SUBJECT TO APPROPRIATE SALES CHARGE BREAKPOINT (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).

CLASS B PURCHASE ASSESSED APPROPRIATE CDSC UPON REDEMPTION
(4%-4%-3%-3%-2%-1% IN YEARS 1-2-3-4-5-6).

CLASS C PURCHASE ASSESSED 1% CDSC UPON REDEMPTION IN YEAR 1.
FIGURES MARKED "+" IDENTIFY WHICH CLASS OFFERS THE GREATER RETURN
POTENTIAL BASED ON INVESTMENT AMOUNT, THE HOLDING PERIOD AND THE EXPENSE
STRUCTURE OF EACH CLASS.

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<PAGE>

APPENDIX B -- CLASSES OFFERED

GROWTH OF CAPITAL A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
Aggressive Growth Fund x x x -
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Small Cap Value Fund x x x -
U.S. Growth Fund x x x -
Growth Stock Fund x x x -
Tax-Efficient Equity Fund x x x -

TOTAL RETURN
Blue Chip Fund x x x -
Quantum Fund x x x -
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -

INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund x x x -
New Pacific Fund x x x -
World Growth Fund x x x -
International Equity Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -

CURRENT INCOME
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Delaware-Voyageur US Government
Securities Fund x x x -
Limited-Term Government Fund x x x -
</TABLE>

-64-
<PAGE>

APPENDIX B--CLASSES OFFERED - (CON'T)
<TABLE>
<CAPTION>

TAX PREFERRED INCOME A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
National High Yield Municipal Bond Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Arizona Insured Fund x x x -
Delaware-Voyageur Tax-Free Arizona Fund x x x -
Delaware-Voyageur Tax-Free California Insured Fund x x x -
Delaware-Voyageur Tax-Free California Fund x x x -
Delaware-Voyageur Tax-Free Colorado Fund x x x -
Delaware-Voyageur Tax-Free Florida Insured Fund x x x -
Delaware-Voyageur Tax-Free Florida Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Florida Fund x x x -
Delaware-Voyageur Tax-Free Idaho Fund x x x -
Delaware-Voyageur Tax-Free Iowa Fund x x x -
Delaware-Voyageur Tax-Free Kansas Fund x x x -
Delaware-Voyageur Minnesota High Yield Municipal Bond Fund x x x -
Delaware-Voyageur Minnesota Insured Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Fund x x x -
Delaware-Voyageur Tax-Free Missouri Insured Fund x x x -
Delaware-Voyageur Tax-Free New Mexico Fund x x x -
Delaware-Voyageur Tax-Free New York Fund x x x -
Delaware-Voyageur Tax-Free North Dakota Fund x x x -
Delaware-Voyageur Tax-Free Oregon Insured Fund x x x -
Tax-Free Pennsylvania Fund x x x -
Delaware-Voyageur Tax-Free Utah Fund x x x -
Delaware-Voyageur Tax-Free Washington Insured Fund x x x -
Delaware-Voyageur Tax-Free Wisconsin Fund x x x -

MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>

-65-
<PAGE>

APPENDIX C -- RATINGS

The Fund's assets may be invested in securities rated BBB or
lower by S&P or Fitch, Baa or lower by Moody's, in securities similarly
rated by another nationally recognized statistical rating organization,
and in unrated corporate bonds. These credit ratings evaluate only the
safety of principal and interest and do not consider the market value
risk associated with high-yield securities.

The table set forth below shows the percentage of the Fund's
securities included in each of the specified rating categories and shows
the percentage of the Fund's assets held in U.S. government securities.
Certain securities may not be rated because the rating agencies were
either not asked to provide ratings (e.g., many issuers of privately
placed bonds do not seek ratings) or because the rating agencies declined
to provide a rating for some reason, such as insufficient data. The
table below shows the percentage of the Fund's securities which are not
rated. The information contained in the table was prepared based on a
dollar weighted average of the Fund's portfolio composition based on
month end data for the period October 1, 1997 (date of initial public
offering) through July 31, 1997. The paragraphs following the table
contain excerpts from Moody's and S&P's rating descriptions.

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio

United States Treasury Obligations N/A
Aaa/AAA 22.77%
Aa/AA N/A
A/A 4.15%
Baa/BBB 2.04%
Ba/BB 1.32%
B/B 40.08%
Caa/CCC N/A
Not Rated/Other N/A

GENERAL RATING INFORMATION

BONDS

Excerpts from Moody's description of its bond ratings: Aaa--judged
to be the best quality. They carry the smallest degree of investment
risk; Aa--judged to be of high quality by all standards; A--possess
favorable attributes and are considered "upper medium" grade obligations;
Baa--considered as medium grade obligations. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time; Ba--judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over
any long period of time may be small; Caa--are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest; Ca--represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings; C--the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

-66-
<PAGE>

pay interest and repay principal; BB, B, CCC, CC--regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions; C--reserved for income
bonds on which no interest is being paid; D--in default, and payment of
interest and/or repayment of principal is in arrears.

EXCERPTS FROM FITCH'S DESCRIPTION OF ITS BOND RATINGS:

AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events; AA--Bonds considered to be investment
grade and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA categories are
not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+; A--Bonds
considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances that bonds with higher ratings; BBB--Bonds
considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings; BB--Bonds are considered speculative. The
obligor's ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements; B--Bonds are considered highly
speculative. While bonds in this class are currently meeting debt
service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety
and the need for reasonable business and economic activity throughout the
life of the issue; CCC--Bonds have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic environment;
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time; C--Bonds are in imminent default in
payment of interest or principal; and DDD, DD and D--Bonds are in default
on interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their ultimate recovery
value in liquidation or reorganization of the obligor. "DDD" represents
the highest potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.

Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the "AAA" category.

COMMERCIAL PAPER

Excerpts from Moody's description of its two highest commercial
paper ratings: P-1--the highest grade possessing greatest relative
strength; P-2--second highest grade possessing less relative strength
than the highest grade.

Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--judged to be the highest investment grade category
possessing the highest relative strength; A-2--investment grade category
possessing less relative strength than the highest rating.

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<PAGE>

The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific
tax-exempt funds, money market funds, global and international funds and
closed-end equity funds give investors the ability to create a portfolio
that fits their personal financial goals. For more information, contact
your financial adviser or call Delaware Group at 800-523-4640.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

SUB-ADVISER
Delaware International Advisers Ltd.
Veritas House
125 Finsbury Pavement
London, England EC2A 1NQ

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,

ACCOUNTING SERVICES

AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006

- ------------------------------------------
STRATEGIC INCOME FUND
- ------------------------------------------

A CLASS
B CLASS
C CLASS

- ------------------------------------------

PROSPECTUS

- ------------------------------------------

SEPTEMBER 29, 1997

DELAWARE

GROUP

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<PAGE>

STRATEGIC INCOME FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES SEPTEMBER 29, 1997

--------------------------------------

1818 MARKET STREET, PHILADELPHIA, PA 19103

FOR MORE INFORMATION ABOUT
STRATEGIC INCOME FUND INSTITUTIONAL CLASS
CALL THE DELAWARE GROUP AT 800-828-5052.

This PROSPECTUS describes shares of Strategic Income Fund series (the
"Fund") of Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a
professionally-managed mutual fund of the series type. The investment objective
of the Fund is to seek to provide investors with high current income and total
return.

The Fund offers Strategic Income Fund Institutional Class (the "Class") of
shares.

The Fund also offers Strategic Income Fund A Class, Strategic Income Fund B
Class and Strategic Income Fund C Class . Shares of these classes are subject
to sales charges and other expenses, which may affect their performance. A
prospectus for these classes can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling 800-523-4640.

<PAGE>

TABLE OF CONTENTS

Cover Page Dividends and Distributions
Synopsis Taxes
Summary of Expenses Calculation of Net Asset
Investment Objective and Policies Value Per Share
Suitability Management of the Fund
Investment Strategy Other Investment Policies
Special Risks Considerations and Risk Considerations
High-Yield Securitie Appendix A - Ratings
Foreign Securities
Classes of Shares

-2-
<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek to provide investors with
high current income and total return. The Fund seeks to achieve its objective
by using a multi-sector investment approach, investing principally in three
sectors of the fixed-income securities markets: high-yield, higher risk
securities; investment grade fixed-income securities; and foreign government and
other foreign fixed-income securities. In addition, the Fund may invest in U.S.
equity securities. For further details, see INVESTMENT OBJECTIVE AND POLICIES,
SPECIAL RISK CONSIDERATIONS AND OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS.

RISK FACTORS

Prospective investors should consider the following:

1. The Fund may invest up to 60% of its assets in high-yield, higher risk
fixed-income securities issued by U.S. companies ("junk bonds"). In addition, a
portion of the Fund's foreign fixed-income securities and U.S. equity securities
may be rated below investment grade. Such securities may increase the risks of
an investment in this Fund. See HIGH-YIELD SECURITIES under SPECIAL RISK
CONSIDERATIONS.

4. The Fund may invest up to 15% of its net assets in issuers located or
operating in markets of emerging countries. The securities markets in these
countries may be subject to a greater degree of economic, political and social
instability than is the case in the United States, Western European and other
developed markets. See SPECIAL RISK CONSIDERATIONS.

INVESTMENT MANAGER, SUB-ADVISER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager has entered into a sub-
advisory agreement with Delaware International Advisers Ltd. (the "Sub-
Adviser"), an affiliate of the Manager, with respect to the management of the
Fund's investments in foreign government and other foreign fixed-income
securities. The Manager and the Sub-Adviser also provide investment management
services to certain other funds in the Delaware Group. Delaware Distributors,
L.P. (the "Distributor") is the national distributor for the Fund and for all of
the other mutual funds in the Delaware Group. Delaware Service Company, Inc.
(the "Transfer Agent") is the shareholder servicing, dividend disbursing,
accounting services and transfer agent for the Fund and for all of the other
mutual funds in the Delaware Group. See SUMMARY OF EXPENSES and MANAGEMENT OF
THE FUND for further information regarding the Manager and the Sub-Adviser and
the fees payable under the Fund's Investment Management and Sub-Advisory
Agreements.

-3-
<PAGE>

PURCHASE PRICE

REDEMPTION AND EXCHANGE

Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See REDEMPTION
AND EXCHANGE.

OPEN-END INVESTMENT COMPANY

Income Funds, Inc.is an open-end management investment company. The Fund's
portfolio of assets is diversified as defined by the Investment Company Act of
1940 (the "1940 Act"). Income Funds, Inc. was first organized as a Delaware
corporation in 1970 and subsequently organized as a Maryland corporation on
March 4, 1983. See SHARES under MANAGEMENT OF THE FUND.

-4-
<PAGE>

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) . . . . . . . None

Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price) . . None

Exchange Fees . . . . . . . . . . . . . . . . . . None*

ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)

Management Fees (after voluntary waivers) . . . . 0.00%

12b-1 Fees. . . . . . . . . . . . . . . . . . . . None

Other Operating Expenses
(after voluntary payments) . . . . . . . . . 0.75%

Total Operating Expenses
(after voluntary waivers and payments) . . . 0.75%

*Exchanges are subject to the requirements of each fund and a front-end
sales charge may apply.

+The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total Operating
Expenses of Strategic Income Fund Institutional Class, do not exceed 0.75%
during the commencement of the public offering of the Class through December 31,
1997. If the voluntary expense waivers were not in effect, the Total Operating
Expenses, as a percentage of average daily net assets, would have been 1.87% for
Strategic Income Fund Institutional Class, reflecting management fees of 0.65%.

For expense information about Strategic Income Fund A Class, Strategic
Income Fund B Class and Strategic Income Fund C Class, see the separate
prospectus relating to those classes.

-5-
<PAGE>

The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, and (2) redemption at the end of each time period. As noted in the
table above, the Fund charges no redemption fees. The following example assumes
the voluntary waivers of the management fee and/or other payments of expenses by
the Manager as discussed in this PROSPECTUS.

1 year 3 years 5 years 10 years
$8 $24 $42 $93

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Class will bear directly or
indirectly.

-6-
<PAGE>

FINANCIAL HIGHLIGHTS

-7-
<PAGE>

Strategic Income
Fund
Institutional Class
For the period
10/1/96(1) through
7/31/97
--------------------
Net Asset Value, Beginning of Period . . . . . . . . . . . . $5.5000

Income From Investment Operations
Net Investment Income. . . . . . . . . . . . . . . . . . . . 0.3670
Net Gains (Losses) on Securities
(both realized and unrealized). . . . . . . . . . . . . 0.1870
Total From Investment Operations. . . . . . . . . . . . . 0.5540

Less Distributions
Dividends from Net Investment Income . . . . . . . . . . . . (0.3540)
Distributions from Capital Gains . . . . . . . . . . . . . . none
Total Distributions . . . . . . . . . . . . . . . . . . (0.3540)
Net Asset Value, End of Period . . . . . . . . . . . . . . . $5.7000

Total Return . . . . . . . . . . . . . . . . . .10.36%(2)

Ratios/Supplemental Data
Net Assets, End of Period (000's omitted). . . . . . . . . . $3,405
Ratio of Expenses to Average Daily Net Assets. . . . . . . . 0.75%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation . . . . . . . . . . . . . . 1.87%
Ratio of Net Investment Income to Average
Daily Net Assets . . . . . . . . . . . . . . . . . . 7.90%
Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitation . . . . . . . . . . . . . . 6.78%
Portfolio Turnover Rate 183%

(1) Date of initial public offering of Strategic Income Fund Institutional
Class; 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) Total return reflects the expense limitations referenced under SUMMARY OF
EXPENSES in the PROSPECTUS.

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INVESTMENT OBJECTIVE AND POLICIES

SUITABILITY

The Fund may be suitable for the investor interested in high current
income and total return which, in part, is derived from such income. The net
asset value per share of the Class may fluctuate in response to the condition of
individual companies and general market and economic conditions and, as a
result, the Fund is not appropriate for a short-term investor. The Fund cannot
assure a specific rate of return or that principal will be protected. However,
through the cautious selection and supervision of its portfolio, the Manager and
the Sub-Adviser will strive to achieve the Fund's objective.

The types of securities in which the Fund may invest are subject to
price fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated, lower-
rated and certain restricted securities have the potential for higher yields,
they are more speculative and increase the credit risk of the Fund's portfolio.
Changes in the market value of portfolio securities will not affect interest
income from such securities, but will be reflected in the Class' net asset
value. In addition, investments in foreign fixed-income securities involve
special risks, including those related to currency fluctuations, as well as to
political, economic and social situations different from and potentially more
volatile than those in the United States. Investors should be willing to accept
the risks, including the risk of net asset value fluctuations, associated with
investing in these types of securities. See SPECIAL RISK CONSIDERATIONS and
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS for a complete discussion of
the risk factors affecting the Fund's portfolio securities.

Ownership of Strategic Income Fund shares can reduce the bookkeeping and
administrative inconveniences that would be connected with direct purchases of
the types of securities in which the Fund invests.

INVESTMENT STRATEGY

The objective of the Fund is to seek to provide investors with high current
income and total return. The Manager will seek to achieve this objective by
allocating the Fund's investments principally among the following three sectors
of the fixed-income securities markets:

- a HIGH-YIELD SECTOR, consisting of high-yielding, lower-rated or
unrated fixed-income securities issued by U.S. companies;

- an INVESTMENT GRADE SECTOR, consisting of investment grade debt
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or by U.S. companies; and

- an INTERNATIONAL SECTOR, consisting of obligations of foreign
governments, their agencies and instrumentalities, and other fixed-
income securities of issuers in foreign countries and denominated in
foreign currencies.

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<PAGE>

The Manager will determine the amount of assets of the Fund that will be
allocated to each of the three sectors in which the Fund will invest, based on
its analysis of economic and market conditions and its assessment of the returns
and potential for appreciation that can be achieved from investment in each of
the three sectors. The Manager will periodically reallocate the Fund's assets
among sectors as it deems necessary, and as little as 20% and as much as 60% of
the Fund's assets may be invested in each fixed-income sector. In addition, the
Fund may invest up to 10% of its assets in U.S. equity securities.

DOMESTIC HIGH-YIELD SECTOR

The Manager will invest the Fund's assets that are allocated to the
domestic high-yield sector primarily in those securities having a liberal and
consistent yield and those tending to reduce the risk of market fluctuations.
The Fund may invest in domestic corporate debt obligations, including corporate
notes (including convertible notes), units consisting of bonds with stock or
warrants to buy stock attached, debentures, convertible debentures, zero coupon
bonds and pay-in-kind securities ("PIKs"). See ZERO COUPON BONDS AND PAY-IN-
KIND BONDS under OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS. The Fund
may also purchase preferred stock and convertible preferred stock.

The Fund will invest in both rated and unrated bonds. The rated bonds that
the Fund may purchase in this sector of its portfolio will generally be rated BB
or lower by Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service,
Inc. ("Fitch"), Ba or lower by Moody's Investors Service, Inc. ("Moody's"), or
similarly rated by another nationally recognized statistical rating
organization. SEE APPENDIX A - RATINGS in this PROSPECTUS for more rating
information and HIGH-YIELD SECURITIES under SPECIAL RISK CONSIDERATIONS for a
description of the risks associated with investing in lower-rated fixed-income
securities. Unrated bonds may be more speculative in nature than rated bonds.

INVESTMENT GRADE SECTOR

In managing the Fund's assets allocated to the investment grade sector, the
Manager will invest primarily in debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities and by U.S. corporations.
The corporate debt obligations in which the Fund may invest include bonds,
notes, debentures and commercial paper of U.S. companies.

The investment grade sector of the Fund's portfolio may also be invested in
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or by government sponsored corporations. See
MORTGAGE-BACKED SECURITIES under OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS for a discussion of these types of securities. Other mortgage-
backed securities in which the Fund may invest are issued by certain private,
non-government entities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs). See CMOS AND REMICS under OTHER INVESTMENT POLICES AND RISK
CONSIDERATIONS for a discussion of these types of mortgage-backed securities.

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<PAGE>

Subject to the quality limitations set forth in this PROSPECTUS, the Fund
may also invest in securities which are backed by assets such as receivables on
home equity and credit card loans, and receivables regarding automobile, mobile
home, recreational vehicle and other loans, wholesale dealer floor plans and
leases. See ASSET-BACKED SECURITIES under OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS. The Fund may also invest in futures contracts and options on
futures contracts subject to certain limitations. See FUTURES under OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS.

Securities purchased by the Fund within the investment grade sector will be
rated in one of the four highest rating categories or will be unrated securities
that are of comparable quality as determined by the Manager. The four highest
rating categories are AAA, AA, A or BBB by S&P and Fitch, or Aaa, Aa, A or Baa
by Moody's. Debt securities within the top three categories comprise what are
known as high-grade bonds and are regarded as having a strong capacity to pay
principal and interest. Securities in the fourth category, known as medium-
grade bonds, are regarded as having an adequate capacity to pay principal and
interest but with greater vulnerability to adverse economic conditions and
speculative characteristics. SEE APPENDIX A - RATINGS in this PROSPECTUS for
more rating information.

INTERNATIONAL SECTOR

The Sub-Adviser will invest the assets of the Fund that are allocated to
the international sector primarily in fixed-income securities of issuers
organized or having a majority of their assets or deriving a majority of their
operating income in foreign countries. These fixed-income securities include
foreign government securities, debt obligations of foreign companies, and
securities issued by supranational entities.

A supranational entity is an entity established or financially supported by
the national governments of one or more countries to promote reconstruction or
development. Examples of supranational entities include, among others, the
International Bank for Reconstruction and Development (more commonly known as
the World Bank), the European Economic Community, the European Coal and Steel
Community, the European Investment Bank, the Inter-Development Bank, the Export-
Import Bank and the Asian Development Bank.

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<PAGE>

expedite settlement of Fund transactions and to minimize currency value
fluctuations. See OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS for a
further description of the Fund's foreign currency transactions.

While the Fund may purchase securities of issuers in any foreign country,
developed and underdeveloped, no more than 15% of the Fund's assets may be
invested in direct obligations of issuers located in emerging market countries.
See EMERGING MARKET SECURITIES under SPECIAL RISK CONSIDERATIONS.

The Fund will invest in both rated and unrated foreign securities. The
rated securities that the Fund may purchase in the international sector of its
portfolio may include those rated BBB or lower by S&P or Fitch, Baa or lower by
Moody's, or similarly rated by another nationally recognized statistical rating
organization. SEE APPENDIX A - RATINGS in this PROSPECTUS for more rating
information and FOREIGN SECURITIES and HIGH-YIELD SECURITIES under SPECIAL RISK
CONSIDERATIONS for a description of the risks associated with investing in
foreign securities and lower-rated fixed-income securities.

EQUITY SECTOR

Up to 10% of the Fund's assets may be invested in U.S. equity securities.
Such investments may include common stocks, preferred stocks (including
adjustable rate preferred stocks) and other equity securities, such as
convertible securities and warrants, which may be used to create other
permissible investments. Such investments must be consistent with the Fund's
objective of high current income and total return. In addition, the Fund may
invest in shares or convertible bonds of real estate investment trusts
("REITs"). See REITS under OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
for a discussion of these types of securities.

In managing the Fund's assets allocated to the U.S. equity sector, the
Manager may invest in securities that are rated and unrated. The securities may
include those rated BBB or lower by S&P or Fitch, Baa or lower by Moody's, or
similarly rated by another nationally recognized statistical rating
organization. SEE APPENDIX A - RATINGS in this PROSPECTUS for more rating
information and HIGH-YIELD SECURITIES under SPECIAL RISK CONSIDERATIONS for a
description of the risks associated with investing in lower-rated securities.

* * *

For a description of the Fund's other investment policies and for a further
description of some of the policies described above, see OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS.

In unusual market conditions, in order to meet redemption requests, for
temporary defensive purposes, and pending investment, the Fund may hold a
substantial portion of its assets in cash or short-term fixed-income
obligations. The Fund may invest in repurchase agreements, but it normally does
so only to invest cash balances. The Fund is permitted to borrow money.

Although the Fund will constantly strive to attain its objective, there can
be no assurance that it will be attained.

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<PAGE>

voting securities. A "majority vote of the outstanding voting securities" is
the vote by the holders of the lesser of a) 67% or more of the Fund's voting
securities present in person or represented by proxy if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or b) more than 50% of the outstanding voting securities. PART B
lists other more specific investment restrictions of the Fund which may not be
changed without a majority shareholder vote.

The remaining investment policies of the Fund not identified above or in
PART B as fundamental are not fundamental and may be changed by the Board of
Directors of Income Funds, Inc. without a shareholder vote.

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<PAGE>

SPECIAL RISK CONSIDERATIONS

GENERALLY

HIGH-YIELD SECURITIES

The Fund may invest a significant portion of its assets in bonds and other
securities rated BBB or lower by S&P or Fitch, Baa or lower by Moody's or
similarly rated by another rating organization, and in unrated corporate bonds.
See APPENDIX A - RATINGS in this PROSPECTUS for more rating information.
Investing in these so-called "junk" bonds or "high-yield" securities entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Fund. High-yield
bonds are sometimes issued by companies whose earnings at the time of issuance
are less than the projected debt service on the junk bonds. In addition to the
considerations discussed elsewhere in this PROSPECTUS, those risks include the
following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET. Although the market for high-
yield bonds has been in existence for many years, including periods of economic
downturns, the high-yield market grew rapidly during the long economic expansion
which took place in the United States during the 1980s. During that economic
expansion, the use of high-yield debt securities to fund highly leveraged
corporate acquisitions and restructurings increased dramatically. As a result,
the high-yield market grew substantially during that economic expansion.
Although experts disagree on the impact recessionary periods have had and will
have on the high-yield market, some analysts believe a protracted economic
downturn would severely disrupt the market for high-yield bonds, would adversely
affect the value of outstanding bonds and would adversely affect the ability of
high-yield issuers to repay principal and interest. Those analysts cite
volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in the Class' net asset value.

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<PAGE>

securities to generate proceeds for redemptions, the asset base of the Fund will
decrease and the Fund's expense ratios may increase.

LIQUIDITY AND VALUATION. The secondary market for high-yield securities is
currently dominated by institutional investors, including mutual funds, and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions that dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for high-
yield securities is also generally considered to be more likely to be disrupted
by adverse publicity and investor perceptions than the more established
secondary securities markets. The privately placed high-yield securities that
the Fund may purchase are particularly susceptible to the liquidity and
valuation risks outlined above.

FOREIGN SECURITIES

Further, the Fund may encounter difficulty or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the United States, and capital requirements for brokerage
firms are generally lower. The foreign securities markets of many of the
countries in which the Fund may invest may also be smaller, less liquid and
subject to greater price volatility than those in the United States.

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<PAGE>

EMERGING MARKET SECURITIES. The Fund may invest up to 15% of its assets in
the debt securities of issuers located in emerging market nations. Compared to
the United States and other developed countries, emerging countries may have
volatile social conditions, relatively unstable governments and political
systems, economies based on only a few industries and economic structures that
are less diverse and mature, and securities markets that trade a small number of
securities, which can result in a low or nonexistent volume of trading. Prices
in these securities markets tend to be volatile and, in the past, securities in
these countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries. Until recently, there
has been an absence of a capital market structure or market-oriented economy in
certain emerging countries. Further, investments and opportunities for
investments by foreign investors are subject to a variety of national policies
and restrictions in many emerging countries. Also, the repatriation of both
investment income and capital from several foreign countries is restricted and
controlled under certain regulations, including, in some cases, the need for
certain governmental consents. Countries such as those in which the Fund may
invest have historically experienced and may continue to experience,
substantial, and in some periods extremely high rates of inflation for many
years, high interest rates, exchange rate fluctuations or currency depreciation,
large amounts of external debt, balance of payments and trade difficulties and
extreme poverty and unemployment. Other factors which may influence the ability
or willingness to service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the economy as a
whole, its government's policy towards the International Monetary Fund, the
World Bank and other international agencies and the political constraints to
which a government debtor may be subject.

BRADY BONDS. Among the foreign fixed-income securities in which the Fund
may invest are Brady Bonds. Brady Bonds are debt securities issued under the
framework of the Brady Plan, an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness (generally commercial bank
debt). In so restructuring its external debt, a debtor nation negotiates with
its existing bank lenders, as well as multilateral institutions such as the
World Bank and the International Monetary Fund, to exchange its commercial bank
debt for newly issued bonds (Brady Bonds). The Sub-Adviser believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment. Investors,
however, should recognize that the Brady Plan only sets forth general guiding
principles for economic reform and debt reduction, emphasizing that solutions
must be negotiated on a case-by-case basis between debtor nations and their
creditors. In addition, Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history.

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<PAGE>

organizations and others to make such disbursements may be conditioned on the
government's implementation of economic reforms and/or economic performance and
the timely service of its obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may curtail the willingness of such third parties to lend funds, which may
further impair the issuer's ability or willingness to service its debts in a
timely manner. The cost of servicing external debt will also generally be
adversely affected by rising international interest rates because many external
debt obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external debt will also
depend on the level of the relevant government's international currency reserves
and its access to foreign exchange. Currency devaluations may affect the
ability of a government issuer to obtain sufficient foreign exchange to service
its external debt. If a foreign governmental issuer defaults on its
obligations, the Fund may have limited legal recourse against the issuer and/or
guarantor.

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CLASSES OF SHARES

The Distributor serves as the national distributor for Income Funds, Inc.
Shares of the Class may be purchased directly by contacting the Fund or its
agent or through authorized investment dealers. All purchases of shares of the
Class are at net asset value. There is no front-end or contingent deferred
sales charge.

INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN EMPLOYER-
SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS PROVIDED BY THE
EMPLOYER. EMPLOYEES CONSIDERING PURCHASING SHARES OF THE CLASS AS PART OF THEIR
RETIREMENT PROGRAM SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.

Shares of the Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager, or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.

STRATEGIC INCOME FUND A CLASS, STRATEGIC INCOME FUND B CLASS AND STRATEGIC
INCOME FUND C CLASS

In addition to offering Strategic Income Fund Institutional Class, the Fund
also offers Strategic Income Fund A Class, Strategic Income Fund B Class and
Strategic Income Fund C Class, which are described in a separate prospectus.
Shares of Strategic Income Fund A Class, Strategic Income Fund B Class and
Strategic Income Fund C Class may be purchased through authorized investment
dealers or directly by contacting the Fund or the Distributor. Strategic Income
Fund A Class carries a front-end sales charge and has annual 12b-1 expenses
equal to a maximum of 0.30% (currently, no more than 0.25% pursuant to Board
action). The maximum front-end sales charge as a percentage of the offering
price is 4.75% and is reduced on certain transactions of $100,000 or more.
Strategic Income Fund B Class and Strategic Income Fund C Class have no front-
end sales charge but are subject to annual 12b-1 expenses equal to a maximum of
1%. Shares of Strategic Income Fund B Class and Strategic Income Fund C Class
and certain shares of Strategic Income Fund A Class may be subject to a
contingent deferred sales charge upon redemption. To obtain a prospectus
relating to such classes, contact the Distributor by writing to the address or
by calling the phone numbers listed on the cover of this PROSPECTUS.

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HOW TO BUY SHARES

The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.

INVESTING DIRECTLY BY MAIL

1. INITIAL PURCHASES--An Investment Application, or in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to Strategic Income Fund
Institutional Class, to Delaware Group at 1818 Market Street, Philadelphia, PA
19103.

2. SUBSEQUENT PURCHASES--Additional purchases may be made at any time by
mailing a check payable to Strategic Income Fund Institutional Class. Your
check should be identified with your name(s) and account number.

INVESTING DIRECTLY BY WIRE

You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 1412893401 (include
your name(s) and your account number).

1. INITIAL PURCHASES--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement account, an
appropriate retirement plan application, for Strategic Income Fund Institutional
Class, to Delaware Group at 1818 Market Street, Philadelphia, PA 19103.

2. SUBSEQUENT PURCHASES--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your wire.

INVESTING BY EXCHANGE

If you have an investment in another mutual fund in the Delaware Group and
you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Fund. However, shares of
Strategic Income Fund B Class and Strategic Income Fund C Class and Class B
Shares and Class C Shares of the other funds in the Delaware Group offering such
a class of shares may not be exchanged into the Class. If you wish to open an
account by exchange, call your Client Services Representative at 800-828-5052
for more information. See REDEMPTION AND EXCHANGE for more complete information
concerning your exchange privileges.

INVESTING THROUGH YOUR INVESTMENT DEALER

You can make a purchase of Fund shares through most investment dealers who,
as part of the service they provide, must transmit orders promptly to the Fund.
They may charge for this service.

PURCHASE PRICE AND EFFECTIVE DATE

The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.

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<PAGE>

THE CONDITIONS OF YOUR PURCHASE

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.

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<PAGE>

REDEMPTION AND EXCHANGE

Your shares will be redeemed or exchanged based on the net asset value next
determined after the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined will be processed on the next business day.
See PURCHASE PRICE AND EFFECTIVE DATE under HOW TO BUY SHARES. Except as
otherwise noted below, for a redemption request to be in "good order," you must
provide your Class account number, account registration, and the total number of
shares or dollar amount of the transaction. With regard to exchanges, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.

Shares of the Class may be exchanged into any other Delaware Group mutual
fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of the Class, such exchange will be exchanged at
net asset value. Shares of the Class may not be exchanged into Class B Shares
or Class C Shares of the funds in the Delaware Group. The Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.

Various redemption and exchange methods are outlined below. No fee is
charged by the Fund or the Distributor for redeeming or exchanging your shares
although in the case of an exchange, a sales charge may apply. You may also
have your investment dealer arrange to have your shares redeemed or exchanged.
Your investment dealer may charge for this service.

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WRITTEN REDEMPTION AND EXCHANGE

Payment is normally mailed the next business day after receipt of your
request. Certificates are issued for shares only if you submit a specific
request. If your shares are in certificate form, the certificate must accompany
your request and also be in good order.

You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.

TELEPHONE REDEMPTION AND EXCHANGE

To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.

Neither the Fund nor its Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.

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<PAGE>

TELEPHONE REDEMPTION-CHECK TO YOUR ADDRESS OF RECORD

TELEPHONE REDEMPTION-PROCEEDS TO YOUR BANK

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your redemption request to your predesignated bank account. There
are no fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call your Client Services Representative
prior to the time the net asset value is determined, as noted above.

TELEPHONE EXCHANGE

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DIVIDENDS AND DISTRIBUTIONS

The Fund expects to declare a dividend each day and to pay such
dividends once each month. Distributions from net realized securities profits,
if any, will be distributed twice a year. The first payment normally would be
made during the first quarter of the next fiscal year. The second payment would
be made near the end of the calendar year to comply with certain requirements of
the Internal Revenue Code (the "Code"). Both dividends and distributions, if
any, are automatically reinvested in your account at net asset value.

Purchases of Fund shares by wire begin earning dividends when
converted into Federal Funds and available for investment, normally the next
business day after receipt. However, if the Fund is given prior notice of a
Federal Funds wire and an acceptable written guarantee of timely receipt from an
investor satisfying the Fund's credit policies, the purchase will start earning
dividends on the date the wire is received. Purchases by check earn dividends
upon conversion to Federal Funds, normally one business day after receipt.

Dividends will be declared each day to all shareholders of record as of the
time the net asset value per share is determined. See PURCHASE PRICE AND
EFFECTIVE DATE under HOW TO BUY SHARES. Thus, when redeeming shares, dividends
continue to be credited up to and including the date of redemption.

Each class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that the Class will not incur distribution fees
under the Rule 12b-1 Plans which apply to Strategic Income Fund A Class,
Strategic Income Fund B Class and Strategic Income Fund C Class.

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TAXES

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As such, the Fund will not be subject to federal
income tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code.

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, even though received in additional shares.
It is expected that either none or only a nominal portion of the Fund's
dividends will be eligible for the dividends-received deduction for
corporations.

The Fund may be subject to foreign withholding taxes on income from certain
of its foreign securities. If more than 50% in value of the total assets of the
Fund at the end of its fiscal year are invested in securities of foreign
corporations, the Fund may elect to pass-through to its shareholders a pro-rata
share of foreign income taxes paid by the Fund. If this election is made,
shareholders will be (i) required to include in their gross income their pro-
rata share of foreign source income (including any foreign taxes paid by the
Fund), and (ii) entitled to either deduct (as an itemized deduction in the case
of individuals) their share of such foreign taxes in computing their taxable
income or to claim a credit for such taxes against their U.S. income tax,
subject to certain limitations under the Code. Shareholders will

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be informed by the Fund at the end of each calendar year of the availability of
any credits on, and the amount of foreign source income to be included in, their
income tax returns.

See TAXES in PART B for additional information on tax matters relating to
the Fund and its shareholders.

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CALCULATION OF NET ASSET VALUE PER SHARE

The purchase and redemption price of the Class is the net asset value
("NAV") per share of the Class next computed after the order is received. The
NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The NAV is computed by adding the value of all securities and other assets
in the portfolio, deducting any liabilities (expenses and fees are accrued
daily) and dividing by the number of shares outstanding. Debt securities are
priced on the basis of valuations provided by an independent pricing service
using methods approved by Income Funds, Inc.'s Board of Directors. Equity
securities for which market quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. All other securities are
valued at their fair value as determined in good faith and in a method approved
by Income Funds, Inc.'s Board of Directors.

The net asset values of all outstanding shares of each class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under Income Funds,
Inc.'s 12b-1 Plans and Strategic Income Fund A, B and C Classes alone will bear
the 12b-1 Plan fees payable under their respective Plans. Due to the specific
distribution expenses and other costs that may be allocable to each class, the
NAV of each class is expected to vary.

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MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER AND SUB-ADVISER

The Manager furnishes investment management services to the Fund.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1997, the Manager and its affiliates in
the Delaware Group, including the Sub-Adviser, were supervising in the aggregate
more than $39 billion in assets in the various institutional or separately
managed (approximately $23,844,101,000) and investment company (approximately
$15,869,009,000) accounts. The directors of Income Funds, Inc. annually review
fees paid to the Manager.

The Manager manages the Fund's portfolio and makes investment decisions for
the Fund. The Manager also administers Income Funds, Inc.'s affairs and pays
the salaries of all the directors, officers and employees of Income Funds, Inc.
who are affiliated with the Manager. For these services, the Manager is paid an
annual fee equal to 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. Investment management fees incurred by the Fund for the
period October 1, 1996 (date of initial public offering) through July 31, 1997
were 0.65% (annualized) of average daily net assets and no management fees were
paid after considering the voluntary waiver of fees by the Manager.

Subject to the overall supervision of the Manager, the Sub-Adviser manages
the international sector of the Fund's portfolio and furnishes the Manager with
investment recommendations, asset allocation advice, research and other
investment services with respect to foreign securities. For the services
provided to the Manager, the Manager pays the Sub-Adviser a fee equal to one-
third of the fee paid to the Manager under the terms of the Investment
Management Agreement.

Paul A. Matlack has primary responsibility for allocating the Fund's assets
among the fixed-income and equity sectors and for making day-to-day investment
decisions for the Fund regarding its investments in the high-yield sector. Mr.
Matlack, a Vice President/Senior Portfolio Manager of Income Funds, Inc., has
been a member of the Fund's management team since its inception. A CFA
charterholder, Mr. Matlack is a graduate of the University of Pennsylvania with
an MBA in Finance from George Washington University. He began his career at
Mellon Bank as a credit specialist, and later served as a corporate loan officer
for Mellon Bank and then Provident National Bank.

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<PAGE>

Paul Grillo has primary responsibility for making day-to-day investment
decisions for the Fund regarding its investments in investment grade securities.
Mr. Grillo has been a member of the Fund's management team since its inception.
Mr. Grillo, a Vice President and Portfolio Manager of Income Funds, Inc., holds
a BA in Business Management from North Carolina State University and an MBA in
Finance from Pace University. Prior to joining the Manager in 1993, he served
as mortgage strategist and trader at the Dreyfus Corporation. He also served as
a mortgage strategist and portfolio manager for the Chemical Investment Group
and as financial analyst at the Chemical Bank. Mr. Grillo is a CFA
charterholder.

Ian G. Sims, a Director and Senior Portfolio Manager with the Sub-Adviser,
has primary responsibility for making day-to-day investment decisions for the
Fund regarding its investments in foreign securities. Mr. Sims has been a
member of the Fund's management team since its inception. Mr. Sims is a
graduate of the University of Leicester and holds a postgraduate degree in
statistics from the University of Newcastle-Upon-Tyne. He joined the Sub-
Adviser in 1990 as a senior international fixed-income and currency manager.
Mr. Sims began his investment career with the Standard Life Assurance Co., and
subsequently moved to the Royal Bank of Canada Investment Management
International Company, where he was an international fixed-income manager.
Prior to joining the Sub-Adviser, he was a senior fixed-income and currency
portfolio manager with Hill Samuel Investment Advisers Ltd.

Babak Zenouzi has primary responsibility for making day-to-day investment
decisions for the Fund regarding its investments in U.S. equity securities. Mr.
Zenouzi, a Vice President/Portfolio Manager of Income Funds, Inc., has been a
member of the Fund's management team since its inception. Mr. Zenouzi holds a
BS in Finance and Economics from Babson College in Wellesley, Massachusetts, and
an MS in Finance from Boston College. Prior to joining the Manager in 1992, he
was with The Boston Company where he held the positions of assistant vice
president, senior financial analyst, financial analyst and portfolio accountant.

The portfolio management team will from time to time consult with Paul E.
Suckow, Executive Vice President/Chief Investment Officer, Fixed Income of
Income Funds, Inc., with respect to security selection, evaluation of market and
economic trends, and sector allocation. A CFA charterholder, he is a graduate
of Bradley University with an MBA from Western Illinois University. Mr. Suckow
was a fixed-income portfolio manager at the Delaware Group from 1981 to 1985.
He returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 100%. A turnover rate of 100% occurs, for
example, when all the investments in the Fund's portfolio at the beginning of
the year were replaced by the end of the year. For the period October 1, 1996
(date of initial public offering) through July 31, 1997, the Fund's portfolio
turnover rate was 183% (annualized).

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The Manager and the Sub-Adviser use their best efforts to obtain the best
available price and most favorable execution for portfolio transactions. Orders
may be placed with brokers or dealers who provide brokerage and research
services to the Manager or the Sub-Adviser, or to their advisory clients. These
services may be used by the Manager or the Sub-Adviser in servicing any of their
respective accounts. Subject to best price and execution, the Manager and the
Sub-Adviser may consider a broker/dealer's sales of shares of funds in the
Delaware Group of funds in placing portfolio orders and may place orders with
broker/dealers that have agreed to defray certain expenses of such funds, such
as custodian fees.

PERFORMANCE INFORMATION

From time to time, the Fund may quote yield or total return performance of
the Class in advertising and other types of literature.

Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions. Each presentation will include the
average annual total return for one-, five- and ten-year (and life-of-fund, if
applicable) periods. The Fund may also advertise aggregate and average total
return information concerning the Class over additional periods of time.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

STATEMENTS AND CONFIRMATIONS

FINANCIAL INFORMATION ABOUT THE FUND

DISTRIBUTION AND SERVICE

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement dated
as of September 30, 1996. The Distributor bears all of the costs of promotion
and distribution.

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<PAGE>

would be performed by the Transfer Agent may be performed by certain other
entities and the Transfer Agent may elect to enter into an agreement to pay such
other entities for their services. In addition, participant account maintenance
fees may be assessed for certain recordkeeping provided as part of retirement
plan and administration service packages. These fees are based on the number of
participants in the plan and the various services selected. Fees will be quoted
upon request and are subject to change.

The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

EXPENSES

The Fund is responsible for all of its own expenses other than those borne
by the Manager under the Investment Management Agreement and those borne by the
Distributor under the Distribution Agreement. For the period October 1, 1996
(date of initial public offering) through July 31, 1997, the ratio of operating
expenses to average daily net assets for the Class was 0.75% (annualized). The
expense ratio reflects the voluntary waiver and payment of fees by the Manager.

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983. Income Funds, Inc. was previously organized as a
Delaware corporation in 1970. In addition to the Fund, Income Funds, Inc.
presently offers two other series of shares, the Delchester Fund series and the
High-Yield Opportunities Fund series.

Fund shares have a par value of $1.00, equal voting rights, except as noted
below, and are equal in all other respects.

Income Funds, Inc.'s shares have noncumulative voting rights which means
that the holders of more than 50% of Income Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Maryland law, Income Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Income
Funds, Inc.'s outstanding shares may request that a special meeting be called to
consider the removal of a director.

In addition to the Class, the Fund also offers Strategic Income Fund A
Class, Strategic Income Fund B Class and Strategic Income Fund C Class which
represent proportionate interests in the assets of the Fund and have the same
voting and other rights and preferences as the Class, except that shares of the
Class are not subject to, and may not vote on matters affecting, the
Distribution Plans under Rule 12b-1 relating to Strategic Income Fund A Class,
Strategic Income Fund B Class and Strategic Income Fund C Class.

Lincoln National Corporation Employees' Retirement Trust (the "Trust")
made an initial investment in the Fund, and as of July 31, 1997, the Trust held
97% of the outstanding shares of the Class. Subject to certain limited
exceptions, there are no limitations on the Trust's ability to redeem its shares
of the Fund and it may elect to do so at any time.

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<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

U.S. GOVERNMENT SECURITIES

U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by federal agencies and U.S.
government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, investors in such securities
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, the Federal Housing Administration, the Maritime
Administration, the Small Business Administration, and others. Certain agencies
and instrumentalities, such as the Government National Mortgage Association
("GNMA"), are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service its debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the U.S. Treasury to purchase certain amounts of their securities to assist the
institutions in meeting their debt obligations. Finally, other agencies and
instrumentalities, such as the Farm Credit System, the Tennessee Valley
Authority and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under U.S. government supervision, but their debt
securities are backed only by the creditworthiness of those institutions, not
the U.S. government.

The maturities of such securities usually range from three months to thirty
years. While such securities are guaranteed as to principal and interest by the
U.S. government or its instrumentalities, their market values may fluctuate and
are not guaranteed, which may, along with the other securities in the Fund's
portfolio, cause a Class' daily net asset value to fluctuate.

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

Although the Fund does not intend to purchase a substantial amount of zero
coupon bonds or PIK bonds, from time to time, the Fund may acquire zero coupon
bonds and, to a lesser extent, PIK bonds. Zero coupon bonds are debt
obligations which do not entitle the holder to any periodic payments of interest
prior to maturity or a specified date when the securities begin paying current
interest, and therefore are issued and traded at a discount from their face
amounts or par value. PIK bonds pay interest through the issuance to holders of
additional securities. Zero coupon bonds and PIK bonds are generally considered
to be more interest-sensitive than income bearing bonds, to be more speculative
than interest-bearing bonds, and to have certain tax consequences which could,
under certain circumstances, be adverse to the Fund. For example, with zero
coupon bonds, the Fund accrues, and is required to distribute to shareholders,
income on such bonds. However, the Fund may not receive the cash associated
with this income until the bonds are sold or

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mature. If the Fund did not have sufficient cash to make the required
distribution of accrued income, the Fund could be required to sell other
securities in its portfolio or to borrow to generate the cash required.

MORTGAGE-BACKED SECURITIES

The mortgages backing these securities include conventional 30-year fixed
rate mortgages, graduated payment mortgages and adjustable rate mortgages.
These mortgages may be supported by various types of insurance, may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by the
U.S. government, its agencies or instrumentalities. However, the guarantees do
not extend to the mortgage-backed securities' value, which is likely to vary
inversely with fluctuations in interest rates. These certificates are in most
cases "pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the
certificate. Because the prepayment characteristics of the underlying mortgages
vary, it is not possible to predict accurately the average life or realized
yield of a particular issue of pass-through certificates. During periods of
declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. When the mortgage obligations are
prepaid, the Fund may reinvest the prepaid amounts in securities, the yield of
which reflects interest rates prevailing at the time. Moreover, prepayments of
mortgages which underlie securities purchased at a premium could result in
capital losses.

CMOS AND REMICS

CMOs are debt securities issued by U.S. government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities. To the extent any privately-issued
CMOs or REMICs in which the Fund may invest are considered by the Securities and
Exchange Commission to be investment companies, the Fund will limit its
investment in such securities in a manner consistent with the provisions of the
1940 Act.

Certain CMOs and REMICs may have variable or floating interest rates and
others may be stripped. Stripped mortgage securities have greater market
volatility than other types of mortgage securities in which the Fund may invest.

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Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive
all of the interest (the "interest-only" class), while the other class will
receive all of the principal (the "principal-only" class). The yield to
maturity on an interest-only class is extremely sensitive not only to changes in
prevailing interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.

The Fund may invest in CMOs and REMICs issued by private entities which are
not collateralized by securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, so-called non-agency mortgage-backed
securities. Investments in these securities may be made only if the securities
(i) are rated at the time of purchase in the four top rating categories by a
nationally-recognized statistical rating organization (e.g., BBB or better by
S&P or Fitch, or Baa or better by Moody's) and (ii) represent interests in
whole-loan mortgages, multi-family mortgages, commercial mortgages and other
mortgage collateral supported by a first mortgage lien on real estate. Non-
agency mortgage-backed securities are subject to the interest rate and
prepayment risks, described above, to which other CMOs and REMICs issued by
private issuers are subject. Non-agency mortgage-backed securities may also be
subject to a greater risk of loss of interest and principal because they are not
collateralized by securities issued or guaranteed by the U.S. government. In
addition, timely information concerning the loans underlying these securities
may not be as readily available and the market for these securities may be less
liquid than other CMOs and REMICs.

ASSET-BACKED SECURITIES

The asset-backed securities in which the Fund may invest must be rated in
the four top rating categories by a nationally recognized statistical rating
organization (e.g., BBB or better by S&P and Fitch, or Baa or better by
Moody's). The receivables underlying asset-backed securities are typically
securitized in either a pass-through or a pay-through structure. Pass-through
securities provide investors with an income stream consisting of both principal
and interest payments in respect of the receivables in the underlying pool.
Pay-through asset-backed securities are debt obligations issued usually by a
special purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to pay the
debt service on the debt obligations issued. The Fund may invest in these and
other types of asset-backed securities structured in this way that may be
developed in the future.

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to maturity may be more or less than the anticipated yield to maturity. Due to
the shorter maturity of the collateral backing such securities, there is less of
a risk of substantial prepayment than with mortgage-backed securities. Such
asset-backed securities do, however, involve certain risks not associated with
mortgage-backed securities, including the risk that security interests cannot be
adequately or in many cases, ever, established. In addition, with respect to
credit card receivables, a number of state and federal consumer credit laws give
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the outstanding balance. In the case of automobile receivables, there
is a risk that the holders may not have either a proper or first security
interest in all of the obligations backing such receivables due to the large
number of vehicles involved in a typical issuance and technical requirements
under state laws. Therefore, recoveries on repossessed collateral may not
always be available to support payments on the securities.

BORROWINGS

The Fund may borrow money as a temporary measure or to facilitate
redemptions. The Fund will not borrow money in excess of one-third of the value
of its net assets. The Fund has no intention of increasing its net income
through borrowing. Any borrowing will be done from a bank and, to the extent
that such borrowing exceeds 5% of the value of the Fund's net assets, asset
coverage of at least 300% is required. In the event that such asset coverage
shall at any time fall below 300%, the Fund shall, within three days thereafter
(not including Sundays or holidays, or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations), reduce the amount
of its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. The Fund will not pledge more than 10% of its net
assets, or issue senior securities as defined in the 1940 Act, except for notes
to banks. Investment securities will not be purchased while the Fund has an
outstanding borrowing.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

PORTFOLIO LOAN TRANSACTIONS

The Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors.

RULE 144A SECURITIES

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<PAGE>

The Fund may invest in restricted securities, including privately placed
securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 15% of the value of its net assets in illiquid securities.

While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of the Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; (iv) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).

If the Manager or Sub-Adviser determines that a Rule 144A Security which
was previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 15% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.

INVESTMENT COMPANY SECURITIES

REPURCHASE AGREEMENTS

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<PAGE>

100% of the repurchase price, including the portion representing the Fund's
yield under such agreements, which is monitored on a daily basis.

Foreign Currency Transactions

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund will, however, from time to time, purchase or sell
foreign currencies and/or engage in forward foreign currency transactions in
order to expedite settlement of portfolio transactions and to minimize currency
value fluctuations. The Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., a "forward foreign currency"
contract or "forward" contract). A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract, agreed upon by the parties, at a
price set at the time of the contract. The Fund will convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion.

The Fund may enter into forward contracts to "lock in" the price of a
security it has agreed to purchase or sell, in terms of U.S. dollars or other
currencies in which the transaction will be consummated. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in currency exchange rates during the
period between the date the security is purchased or sold and the date on which
payment is made or received.

When the Sub-Adviser believes that the currency of a particular country may
suffer a significant decline against the U.S. dollar or against another
currency, the Fund may enter into a forward foreign currency contract to sell,
for a fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.

The Fund will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's securities or other assets denominated in that currency.

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It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.

OPTIONS

The Manager and the Sub-Adviser may employ options techniques in an attempt
to protect appreciation attained and to take advantage of the liquidity
available in the options market. The Fund may purchase call options on foreign
or U.S. securities and indices and enter into related closing transactions and
the Fund may write covered call options on such securities. The Fund may also
purchase put options on such securities and indices and enter into related
closing transactions.

A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. The
Fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.

A put option enables the purchaser of the option, in return for the premium
paid, to sell the security underlying the option to the writer at the exercise
price during the option period, and the writer of the option has the obligation
to purchase the security from the purchaser of the option. The Fund will only
purchase put options to the extent that the premiums on all outstanding put
options do not exceed 2% of its total assets. The advantage is that the
purchaser can be protected should the market value of the security decline or
should a particular index decline.

Closing transactions essentially let the Fund offset put options or call
options prior to exercise or expiration. If the Fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.

In purchasing put and call options, the premium paid by the Fund plus any
transaction costs will reduce any benefit realized by the Fund upon exercise of
the option. With respect to writing covered call options, the Fund may lose the
potential market appreciation of the securities subject to the option, if the
Manager's or the Sub-Adviser's judgment is wrong and the price of the security
moves in the opposite direction from what was anticipated.

The Fund may use both Exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. The Fund will only invest in
such options to the extent consistent with its 15%

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<PAGE>

limitation on investment in illiquid securities. The Fund will comply with U.S.
Securities and Exchange Commission asset segregation and coverage requirements
when engaging in these types of transactions.

FUTURES

While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into an
offsetting transaction. When the Fund enters into a futures transaction, it
must deliver to the futures commission merchant selected by the Fund an amount
referred to as "initial margin." This amount is maintained by the futures
commission merchant in an account at the Fund's custodian bank. Thereafter, a
"variation margin" may be paid by the Fund to, or drawn by the Fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.

The purpose of the purchase or sale of futures contracts consisting of U.S.
government securities is to protect the Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. government securities at higher prices.

REITs

REITs are pooled investment vehicles which invest primarily in income-
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like investment companies such as Income Funds, Inc., REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements in the Code. REITs are subject to substantial cash flow
dependency, defaults by borrowers, self-liquidation, and the risk of failing to
qualify for tax-free pass-through of income under the Code, and/or to maintain
exemptions from the 1940 Act.

-39-
<PAGE>

APPENDIX A - RATINGS

The Fund's assets may be invested in securities rated BBB or lower by S&P
or Fitch, Baa or lower by Moody's, in securities similarly rated by another
nationally recognized statistical rating organization, and in unrated corporate
bonds. These credit ratings evaluate only the safety of principal and interest
and do not consider the market value risk associated with high-yield securities.

The table set forth below shows the percentage of the Fund's securities
included in each of the specified rating categories and shows the percentage of
the Fund's assets held in U.S. government securities. Certain securities may
not be rated because the rating agencies were either not asked to provide
ratings (e.g., many issuers of privately placed bonds do not seek ratings) or
because the rating agencies declined to provide a rating for some reason, such
as insufficient data. The table below shows the percentage of the Fund's
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the period October 1, 1996 (date of initial public
offering) through July 31, 1997. The paragraphs following the table contain
excerpts from Moody's and S&P's rating descriptions.

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio

U.S. Treasury Obligations N/A
Aaa/AAA 22.77%
Aa/AA N/A
A/A 4.15%
Baa/BBB 2.04%
Ba/BB 1.32%
B/B 40.08%
Caa/CCC N/A
Not Rated/Other N/A

GENERAL RATING INFORMATION

BONDS

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<PAGE>

issues may be in default or there may be present elements of danger with respect
to principal or interest; Ca--represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings; C--the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Excerpts from Fitch's description of its bond ratings: AAA--Bonds
considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events; AA-- Bonds
considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+; A--Bonds considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings; BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings; BB--Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements; B--Bond
are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment
of principal and interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity throughout the life of
the issue; CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment; CC--Bonds are minimally
protected. Default in payment of interest and/or principal seems probable over
time; C--Bonds are in imminent default in payment of interest or principal; and
DDD, DD and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

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<PAGE>

Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the "AAA" category.

COMMERCIAL PAPER
Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength; P-2--
second highest grade possessing less relative strength than the highest grade.

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<PAGE>

For more information contact 34
the Delaware Group at 800-828-5052.

INVESTMENT MANAGER ---------------------
Delaware Management Company, Inc. STRATEGIC INCOME FUND
One Commerce Square ---------------------
Philadelphia, PA 19103 INSTITUTIONAL
---------------------

SUB-ADVISER
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL PROSPECTUS
Stradley, Ronon, Stevens & Young, LLP --------------------
One Commerce Square SEPTEMBER 29, 1997
Philadelphia, PA 19103

INDEPENDENT AUDITORS DELAWARE
Ernst & Young LLP
Two Commerce Square GROUP
Philadelphia, PA 19103 -----

CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006

<PAGE>

HIGH-YIELD OPPORTUNITIES FUND
PROSPECTUS
A CLASS SHARES SEPTEMBER 29, 1997
B CLASS SHARES
C CLASS SHARES

-------------------------------------------

1818 MARKET STREET, PHILADELPHIA, PA 19103

FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640

INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918

DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500

REPRESENTATIVES OF FINANCIAL INSTITUTIONS:
NATIONWIDE 800-659-2265

This PROSPECTUS describes shares of High-Yield Opportunities Fund series
(the "Fund") of Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a
professionally-managed mutual fund of the series type. The Fund's objective is
to seek to provide investors with total return and, as a secondary objective,
high current income.

THE FUND INVESTS UP TO 100% OF ITS ASSETS IN LOWER RATED FIXED-INCOME
SECURITIES, COMMONLY KNOWN AS "JUNK BONDS," WHICH INVOLVE GREATER RISKS,
INCLUDING DEFAULT RISKS, THAN HIGHER RATED FIXED-INCOME SECURITIES. PURCHASERS
SHOULD CAREFULLY ASSESS THESE RISKS BEFORE INVESTING IN THE FUND. SEE
INVESTMENT OBJECTIVE AND POLICIES, RISK FACTORS, and APPENDIX C--RATINGS.

The Fund offers High-Yield Opportunities Fund A Class ("Class A Shares"),
High-Yield Opportunities Fund B Class ("Class B Shares") and High-Yield
Opportunities Fund C Class ("Class C Shares") (individually, a "Class" and
collectively, the "Classes").

This PROSPECTUS relates only to the classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART
B" of Income Funds, Inc.'s registration statement) dated September 29, 1997, as
it may be amended from time to time, contains additional information about the
Fund and has been filed with the Securities and Exchange Commission. PART B is
incorporated by reference into this PROSPECTUS and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. The Fund's financial statements appear in its ANNUAL REPORT,
which will accompany any requests for PART B.

<PAGE>

The Fund also offers High-Yield Opportunities Fund Institutional Class,
which is available for purchase only by certain investors. A prospectus for
High-Yield Opportunities Fund Institutional Class can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling the above number.

TABLE OF CONTENTS

COVER PAGE RETIREMENT PLANNING
SYNOPSIS CLASSES OF SHARES
SUMMARY OF EXPENSES HOW TO BUY SHARES
FINANCIAL HIGHLIGHTS REDEMPTION AND EXCHANGE
INVESTMENT OBJECTIVE AND DIVIDENDS AND DISTRIBUTIONS
POLICIES TAXES
SUITABILITY CALCULATION OF OFFERING PRICE AND
INVESTMENT STRATEGY NET ASSET VALUE PER SHARE
RISK FACTORS MANAGEMENT OF THE FUND
YOUTH AND VOLATILITY OF THE OTHER INVESTMENT POLICIES AND
HIGH-YIELD MARKET RISK CONSIDERATIONS
REDEMPTIONS APPENDIX A--INVESTMENT ILLUSTRATIONS
LIQUIDITY AND VALUATION APPENDIX B--CLASSES OFFERED
THE DELAWARE DIFFERENCE APPENDIX C--RATINGS
PLANS AND SERVICES

-2-
<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek to provide investors with
total return and, as a secondary objective, high current income. The Fund seeks
to achieve its objective by investing principally in corporate bonds rated BB or
lower by Standard & Poor's Ratings Group ("S&P") or Ba or lower by Moody's
Investors Service, Inc. ("Moody's"), or similarly rated by another
nationally-recognized statistical rating organization, or, if unrated (which may
be more speculative in nature than rated bonds), judged to be of comparable
quality by the Manager (as defined below). The Fund may also invest in U.S. and
foreign government securities and commercial paper. For further details, see
INVESTMENT OBJECTIVE AND POLICIES, RISK FACTORS and OTHER INVESTMENT POLICIES
AND RISK CONSIDERATIONS.

RISK FACTORS

The Fund invests primarily in high-yield securities ("junk bonds") and
greater risks may be involved with an investment in the Fund than an investment
in a mutual fund comprised primarily of investment grade bonds. See RISK
FACTORS.

INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Group.
Delaware Distributors, L.P. (the "Distributor") is the national distributor for
the Fund and for all of the other mutual funds in the Delaware Group. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder servicing,
dividend disbursing, accounting services and transfer agent for the Fund and for
all of the other mutual funds in the Delaware Group. See SUMMARY OF EXPENSES
and MANAGEMENT OF THE FUND for further information regarding the Manager and the
fees payable under the Fund's Investment Management Agreement.

SALES CHARGES

The price of Class A Shares includes a maximum front-end sales charge of
4.75% of the offering price, which, based on the net asset value per share of
Class A Shares as of the end of Income Funds, Inc.'s most recent fiscal year is
equivalent to 5.07% of the amount invested. The front-end sales charge is
reduced on certain transactions of at least $100,000 but under $1,000,000. For
purchases of $1,000,000 or more, the front-end sales charge is eliminated
(subject to a CDSC of 1% if shares are redeemed within 12 months of purchase if
in connection with such purchase a dealer commission was paid). Class A Shares
are subject to annual 12b-1 Plan expenses for the life of the investment.

The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a contingent deferred sales charge ("CDSC") of:
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares
are redeemed during the third or fourth year following purchase; (iii) 2% if
shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares
are subject to annual 12b-1 Plan expenses for approximately eight years after
purchase. See DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES and AUTOMATIC
CONVERSION OF CLASS B SHARES under CLASSES OF SHARES.

-3-
<PAGE>

Plan expenses for the life of the investment. See CLASSES OF SHARES and
DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

PURCHASE AMOUNTS

Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must be at least $100.

Each purchase of Class B Shares is subject to a maximum purchase limitation
of $250,000. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
for Class B Shares and Class C Shares by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See HOW TO
BUY SHARES.

REDEMPTION AND EXCHANGE

OPEN-END INVESTMENT COMPANY

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the Investment
Company Act of 1940 (the "1940 Act"). Income Funds, Inc. was first organized
as a Delaware corporation in 1970 and was subsequently organized as a
Maryland corporation on March 4, 1983. See SHARES under MANAGEMENT OF THE
FUND.

-4-
<PAGE>

SUMMARY OF EXPENSES

A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:

CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES
- ------------------------------------------------------------------------

Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)................ 4.75% None None

Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price)..... None None None

Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable)................... None* 4.00%* 1.00%*

Redemption Fees..................... None** None** None**

ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF CLASS A CLASS B CLASS C
AVERAGE DAILY NET ASSETS) SHARES SHARES SHARES
- ------------------------------------------------------------------------

Management Fees
(after voluntary waivers)....... 0.13% 0.13% 0.13%

12b-1 Plan Expenses
(including service fees)
(after voluntary waivers)........ 0.00%+/++ 0.00%+/++ 0.00%+/++

Other Operating Expenses............ 0.62%++ 0.62%++ 0.62%++
----- ----- -----
Total Operating Expenses
(after voluntary waivers)...... 0.75%++ 0.75%++ 0.75%++
----- ----- -----

-5-
<PAGE>

*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class C Shares are subject to a CDSC
of 1% if the shares are redeemed within 12 months of purchase. See CONTINGENT
DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET
ASSET VALUE under REDEMPTION AND EXCHANGE; DEFERRED SALES CHARGE ALTERNATIVE -
CLASS B SHARES and LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES under CLASSES
OF SHARES.

**CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.

+Class A Shares, Class B Shares and Class C Shares are subject to separate 12b-1
Plans. Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules of the National Association
of Securities Dealers, Inc. (the "NASD"). The Distributor has elected
voluntarily to waive its right to receive 12b-1 Plan fees (including service
fees) from the commencement of the public offering of the Classes through
December 31, 1997. In the absence of those waivers, 12b-1 Plan expenses would
equal 0.30% for Class A Shares and 1.00% for each of the Class B and Class C
Shares. See DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

++"Total Operating Expenses" and "Other Operating Expenses" for Class A Shares,
Class B Shares and Class C Shares are based on estimated amounts for the first
full fiscal year of the Classes, after giving effect to the voluntary expense
waiver. As noted above, the Distributor has elected to voluntarily waive 12b-1
Plan expenses through December 31, 1997. Also, the Manager has elected
voluntarily to waive that portion, if any, of the annual management fees payable
by the Fund and to pay certain expenses of the Fund to the extent necessary to
ensure that the Total Operating Expenses of each Class of the Fund, excluding
each such Class' 12b-1 fees, do not exceed 0.75%, from the commencement of the
public offering of the Classes through December 31, 1997. If the voluntary
expense waivers by the Distributor and the Manager were not in effect, it is
estimated that for the first full year, the Total Operating Expenses, as a
percentage of average daily net assets, would be 1.57%, 2.27% and 2.27%,
respectively, for Class A Shares, Class B Shares and Class C Shares, reflecting
management fees of 0.65%.

Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, the annual maintenance fee is waived until further notice. Investors
who utilize the Asset Planner for an Individual Retirement Account ("IRA") will
pay an annual IRA fee of $15 per Social Security number. See DELAWARE GROUP
ASSET PLANNER in PART B.

For expense information about High-Yield Opportunities Fund Institutional
Class of shares, see the separate prospectus relating to that class.

-6-
<PAGE>

The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, (2) redemption and no redemption at the end of each time period and
(3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver
of the management fee by the Manager and of the 12b-1 Plan fees by the
Distributor as discussed in this PROSPECTUS.

ASSUMING REDEMPTION ASSUMING NO REDEMPTION
1 YEAR 3 YEARS 1 YEAR 3 YEARS
------ ------- ------ -------

CLASS A SHARES $55(1) $70 $55 $70

CLASS B SHARES(2) $48 $54 $8 $24

CLASS C SHARES $18 $24 $8 $24

(2) At the end of approximately eight years after purchase, Class B Shares will
be automatically converted into Class A Shares. The example above does not
assume conversion of Class B Shares since it reflects figures only for one
and three years. See AUTOMATIC CONVERSION OF CLASS B SHARES under CLASSES
OF SHARES for a description of the automatic conversion feature.

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

The purpose of the above tables is to assist the investor in understanding
the various costs and expenses that an investor in each Class will bear directly
or indirectly.

-7-
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
High-Yield Opportunities Fund of Delaware Group Income Funds, Inc. and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes, and the report of
Ernst & Young LLP, all of which are incorporated by reference into PART B.
Further information about the Fund's performance is contained in its ANNUAL
REPORT to shareholders. A copy of the Fund's ANNUAL REPORT (including the
report of Ernst & Young LLP) may be obtained from Income Funds, Inc. upon
request at no charge.

- --------------------------------------------------------------------------------

-8-
<PAGE>

High-Yield
Opportunities
Fund A Class
For the period
1/2/97(1)
through
7/31/97

Net Asset Value, Beginning of Period. . . . . $5.5000

Income From Investment Operations
Net Investment Income(2). . . . . . . . . . . 0.2902
Net Gains (Losses) on Securities
(both realized and unrealized) . . . . . . . 0.2990
Total From Investment Operations. . . . . 0.5892

Less Distributions
Dividends from Net Investment Income. . . . . (0.1692)
Distributions from Capital Gains . . . . . . none
Total Distributions . . . . . . . . . . . (0.1692)

Net Asset Value, End of Period. . . . . . . . $5.9200

Total Return(3)(4). . . . . . . . . . . . . . 10.81%

Ratios/Supplemental Data

Net Assets, End of Period (000's omitted) . . $5,990
Ratio of Expenses to Average Daily Net Assets 0.75%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation. . . . . . . . . 1.57%
Ratio of Net Investment Income to Average
Daily Net Assets . . . . . . . . . . . . . . 8.53%
Ratio of Net Investment Income to Average
Daily Net Assets Prior to Expense Limitation 7.70%
Portfolio Turnover Rate . . . . . . . . . . . 270%

(1) Date of initial public offering of Class A Shares was January 2, 1997;
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 reflect maximum sales charge of 4.75% for Class A Shares.
(4) Total return reflects the expense limitations and waivers of 12b-1 Plan
fees referenced under SUMMARY OF EXPENSES in the PROSPECTUS.

-9-
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The objective of the Fund is to seek total return and, as a secondary
objective, high current income. The Fund seeks to achieve its objective by
investing primarily in corporate bonds rated BB or lower by S&P or Ba or lower
by Moody's, or similarly rated by another nationally-recognized statistical
rating organization or, if unrated (which may be more speculative in nature than
rated bonds), judged to be of comparable quality by the Manager. See APPENDIX C
- - RATINGS for more rating information and RISK FACTORS and OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS for a description of the risks associated with
investing in lower-rated fixed-income securities.

SUITABILITY

The Fund may be suitable for the investor interested in total return. High
current income is secondary objective. The Manager's primary focus in selecting
securities for the Fund will be total return. Lower-yielding securities may be
selected over higher-yield securities based on the Manager's view of the
potential for returns offered by the securities being considered for the Fund.

The net asset value per share of each Class may fluctuate in response to
the condition of individual companies and general market and economic conditions
and, as a result, the Fund is not appropriate for a short-term investor. The
Fund cannot assure a specific rate of return or yield, or that principal will be
protected. However, through the cautious selection and supervision of its
portfolio, the Manager will strive to achieve the Fund's objective.

The types of securities in which the Fund may invest are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated,
lower-rated and certain restricted securities have the potential for greater
price appreciation and higher yields, they are more speculative and increase the
credit risk of the Fund's portfolio. Changes in the market value of portfolio
securities will not affect interest income from such securities, but will be
reflected in a Class' net asset value. Investors should be willing to accept
the risks, including the risk of net asset value fluctuations, associated with
investing in these types of securities. See RISK FACTORS and OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS for a complete discussion of the risk factors
affecting the Fund's portfolio securities.

Investors should not consider a purchase of Fund shares as equivalent to a
complete investment program. The Delaware Group includes a family of funds,
generally available through registered investment dealers, which may be used
together to create a more complete investment program.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchases of the types of
securities in which the Fund invests.

INVESTMENT STRATEGY

The Fund will invest at least 65% of its assets at the time of purchase in
corporate bonds that may be rated BB or lower by S&P or Ba or lower by Moody's,
or similarly rated by another nationally-recognized statistical rating
organization, or if unrated (which may be more speculative in nature than rated
bonds), judged to be of comparable quality by the Manger. The Fund generally
will not purchase corporate bonds which, at the time of purchase, are rated
lower than CCC by S&P or Caa by Moody's. If a corporate bond held by the Fund
drops below these levels, including a security that goes into default, the Fund
will commence with an orderly sale of the security in a manner devised to
minimize any adverse affect on the Fund. If a sale of the security is not

-10-
<PAGE>

practicable for any reason, the Fund will pursue other available measures
reasonably anticipated by the Manager to facilitate repayment of the bond.

The Fund may also invest in securities of, or guaranteed by, the U.S. and
foreign governments, their agencies or instrumentalities and commercial paper of
companies having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated A-1 or A-2 by S&P
or rated P-1 or P-2 by Moody's or, if unrated, judged to be of comparable
quality by the Manager.

The Fund may acquire zero coupon bonds and, to a lesser extent, pay-in-kind
(PIK) bonds. See ZERO COUPON BONDS AND PAY-IN-KIND BONDS under OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS. The Fund may also invest in other types of
income-producing securities, including common stocks and preferred stocks, some
of which may have convertible features or attached warrants and which may be
speculative. See CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY SECURITIES under
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS.

The Fund may purchase privately-placed debt and other securities the resale
of which is restricted under applicable securities laws. Such securities may be
less liquid than securities that are not subject to resale restrictions. The
Fund will not purchase illiquid assets, if more than 15% of its net assets would
consist of such illiquid securities. See RESTRICTED/ILLIQUID SECURITIES under
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS.

The Fund may invest up to 15% of its total assets in securities of issuers
domiciled in foreign countries. See FOREIGN INVESTMENT INFORMATION under OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS.

The Fund may hold cash or invest in short-term debt securities and other
money market instruments when, in the Manager's opinion, such holdings are
prudent given then prevailing market conditions or pending investment in other
types of securities. All these short-term investments will be of the highest
quality as determined by a nationally-recognized statistical rating organization
(e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be of comparable
quality as determined by the Manager. See SHORT-TERM INVESTMENTS under OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS.

The Manager does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the Manager may take advantage of short-term opportunities that are
consistent with its investment objective.

* * *

For a description of the Fund's other investment policies and for a further
description of some of the policies described above, see OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS.

Although the Fund will constantly strive to attain its objective, there can
be no assurance that is will be attained.

The Fund's designation as an open-end investment company and as a
diversified fund, may not be changed unless authorized by the vote of a majority
of the Fund's outstanding voting securities. A "majority vote of the
outstanding voting securities" is the vote by the holders of the lesser of a)
67% or more of the Fund's voting securities present in person or represented by
proxy if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy; or b) more than 50% of the
outstanding voting

-11-
<PAGE>

securities. PART B lists other more specific investment restrictions of the
Fund which may not be changed without a majority shareholder vote.

The investment policies of the Fund that are not identified above or in
PART B as fundamental are not fundamental and may be changed by the Board of
Directors of Income Funds, Inc. without a shareholder vote.

RISK FACTORS

GENERALLY

The Fund invests principally in fixed-income securities. The market values
of fixed-income securities generally fall when interest rates rise and,
conversely, rise when interest rates fall. Lower-rated and unrated fixed-income
securities tend to reflect short-term corporate and market developments to a
greater extent than higher-rated fixed-income securities, which react primarily
to fluctuations in the general level of interest rates. These lower-rated or
unrated securities generally have a greater potential for price appreciation and
can offer higher yields, but, as a result of factors such as reduced
creditworthiness of issuers, increased risk of default and a more limited and
less liquid secondary market, are subject to greater volatility and risk of loss
of income and principal than are higher-rated securities. The Manager will
attempt to reduce such risk through portfolio diversification, credit analysis,
and attention to trends in the economy, industries and financial markets.

HIGH-YIELD SECURITIES

The Fund may invest primarily in bonds rated BB or lower by S&P or Ba or
lower by Moody's, and in bonds of comparable quality. See APPENDIX C - RATINGS
in this PROSPECTUS for more rating information. Investing in these so-called
"junk" bonds or "high-yield" bonds entails certain risks, including the risk of
loss of principal and default on interest payments, which may be greater than
the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Fund. High-yield
bonds are sometimes issued by companies whose earnings at the time of issuance
are less than the projected debt service on the junk bonds. In addition to the
considerations discussed elsewhere in this PROSPECTUS, the risks of lower-rated
bonds include the following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long economic
expansion which took place in the United States during the 1980s. During the
economic expansion, the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings increased dramatically. As
a result, the high-yield market grew substantially during the economic
expansion. Although experts disagree on the impact recessionary periods have
had and will have on the high-yield market, some analysts believe a protracted
economic downturn would severely disrupt the market for high-yield bonds, would
adversely affect the value of outstanding bonds and would adversely affect the
ability of high-yield issuers to repay principal and interest. Those analysts
cite volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in the Fund's net asset value.

REDEMPTIONS. If, as a result of volatility in the high-yield market or
other factors, the Fund experiences substantial net redemptions of the Fund's
shares for a sustained period of time, the Fund may be required to sell
securities without regard to the investment merits of the securities to be sold.
If the Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Fund will decrease and the Fund's expense
ratios may increase.

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<PAGE>

LIQUIDITY AND VALUATION. The secondary market for high-yield securities is
currently dominated by institutional investors, including mutual funds and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other secondary
securities markets. The high-yield secondary market is particularly susceptible
to liquidity problems when the institutions which dominate it temporarily cease
buying bonds for regulatory, financial or other reasons, such as the savings and
loan crisis. A less liquid secondary market may have an adverse effect on the
Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. In addition, a less liquid
secondary market makes it more difficult for the Fund to obtain precise
valuations of the high-yield securities in its portfolio. During periods
involving such liquidity problems, judgment plays a greater role in valuing
high-yield securities than is normally the case. The secondary market for
high-yield securities is also generally considered to be more likely to be
disrupted by adverse publicity and investor perceptions than the more
established secondary securities markets. The Fund's privately placed
high-yield securities are particularly susceptible to the liquidity and
valuation risks outlined above.

See HIGH-YIELD, HIGH RISK SECURITIES under OTHER INVESTMENT POLICIES AND
RISK CONSIDERATIONS for further information about high-yield securities.

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<PAGE>

THE DELAWARE DIFFERENCE

PLANS AND SERVICES

The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.

SHAREHOLDER PHONE DIRECTORY

INVESTOR INFORMATION CENTER

800-523-4640

FUND INFORMATION; LITERATURE; PRICE; YIELD AND PERFORMANCE FIGURES

SHAREHOLDER SERVICE CENTER

800-523-1918

INFORMATION ON EXISTING REGULAR INVESTMENT ACCOUNTS AND RETIREMENT PLAN
ACCOUNTS; WIRE INVESTMENTS; WIRE LIQUIDATIONS; TELEPHONE LIQUIDATIONS AND
TELEPHONE EXCHANGES

DELAPHONE

800-362-FUND
(800-362-3863)

PERFORMANCE INFORMATION

You can call the Investor Information Center at any time for current yield
information. Current yield and total return information may also be included in
advertisements and information given to shareholders. Yields are computed on an
annual basis over a 30-day period.

SHAREHOLDER SERVICES

DELAPHONE SERVICE

Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than
the mailed statements and confirmations. Delaphone also provides current
performance information on the Fund, as well as other funds in the Delaware
Group. Delaphone is available seven days a week, 24 hours a day.

STATEMENTS AND CONFIRMATIONS

DUPLICATE CONFIRMATIONS

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<PAGE>

TAX INFORMATION

Each year, Income Funds, Inc. will mail to you information on the tax
status of your dividends and distributions.

DIVIDEND PAYMENTS

Dividends, capital gains and other distributions are automatically
reinvested in your account. You may, however, elect to have the dividends
earned in one fund automatically invested in another Delaware Group fund with a
different investment objective, subject to certain exceptions and limitations.

For more information, see ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT -
DIVIDEND REINVESTMENT PLAN under HOW TO BUY SHARES or call the Shareholder
Service Center.

RIGHT OF ACCUMULATION

With respect to Class A Shares, the Right of Accumulation feature allows
you to combine the value of your current holdings of Class A Shares, Class B
Shares and Class C Shares of the Fund with the dollar amount of new purchases of
Class A Shares of the Fund to qualify for a reduced front-end sales charge on
such purchases of Class A Shares. Under the Combined Purchases Privilege, you
may also include certain shares that you own in other funds in the Delaware
Group. See CLASSES OF SHARES.

LETTER OF INTENTION

12-MONTH REINVESTMENT PRIVILEGE

EXCHANGE PRIVILEGE

The Exchange Privilege permits you to exchange all or part of your shares
into shares of other funds in the Delaware Group, subject to certain exceptions
and limitations. For additional information on exchanges, see INVESTING BY
EXCHANGE under HOW TO BUY SHARES, and REDEMPTION AND EXCHANGE.

WEALTH BUILDER OPTION

FINANCIAL INFORMATION ABOUT THE FUND

-15-
<PAGE>

-16-
<PAGE>

RETIREMENT PLANNING

Under certain circumstances, an investment in the Fund may be suitable for
tax-deferred retirement plans. Among the retirement plans noted below, Class B
Shares are available for investment only by Individual Retirement Accounts,
SIMPLE IRAs, Simplified Employee Pension Plans, Salary Reduction Simplified
Employee Pension Plans, and 403(b)(7) and 457 Deferred Compensation Plans.

Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of High-Yield Opportunities Fund
Institutional Class. For additional information on any of the plans and
Delaware's retirement services, call the Shareholder Service Center or see PART
B.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

Individuals, even if they participate in an employer-sponsored retirement
plan, may establish their own retirement program for investments in each of the
Classes. Contributions to an IRA may be tax-deductible and earnings are
tax-deferred. The Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted, and in some cases eliminated, for individuals who
participate in certain employer-sponsored retirement plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn on a tax-deferred basis.

SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")

A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")

Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may be maintained by employers having 25 or fewer employees. An
employer may elect to make additional contributions to such existing plans.

403(b)(7) DEFERRED COMPENSATION PLAN

Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.

457 DEFERRED COMPENSATION PLAN

Permits employees of state and local governments and certain other entities
to enter into a deferred compensation arrangement for the purchase of shares of
each of the Classes.

PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLAN

Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares or Class C Shares. Class B Shares are not available for purchase by such
plans.

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<PAGE>

PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN

Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A or Class C Shares. Class B
Shares are not available for purchase by such plans.

SIMPLE IRA

SIMPLE 401(k)

ALLIED PLANS

Class A Shares are available for purchase by participants in certain 401(k)
Defined Contribution Plans ("Allied Plans") which are made available under a
joint venture agreement between the Distributor and another institution through
which mutual funds are marketed and which allow investments in Class A Shares of
designated Delaware Group funds ("eligible Delaware Group fund shares"), as well
as shares of designated classes of non-Delaware Group funds ("eligible
non-Delaware Group fund shares"). CLASS B SHARES AND CLASS C SHARES ARE NOT
ELIGIBLE FOR PURCHASE BY ALLIED PLANS.

A dealer's commission may be payable on purchases of eligible Delaware
Group fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the

-18-
<PAGE>

Allied Plan will be aggregated. See FRONT-END SALES CHARGE ALTERNATIVE - CLASS
A SHARES under CLASSES OF SHARES.

The Limited CDSC is applicable to redemptions of net asset value purchases
from an Allied Plan on which a dealer's commission has been paid. Waivers of
the Limited CDSC, as described under WAIVER OF LIMITED CONTINGENT DEFERRED SALES
CHARGE - CLASS A SHARES under REDEMPTION AND EXCHANGE, apply to redemptions by
participants in Allied Plans except in the case of exchanges between eligible
Delaware Group and non-Delaware Group fund shares. When eligible Delaware Group
fund shares are exchanged into eligible non-Delaware Group fund shares, the
Limited CDSC will be imposed at the time of the exchange, unless the joint
venture agreement specifies that the amount of the Limited CDSC will be paid by
the financial adviser or selling dealer. See CONTINGENT DEFERRED SALES CHARGE
FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under
REDEMPTION AND EXCHANGE.

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<PAGE>

CLASSES OF SHARES

ALTERNATIVE PURCHASE ARRANGEMENTS

CLASS A SHARES. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Absent any applicable fee waiver, Class A Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 0.30% of average daily net
assets of such shares. Certain purchases of Class A Shares qualify for reduced
front-end sales charges. See FRONT-END SALES CHARGE ALTERNATIVE - CLASS A
SHARES, below. See also CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN
REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under REDEMPTION AND
EXCHANGE and DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.

CLASS B SHARES. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Absent any applicable fee
waiver, Class B Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 1% (0.25% of which are service fees to be paid to the Distributor,
dealers or others for providing personal service and/or maintaining shareholder
accounts) of average daily net assets of such shares for approximately eight
years after purchase. Class B Shares permit all of the investor's dollars to
work from the time the investment is made. If no waiver of 12b-1 fees is in
effect, the higher 12b-1 Plan expenses paid by Class B Shares will cause such
shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. At the end of approximately eight years after purchase, Class B Shares
will automatically be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% for Class A Shares will apply. See AUTOMATIC CONVERSION OF CLASS B
SHARES, below.

CLASS C SHARES. An investor who elects the level sales charge alternative
acquires Class C Shares, which do not incur a front-end sales charge when they
are purchased, but are subject to a contingent deferred sales charge if they are
redeemed within 12 months of purchase. Absent any applicable fee waiver, Class
C Shares are subject to annual 12b-1 Plan expenses of up to a maximum of 1%
(0.25% of which are service fees to be paid to the Distributor, dealers or
others for providing personal service and/or maintaining shareholder accounts)
of average daily net assets of such shares for the life of the investment. If
no waiver of 12b-1 fees is in effect, the higher 12b-1 Plan expenses paid by
Class C Shares will cause such shares to have a higher expense ratio and to pay
lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares do
not convert to another class.

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<PAGE>

Plan expenses applicable to each Class. If no waiver of 12b-1 fees is in
effect, the higher 12b-1 Plan expenses on Class B Shares and Class C Shares will
be offset to the extent a return is realized on the additional money initially
invested upon the purchase of such shares. However, there can be no assurance
as to the return, if any, that will be realized on such additional money, and
the effect of earning a return on such additional money will diminish over time.
In comparing Class B Shares to Class C Shares, investors should consider the
durability of the annual 12b-1 Plan expenses to which each of the Classes is
subject and the desirability of an automatic conversion feature, which is
available only for Class B Shares.

For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, absent any applicable fee waiver, the Distributor
and others will be paid, in the case of Class A Shares, from the proceeds of the
front-end sales charge and 12b-1 Plan fees and, in the case of Class B Shares
and Class C Shares, from the proceeds of the 12b-1 Plan fees and, if applicable,
the CDSC incurred upon redemption. Financial advisers may receive different
compensation for selling Class A, Class B and Class C Shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE RESPECTIVE 12b-1 PLANS AND THE
CDSCS APPLICABLE TO CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE OF
THE 12b-1 PLAN AND THE FRONT-END SALES CHARGE APPLICABLE TO CLASS A SHARES IN
THAT SUCH FEES AND CHARGES ARE USED TO FINANCE THE DISTRIBUTION OF THE
RESPECTIVE CLASSES. See DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF
THE FUND.

Dividends paid on Class A, Class B and Class C Shares, to the extent any
dividends are paid, will be calculated in the same manner, at the same time, on
the same day and will be in the same amount, except that, when assessed, the
additional amount of 12b-1 Plan expenses relating to Class B Shares and Class C
Shares will be borne exclusively by such shares. See CALCULATION OF OFFERING
PRICE AND NET ASSET VALUE PER SHARE.

The NASD has adopted certain rules relating to investment company sales
charges. Income Funds, Inc. and the Distributor intend to operate in compliance
with these rules.

FRONT-END SALES CHARGE ALTERNATIVE - CLASS A SHARES

Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE.

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<PAGE>

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

HIGH-YIELD OPPORTUNITIES FUND A CLASS
- ---------------------------------------------------------------------------------------------------------------------------------

Dealer's
Front-End Sales Charge as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 5.07% 4.00%

$100,000 but
under $250,000 3.75 3.89 3.00

$250,000 but
under $500,000 2.50 2.53 2.00

$500,000 but
under $1,000,000* 2.00 2.03 1.60

</TABLE>

* There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.

** Based upon the net asset value per share of Class A Shares as of
Income Funds, Inc.'s most recent fiscal year.

*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.

- --------------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for
the reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by the Fund. Such reduced
front-end sales charges are not retroactive.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. In addition, certain dealers who enter
into an agreement to provide extra training and information on Delaware
Group products and services and who increase sales of Delaware Group funds
may receive an additional commission of up to 0.15% of the offering price.
Dealers who receive 90% or more of the sales charge may be deemed to be
underwriters under the Securities Act of 1933.
- --------------------------------------------------------------------------------

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<PAGE>

DEALER'S COMMISSION
(AS A PERCENTAGE OF
AMOUNT OF PURCHASE AMOUNT PURCHASED)
------------------ -----------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

COMBINED PURCHASES PRIVILEGE

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<PAGE>

BUYING CLASS A SHARES AT NET ASSET VALUE

Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Delaware Investment & Retirement Services, Inc. ("DIRSI")
proprietary record keeping system that (i) has in excess of $500,000 of plan
assets invested in Class A Shares of Delaware Group funds and any stable value
account available to investment advisory clients of the Manager or its
affiliate, or (ii) is sponsored by an employer that has at any point after May
1, 1997 had more than 100 employees while such plan has held Class A Shares of a
Delaware Group fund and such employer has properly represented to DIRSI in
writing that it has the requisite number of employees and has received written
confirmation back from DIRSI.

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<PAGE>

a Delaware Group account in connection with loans originated from accounts
previously maintained by another investment firm will also be invested at net
asset value.

The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.

-25-
<PAGE>

GROUP INVESTMENT PLANS

Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE 401(k),
Prototype Profit Sharing and Money Purchase Pension and 401(k) Defined
Contribution Plans) may benefit from the reduced front-end sales charges
available on Class A Shares, based on total plan assets. If a company has more
than one plan investing in the Delaware Group of funds, then the total amount
invested in all plans will be aggregated to determine the applicable front-end
sales charge reduction on each purchase, both initial and subsequent, if, at the
time of each such purchase, the company notifies the Fund that it qualifies for
the reduction. Employees participating in such Group Investment Plans may also
combine the investments held in their plan account to determine the front-end
sales charge applicable to purchases in non-retirement Delaware Group investment
accounts if, at the time of each such purchase, they notify the Fund that they
are eligible to combine purchase amounts held in their plan account.

For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.

For other retirement plans and special services, see RETIREMENT PLANNING.

DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES

Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, absent any applicable fee waiver, Class B Shares are subject to annual
12b-1 Plan expenses and, if redeemed within six years of purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid to
the Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for the Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.

AUTOMATIC CONVERSION OF CLASS B SHARES

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<PAGE>

Conversion Date after such anniversary. Consequently, if a shareholder's eighth
anniversary falls on the day after a Conversion Date, that shareholder will have
to hold Class B Shares for as long as three additional months after the eighth
anniversary of purchase before the shares will automatically convert into Class
A Shares.

All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See TAXES.

LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES

Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, absent any applicable fee
waiver, Class C Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within 12 months of purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid to
the Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES

Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage
of the dollar amount subject to the CDSC. The charge will be assessed on an
amount equal to the lesser of the net asset value at the time of purchase of the
shares being redeemed or the net asset value of those shares at the time of
redemption. No CDSC will be imposed on increases in net asset value above the
initial purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase" will be
the net asset value at purchase of Class B Shares or Class C Shares of the
Fund, even if those shares are later exchanged for shares of another Delaware
Group fund. In the event of an exchange of the shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
that were acquired in the exchange.

-27-
<PAGE>

The following table sets forth the rates of the CDSC for Class B Shares
of the Fund:

CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
------------------------ ------------------

0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares, absent any applicable fee waiver. See AUTOMATIC CONVERSION OF CLASS B
SHARES, above. Investors are reminded that the Class A Shares into which
Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses of
up to a maximum of 0.30% of average daily net assets of such shares.

All investments made during a calendar month, regardless of what day of the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C
SHARES under REDEMPTION AND EXCHANGE.

OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES

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Commission. It is likely that the NASD's Conduct Rules will be amended such
that the ability of the Distributor to pay non-cash compensation as described
above will be restricted in some fashion. The Distributor intends to comply
with the NASD's Conduct Rules as they may be amended.

HIGH-YIELD OPPORTUNITIES FUND INSTITUTIONAL CLASS

In addition to offering Class A, Class B and Class C Shares, the Fund also
offers High-Yield Opportunities Fund Institutional Class, which is described in
a separate prospectus and is available for purchase only by certain investors.
High-Yield Opportunities Fund Institutional Class shares generally are
distributed directly by the Distributor and do not have a front-end sales
charge, a CDSC or a Limited CDSC, and are not subject to 12b-1 Plan distribution
expenses. To obtain the prospectus that describes the High-Yield Opportunities
Fund Institutional Class, contact the Distributor by writing to the address or
by calling the telephone number listed on the back of this PROSPECTUS.

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<PAGE>

HOW TO BUY SHARES

PURCHASE AMOUNTS

Investing Through Your Investment Dealer

INVESTING BY MAIL

1. INITIAL PURCHASES--An Investment Application or, in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to High-Yield Opportunities Fund
A Class, High-Yield Opportunities Fund B Class or High-Yield Opportunities Fund
C Class, to Delaware Group at 1818 Market Street, Philadelphia, PA 19103.

INVESTING BY WIRE

1. INITIAL PURCHASES--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement account, an appropriate retirement
plan application, for the specific Fund and Class selected, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.

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<PAGE>

If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.

INVESTING BY EXCHANGE

Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See APPENDIX B--CLASSES OFFERED for a list of Delaware Group funds and
the classes they offer. Class B Shares of the Fund and Class C Shares of the
Fund acquired by exchange will continue to carry the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the fund from which the
exchange is made. The holding period of Class B Shares of the Fund acquired by
exchange will be added to that of the shares that were exchanged for purposes of
determining the time of the automatic conversion into Class A Shares of the
Fund.

See ALLIED PLANS under RETIREMENT PLANNING for information on exchanges by
participants in an Allied Plan.

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<PAGE>

ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT

Call the Shareholder Service Center for more information if you wish to use
the following services:

1. AUTOMATIC INVESTING PLAN

THE AUTOMATIC INVESTING PLAN ENABLES YOU TO MAKE REGULAR MONTHLY
INVESTMENTS WITHOUT WRITING OR MAILING CHECKS. You may authorize Income Funds,
Inc. to transfer a designated amount monthly from your checking account to your
account. Many shareholders use this as an automatic savings plan. Shareholders
should allow a reasonable amount of time for initial purchases and changes to
these plans to become effective.

2. DIRECT DEPOSIT

* * *

3. WEALTH BUILDER OPTION

4. DIVIDEND REINVESTMENT PLAN

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<PAGE>

You can elect to have your distributions (capital gains and/or dividend
income) invested in your Fund account or invested in certain other funds in the
Delaware Group, subject to the exceptions noted below as well as the eligibility
and minimum purchase requirements set forth in each fund's prospectus.

Holders of Class A Shares of the Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Group,
including the Fund. Holders of Class B Shares of the Fund may reinvest their
distributions only into Class B Shares of the funds in the Delaware Group which
offer that class of shares. Similarly, holders of Class C Shares of the Fund
may reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See APPENDIX B--CLASSES
OFFERED for the funds in the Delaware Group offering those classes of shares.
For more information about reinvestments, call the Shareholder Service Center.

PURCHASE PRICE AND EFFECTIVE DATE

THE CONDITIONS OF YOUR PURCHASE

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<PAGE>

the stated minimum. If the account has not reached the minimum balance
requirement by that time, the Fund will charge a $9 fee for that quarter and
each subsequent calendar quarter until the account is brought up to the minimum
balance. The service fee will be deducted from the account during the first
week of each calendar quarter for the previous quarter, and will be used to help
defray the cost of maintaining low-balance accounts. No fees will be charged
without proper notice, and no CDSC will apply to such assessments.

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.

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<PAGE>

REDEMPTION AND EXCHANGE

YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other equity funds, bond funds, tax-advantaged funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each
fund and all exchanges of shares constitute taxable events. See TAXES.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.

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<PAGE>

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this PROSPECTUS and any CDSC assessed upon redemption will be charged by the
fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class
B Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor, absent any applicable fee waiver, to the
higher 12b-1 fees applicable to Class B Shares of the Fund for a longer period
of time than if the investment in New Shares were made directly.

WRITTEN REDEMPTION

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<PAGE>

WRITTEN EXCHANGE

TELEPHONE REDEMPTION AND EXCHANGE

TELEPHONE REDEMPTION--CHECK TO YOUR ADDRESS OF RECORD

TELEPHONE REDEMPTION--PROCEEDS TO YOUR BANK

TELEPHONE EXCHANGE

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<PAGE>

CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES
PURCHASED AT NET ASSET VALUE

The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of: (1) the net asset value at the time of purchase of the Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.

WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES

The Limited CDSC for Class A Shares on which a dealer's commission has been
paid will be waived in the following instances: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2 and IRA Distributions Qualifying under Section 72(t) of
the Internal Revenue Code; (v) returns of excess contributions to an IRA; (vi)
distributions by other employee benefit plans to pay benefits; and (vii)

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<PAGE>

redemptions by the classes of shareholders who are permitted to purchase shares
at net asset value, regardless of the size of the purchase (see BUYING CLASS A
SHARES AT NET ASSET VALUE under CLASSES OF SHARES).

WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES

The CDSC is waived on certain redemptions of Class B Shares in connection
with the following redemptions: (i) redemptions that result from the Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than the then-effective minimum account
size; (ii) returns of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or
457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan
or 401(k) Defined Contribution Plan; (iii) periodic distributions from a
403(b)(7) or 457 Deferred Compensation Plan upon attainment of age 59 1/2,
Profit Sharing Plan, Money Purchase Pension Plan, or 401(k) Defined Contribution
Plan upon attainment of age 70 1/2 and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; and (iv) distributions from an
account if the redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform Gifts to Minors
or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon
the death of all beneficial owners) or a total and permanent disability (as
defined in Section 72 of the Code) of all registered owners occurring after the
purchase of the shares being redeemed.

The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Pension Plan, or 401(k) Defined Contribution Plan upon attainment
of age 70 1/2 and IRA distributions qualifying under Section 72(t) of the
Internal Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan,
under hardship provisions of the plan; (v) distributions from a 403(b)(7) or 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or
a 401(k) Defined Contribution Plan upon attainment of normal retirement age
under the plan or upon separation from service; (vi) periodic distributions from
an IRA or SIMPLE IRA on or after attainment of age 59; and (vii) distributions
from an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the Uniform
Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the
waiver applies upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered owners
occurring after the purchase of the shares being redeemed.

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<PAGE>

DIVIDENDS AND DISTRIBUTIONS

The Fund's dividends are expected to be declared daily and paid monthly.
Both dividends and distributions, if any, are automatically reinvested in your
account at net asset value. Distributions from net realized securities profits,
if any, will be distributed twice a year. The first payment normally would be
made during the first quarter of the next fiscal year. The second payment would
be made near the end of the calendar year to comply with certain requirements of
the Code.

Each class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that, absent any applicable fee waiver, the per
share dividends from net investment income on Class A Shares, Class B Shares
and Class C Shares will vary due to the expenses under the 12b-1 Plan
applicable to each Class. Generally, the dividends per share on Class B Shares
and Class C Shares can be expected to be lower than the dividends per share on
Class A Shares because the expenses under the 12b-1 Plans relating to Class B
and Class C Shares will be higher than the expenses under the 12b-1 Plan
relating to Class A Shares. See DISTRIBUTION (12b-1) AND SERVICE under
MANAGEMENT OF THE FUND.

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<PAGE>

TAXES

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares. It is expected that either none or only a nominal portion of the Fund's
dividends will be eligible for the dividends-received deduction for
corporations.

The Fund may be subject to foreign withholding taxes on income from certain
of its foreign securities.

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<PAGE>

See TAXES in PART B for additional information on tax matters relating to
the Fund and its shareholders.

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<PAGE>

CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Income Fund, Inc.'s
Board of Directors. Equity securities for which marked quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Income Funds, Inc.'s Board of Directors.

The offering price and NAV are computed as of the close of regular trading
on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when
the Exchange is open.

The net asset values of all outstanding shares of each class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that High-Yield Opportunities Fund Institutional Class will not incur any
of the expenses under Income Funds, Inc.'s 12b-1 Plans and Class A, Class B and
Class C Shares alone will bear the 12b-1 Plan expenses payable under their
respective 12b-1 Plans.

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<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER

The Manager furnishes investment management services to the Fund.

The Manager manages the Fund's portfolio and makes investment decisions for
the Fund which are implemented by the Fund's Trading Department. The Manager
also administers Income Funds, Inc.'s affairs and pays the salaries of all the
directors, officers and employees of Income Funds, Inc. who are affiliated with
the Manager. For these services, the Manager is paid an annual fee equal to
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.
Investment management fees incurred by the Fund for the period January 2, 1997
(date of initial public offering) through July 31, 1997 were 0.65% (annualized)
and 0.13% (annualized) was paid as a result of the voluntary waiver of fees by
the Manager.

Mr. Nichols, a Vice President/Senior Portfolio Manager of Income Funds,
Inc., has been a member of the Fund's management team since its inception. Mr.
Nichols is a graduate of the University of Kansas, where he received a BS in
Business Administration and an MS in Finance. Prior to joining the Manager, he
was a high yield credit analyst at Waddell & Reed, Inc. and subsequently the
investment officer for a private merchant banking firm. He is a CFA
charterholder.

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<PAGE>

Mr. Matlack and Mr. Nichols will from time to time consult with Paul E.
Suckow, Executive Vice President/Chief Investment Officer, Fixed Income of
Income Funds, Inc. He is a CFA charterholder and a graduate of Bradley
University with an MBA from Western Illinois University. Mr. Suckow was a
fixed-income portfolio manager at the Delaware Group from 1981 to 1985. He
returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 100%. A turnover rate of 100% occurs, for
example, when all the investments in the Fund's portfolio at the beginning of
the year were replaced by the end of the year. For the period January 2, 1997
(date of initial public offering) through July 31, 1997, the Fund's portfolio
turnover rate was 270% (annualized).

The Fund uses its best efforts to obtain the best available price and most
favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, the Fund
may consider a broker/dealer's sales of shares of funds in the Delaware Group of
funds in placing portfolio orders and may place orders with broker/dealers that
have agreed to defray certain expenses of such funds, such as custodian fees.

PERFORMANCE INFORMATION

From time to time, the Fund may quote yield or total return performance of
the Classes in advertising and other types of literature.

Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions at net asset value and: (i) in the case
of Class A Shares, the impact of the maximum front-end sales charge at the
beginning of each specified period; and (ii) in the case of Class B Shares and
Class C Shares, the deduction of any applicable CDSC at the end of the relevant
period. Each presentation will include the average annual total return for
one-, five- and ten-year (or life-of-fund, if applicable) periods. The Fund may
also advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, the Fund may present total return
information that does not reflect the deduction of the maximum front-end sales
charge or any applicable CDSC. In this case, such total return information
would be more favorable than total return information that includes the
deductions of the maximum front-end sales charge or any applicable CDSC.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

DISTRIBUTION (12b-1) AND SERVICE

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<PAGE>

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated as of December 27, 1996.

Income Funds, Inc. has adopted a separate distribution plan under Rule
12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of the
Fund (the "Plans"). The Plans permit the Fund to pay the Distributor from the
assets of the respective Classes a monthly fee for the Distributor's services
and expenses in distributing and promoting sales of shares.

These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences, and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In
addition, the Fund may make payments from the 12b-1 Plan fees of its respective
Classes directly to others, such as banks, who aid in the distribution of Class
shares or provide services in respect of a Class, pursuant to service agreements
with Income Funds, Inc. The Distributor has elected voluntarily to waive its
right to receive 12b-1 fees (including service fees) from the commencement of
the public offering of the Classes through June 30, 1997.

Absent any applicable fee waiver, the aggregate fees paid by the Fund from
the assets of the respective Classes to the Distributor and others under the
Plans may not exceed (i) 0.30% of the Class A Shares' average daily net assets
in any year, and (ii) 1% (0.25% of which are service fees to be paid to the
Distributor, dealers and others for providing personal service and/or
maintaining shareholder accounts) of each of the Class B Shares' and Class C
Shares' average daily net assets in any year. The Class A, Class B and Class C
Shares will not incur any distribution expenses beyond these limits, which may
not be increased without shareholder approval.

While payments, if any, pursuant to the Plans may not exceed 0.30% annually
with respect to Class A Shares, and 1% annually with respect to each of the
Class B Shares and Class C Shares, the Plans do not limit fees to amounts
actually expended by the Distributor. It is therefore possible that the
Distributor may realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will likely equal
or exceed payments to it under the Plans. The Distributor may, however incur
such additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes. The monthly
fees paid to the Distributor under the Plans are subject to the review and
approval of Income Funds, Inc.'s unaffiliated directors, who may reduce the fees
or terminate the Plans at any time.

The Plans do not apply to High-Yield Opportunities Fund Institutional
Class. Those shares are not included in calculating the Plans' fees, and the
Plans are not used to assist in the distribution and marketing of High-Yield
Opportunities Fund Institutional Class.

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<PAGE>

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
pursuant to an amended and restated agreement dated as of December 27, 1996.
The Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement.

The directors of Income Funds, Inc. annually review service fees paid to
the Distributor and the Transfer Agent. The Distributor and the Transfer Agent
are also indirect, wholly owned subsidiaries of DMH.

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<PAGE>

EXPENSES

The Fund is responsible for all of its own expenses other than those borne
by the Manager under the Investment Management Agreement and those borne by the
Distributor under the Distribution Agreement. The ratio of Expenses to average
daily net assets is expected to equal 0.75% for each Class, Reflecting the
voluntary waivers and payments by the Manager and the Distributor. These ratios
would be higher if such waivers and payments were not in effect. See SUMMARY OF
EXPENSES.

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1970. In addition to the Fund, Income Funds, Inc. presently
offers two other series of shares, the Delchester Fund series and the Strategic
Income Fund series.

In addition to Class A Shares, Class B Shares and Class C Shares, the Fund
also offers High-Yield Opportunities Fund Institutional Class. Shares of each
class represent proportionate interests in the assets of the Fund and have the
same voting and other rights and preferences as the other classes of the Fund,
except that shares of High-Yield Opportunities Fund Institutional Class are not
subject to, and may not vote on matters affecting, the Distribution Plans under
Rule 12b-1 relating to Class A, Class B and Class C Shares. Similarly, as a
general matter, the shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, Class B Shares may vote on any
proposal to increase materially the fees to be paid by the Fund under the Rule
12b-1 Plan relating to Class A Shares.

Lincoln National Corporation Employees' Retirement Trust (the "Trust") made
an initial investment in the Fund, and as of July 31, 1997, the Trust held no
shares of the Fund's Class A Shares, Class B Shares and Class C Shares,
respectively, but the Trust held 99% of the outstanding shares of the Fund's
Institutional Class. Subject to certain limited exceptions, there would be no
limitation on the Trust's ability to redeem its shares of the Fund and it may
elect to do so at any time.

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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

HIGH-YIELD, HIGH RISK SECURITIES

The Fund invests primarily in securities rated BB or lower by S&P or Ba or
lower by Moody's, or similarly rated by another nationally-recognized
statistical rating organization or, if unrated (which may be more speculative in
nature than rated bonds), judged to be of comparable quality by the Manager.
See APPENDIX C--RATINGS in this PROSPECTUS for more rating information. The
discussion in this section supplements the description of the risks of
high-yield securities found earlier in this PROSPECTUS in INVESTMENT OBJECTIVE
AND POLICIES and RISK FACTORS and investors should refer to those sections for
a further discussion of the risks of high-yield bonds.

Fixed-income securities of this type are considered to be of poor standing
and predominantly speculative. Such securities are subject to a substantial
degree of credit risk. In the past, the high-yields from these bonds have more
than compensated for their higher default rates. There can be no assurance,
however, that yields will continue to offset default rates on these bonds in the
future. The Manager intends to maintain an adequately diversified portfolio of
these bonds. While diversification can help to reduce the effect of an
individual default on the Fund, there can be no assurance that diversification
will protect the Fund from widespread bond defaults brought about by a sustained
economic downturn.

Medium and low-grade bonds held by the Fund may be issued as a consequence
of corporate restructurings, such as leveraged buy-outs, mergers, acquisitions,
debt recapitalizations or similar events. Also, these bonds are often issued by
smaller, less creditworthy companies or by highly leveraged (indebted) firms,
which are generally less able than more financially stable firms to make
scheduled payments of interest and principal. The risks posed by bonds issued
under such circumstances are substantial.

The economy and interest rates may affect these high-yield, high risk
securities differently from other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any
security and in the ability of an issuer to make payments of interest and
principal will also ordinarily have a more dramatic effect on the values of
these investments than on the values of higher rated securities. Such changes
in value will not affect cash income derived from these securities, unless the
issuers fail to pay interest or dividends when due. Such changes will, however,
affect the Fund's net asset value per share.

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

The Fund may purchase zero-coupon bonds and pay-in-kind ("PIK") bonds. A
zero-coupon bond has no cash coupon payments. Instead, the issuer sells the
security at a substantial discount from its maturity value. The interest
received by the investor from holding this security to maturity is the
difference between the maturity value and the purchase price. The advantage to
the investor is that the reinvestment risk of the income received during the
life of the bond is eliminated. However, zero-coupon bonds, like other bonds,
retain interest rate and credit risk and usually display more price volatility
than securities that pay a cash coupon. Since there are no periodic interest
payments made to the holder of a zero-coupon bond, when interest rates rise, the
value of such a security will fall more dramatically than a bond paying out
interest on a current basis. When interest

-49-
<PAGE>

rates fall, however, zero-coupon bonds rise more rapidly in value because the
bonds have locked in a specific rate of return which becomes more attractive the
further interest rates fall.

PIK bonds are securities that pay interest in either cash or additional
securities, at the issuer's option, for a specified period. PIKs, like
zero-coupon bonds, are designed to give an issuer flexibility in managing cash
flow. PIK bonds can be either senior or subordinated debt and trade flat (i.e.,
without accrued interest). The price of PIK bonds is expected to reflect to the
market value of the underlying debt plus an amount representing accrued interest
since the last payment. PIKs are usually less volatile than zero-coupon bonds,
but more volatile than cash-pay securities. PIK bonds may provide an attractive
yield on the Fund's investment even when the interest paid is in the form of
additional securities of the issuer instead of cash.

Zero coupon bonds and PIK bonds are generally considered to be more
interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to the Fund. For example, with zero coupon
bonds, the Fund accrues, and is required to distribute to shareholders, income
on such bonds, However, the Fund may not receive the cash associated with this
income until the bonds are sold or mature. If the Fund did not have sufficient
cash to make the required distribution of accrued income, the Fund could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.

FOREIGN INVESTMENT INFORMATION

The Fund may invest up to 15% of its total assets in securities of foreign
issuers, including Yankee Bonds. Investments in obligations of foreign issuers
involve somewhat different investment risks than those affecting obligations of
United States issuers. There is limited publicly available information with
respect to foreign issuers, and foreign issuers are not subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. There is also less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States and it is more difficult to enforce legal
rights outside of the U.S. Many foreign securities markets have substantially
less volume than U.S. national securities exchanges, and securities of some
foreign issuers are less liquid and more volatile than securities of comparable
domestic issuers. Settlement practices of certain foreign countries may include
delays and may otherwise differ from those customary in U.S. markets. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the United States. It is also expected that the
expenses for custodial arrangements of the Fund's foreign securities will be
somewhat greater than the expenses for the custodial arrangements for U.S.
securities of equal value. Dividends and interest paid by foreign issuers may
be subject to withholding and other foreign taxes. Although in some countries a
portion of these taxes is recoverable, the non-recovered portion of foreign
withholding taxes will reduce the income the Fund receives from the companies
comprising the Fund's investments. See TAXES. Additional risks include future
political and economic developments, the possibility that a foreign jurisdiction
might impose or change withholding taxes on income payable with respect to
foreign securities, possible seizure, nationalization or expropriation of the
foreign issuer or foreign deposits and the possible adoption of foreign
government restrictions such as exchange controls. Also, because stocks of
foreign companies are normally denominated in foreign currencies, the Fund may
be affected favorably or unfavorably by changes in currency rates and exchange
control regulations, and may incur costs in connection with conversions between
various currencies.

-50-
<PAGE>

countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries. Further, investments by
foreign investors are subject to a variety of restrictions in many emerging or
developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the type of companies in which foreigners may invest.
Additional restrictions may be imposed at any time by these or other countries
in which the Fund invests. In addition, the repatriation of both investment
income and capital from several foreign countries is restricted and controlled
under certain regulations, including in some cases the need for certain
government consents. Although these restrictions may in the future make it
undesirable to invest in emerging or developing countries, the Manager does not
believe that any current repatriation restrictions would affect the Fund's
decision to invest in such countries.

U.S. GOVERNMENT SECURITIES

U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by federal agencies and U.S.
government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, investors in such securities
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Association ("GNMA"), are, in effect,
backed by the full faith and credit of the United States through provisions in
their charters that they may make "indefinite and unlimited" drawings on the
Treasury, if needed to service its debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institutions in
meeting their debt obligations. Finally, other agencies and instrumentalities,
such as the Farm Credit System, Tennessee Valley Authority and the Federal Home
Loan Mortgage Corporation, are federally chartered institutions under U.S.
government supervision, but their debt securities are backed only by the
creditworthiness of those institutions, not the U.S. government.

An instrumentality of a U.S. government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks and the Federal National Mortgage Association.

SHORT-TERM INVESTMENTS

The short-term investments in which the Fund may invest are:

(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by the
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of the total assets of the Fund. Certificates of
deposit are negotiable short-term obligations issued by commercial banks against
funds deposited in the issuing institution. Variable rate certificates of
deposit are certificates of deposit on which the interest rate is periodically
adjusted prior to their stated maturity based upon a specified market rate. A
bankers' acceptance is

-51-
<PAGE>

a time draft drawn on a commercial bank by a borrower usually in connection with
an international commercial transaction (to finance the import, export, transfer
or storage of goods).

The Fund will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion or, in the case of a bank
which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;

(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
the Manager;

(3) Short-term corporate obligations with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by the
Manager;

(4) U.S. government securities (see U.S. GOVERNMENT SECURITIES); and

(5) Repurchase agreements collateralized by securities listed above.

REPURCHASE AGREEMENTS

In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund
will limit its investments in repurchase agreements to those which the Manager
under guidelines of the Board of Directors determines to present minimal credit
risks and which are of high quality. In addition, the Fund must have collateral
of at least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.

RESTRICTED/ILLIQUID SECURITIES

The Fund may invest in restricted securities, including securities eligible
for resale without registration pursuant to Rule 144A ("Rule 144A Securities")
under the 1933 Act. Rule 144A exempts many privately placed and legally
restricted securities from the registration requirements of the 1933 Act and
permits such securities to be freely traded among certain institutional buyers
such as the Fund.

The Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.

-52-
<PAGE>

While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day functions of determining whether or not individual Rule
144A Securities are liquid for purposes of the Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund 15% limit on investment in such
securities, the Manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.

UNSEASONED COMPANIES

The Fund may invest in relatively new or unseasoned companies which are in
their early stages of development, or small companies positioned in new and
emerging industries where the opportunity for rapid growth is expected to be
above average. Securities of unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Fund may invest may have relatively small revenues, limited product lines, and
may have a small share of the market for their products or services. Small
companies may lack depth of management, they may be unable to internally
generate funds necessary for growth or potential development or to generate such
funds through external financing or favorable terms, or they may be developing
or marketing new products or services for which markets are not yet established
and may never become established. Due these and other factors, small companies
may suffer significant losses as well as realize substantial growth, and
investments in such companies tend to be volatile and are therefore speculative.

BORROWING FROM BANKS

The Fund may borrow money as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Fund will not borrow money in excess of
one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.

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<PAGE>

APPENDIX A - INVESTMENT ILLUSTRATIONS
ILLUSTRATIONS OF HYPOTHETICAL RETURNS ON INVESTMENTS BASED ON PURCHASE OPTION
$10,000 PURCHASE

Scenario 1 Scenario 2 Scenario 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
--------------------------- ------------------------- -------------------------- --------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+ 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 12,012 12,012 11,669 11,712 12,012+ 11,669 12,012 12,012
4 12,485 12,768 12,768 12,485 12,768 12,768
5 13,359 13,573 13,573 13,359 13,373 13,573+
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,422

*This assumes that Class B Shares were converted to Class A Shares at the end of the eighth year.
</TABLE>

$250,000 PURCHASE

Scenario 1 Scenario 2 Scenario 3 Scenario 4
No Redemption Redeem 1st Year Redeem 3rd Year Redeem 5th Year
--------------------------- ------------------------- -------------------------- --------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+ 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 300,289 300,289 298,604 292,789 300,289+ 298,604 300,289 300,289
4 319,507+ 319,207 319,207 319,507+ 319,207 319,207
5 341,872 339,318 339,318 341,872 334,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546

*This assumes that Class B Shares were converted to Class A Shares at the end of the eighth year.
</TABLE>

ILLUSTRATIONS DO NOT REFLECT ANY APPLICABLE WAIVER OF 12b-1 FEES. IF ANY
SUCH FEE WAIVERS WERE REFLECTED, THE ILLUSTRATIONS REPRESENTED ABOVE WOULD BE
DIFFERENT.

ASSUMES A HYPOTHETICAL RETURN FOR CLASS A OF 7% PER YEAR, A HYPOTHETICAL
RETURN FOR CLASS B OF 6.3% FOR YEARS 1-8 AND 7% FOR YEARS 9-10, AND A
HYPOTHETICAL RETURN FOR CLASS C OF 6.3% PER YEAR. HYPOTHETICAL RETURNS VARY
DUE TO THE DIFFERENT EXPENSE STRUCTURE FOR EACH CLASS AND DO NOT REPRESENT
ACTUAL PERFORMANCE.

CLASS A PURCHASE SUBJECT TO APPROPRIATE SALES CHARGE BREAKPOINT (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).

CLASS B PURCHASE ASSESSED APPROPRIATE CDSC UPON REDEMPTION (4%-4%-3%-3%-2%-1% IN
YEARS 1-2-3-4-5-6).

CLASS C PURCHASE ASSESSED 1% CDSC UPON REDEMPTION IN YEAR 1.

FIGURES MARKED "+" IDENTIFY WHICH CLASS OFFERS THE GREATER RETURN POTENTIAL
BASED ON INVESTMENT AMOUNT, THE HOLDING PERIOD AND THE EXPENSE STRUCTURE OF
EACH CLASS.

-54-
<PAGE>

APPENDIX B -- CLASSES OFFERED

GROWTH OF CAPITAL A Class B Class C Class Consultant Class
Aggressive Growth Fund X X X -
Trend Fund X X X -
Enterprise Fund X X X -
DelCap Fund X X X -
Small Cap Value Fund X X X -
U.S. Growth Fund X X X -
Growth Stock Fund X X X -
Tax-Efficient Equity Fund X X X -

TOTAL RETURN
Blue Chip Fund X X X -
Quantum Fund X X X -
Devon Fund X X X -
Decatur Total Return Fund X X X -
Decatur Income Fund X X X -
Delaware Fund X X X -

INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund X X X -
New Pacific Fund X X X -
World Growth Fund X X X -
International Equity Fund X X X -
Global Assets Fund X X X -
Global Bond Fund X X X -

CURRENT INCOME
Delchester Fund X X X -
Strategic Income Fund X X X -
Corporate Income Fund X X X -
Federal Bond Fund X X X -
U.S. Government Fund X X X -
Delaware-Voyageur US Government
Securities Fund X X X -
Limited-Term Government Fund X X X -

-55-
<PAGE>

APPENDIX B--CLASSES OFFERED (CON'T)

TAX PREFERRED INCOME A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
National High Yield Municipal Bond Fund X X X -
Tax-Free USA Fund X X X -
Tax-Free Insured Fund X X X -
Tax-Free USA Intermediate Fund X X X -
Delaware-Voyageur Tax-Free Arizona Insured Fund X X X -
Delaware-Voyageur Tax-Free Arizona Fund X X X -
Delaware-Voyageur Tax-Free California Insured Fund X X X -
Delaware-Voyageur Tax-Free California Fund X X X -
Delaware-Voyageur Tax-Free Colorado Fund X X X -
Delaware-Voyageur Tax-Free Florida Insured Fund X X X -
Delaware-Voyageur Tax-Free Florida Intermediate Fund X X X -
Delaware-Voyageur Tax-Free Florida Fund X X X -
Delaware-Voyageur Tax-Free Idaho Fund X X X -
Delaware-Voyageur Tax-Free Iowa Fund X X X -
Delaware-Voyageur Tax-Free Kansas Fund X X X -
Delaware-Voyageur Minnesota High Yield Municipal Bond Fund X X X -
Delaware-Voyageur Minnesota Insured Fund X X X -
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund X X X -
Delaware-Voyageur Tax-Free Minnesota Fund X X X -
Delaware-Voyageur Tax-Free Missouri Insured Fund X X X -
Delaware-Voyageur Tax-Free New Mexico Fund X X X -
Delaware-Voyageur Tax-Free New York Fund X X X -
Delaware-Voyageur Tax-Free North Dakota Fund X X X -
Delaware-Voyageur Tax-Free Oregon Insured Fund X X X -
Tax-Free Pennsylvania Fund X X X -
Delaware-Voyageur Tax-Free Utah Fund X X X -
Delaware-Voyageur Tax-Free Washington Insured Fund X X X -
Delaware-Voyageur Tax-Free Wisconsin Fund X X X -

MONEY MARKET FUNDS
Delaware Cash Reserve X X X X
U.S. Government Money Fund X - - X
Tax-Free Money Fund X - - X

</TABLE>

-56-
<PAGE>

APPENDIX C--RATINGS

The Fund's assets may be invested in corporate bonds that may be rated BB
or lower by S&P or Ba or lower by Moody's, or similarly rated by another
nationally-recognized statistical rating organization or that may be unrated.
These credit ratings evaluate only the safety of principal and interest and do
not consider the market value risk associated with high-yield securities.

The table set forth below shows the percentage of the Fund's securities
included in each of the specified rating categories and shows the percentage of
the Fund's assets held in U.S. government securities. Certain securities may
not be rated because the rating agencies were either not asked to provide
ratings (e.g., many issuers of privately placed bonds do not seek ratings) or
because the rating agencies declined to provide a rating for some reason, such
as insufficient data. The table below shows the percentage of the Fund's
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the period January 2, 1997 (date of initial public
offering) through July 31, 1997. The paragraphs following the table contain
excerpts from Moody's and S&P'S rating descriptions.

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio
- ------------------------- -----------------------

United States Treasury Obligations 3.13%
Aaa/AAA N/A
Aa/AA N/A
A/A N/A
Baa/BBB N/A
Ba/BB N/A
B/B 15.18%
Caa/CCC 79.61%
Not Rated/Other 2.08%

GENERAL RATING INFORMATION

BONDS

-57-
<PAGE>

COMMERCIAL PAPER

-58-
<PAGE>

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------

HIGH-YIELD OPPORTUNITIES FUND

- --------------------------------------------------------------------------------

A CLASS
B CLASS
C CLASS

- --------------------------------------------------------------------------------

PROSPECTUS

- --------------------------------------------------------------------------------

SEPTEMBER 29, 1997

DELAWARE
GROUP
<PAGE>

(HYOF-IC)

HIGH-YIELD OPPORTUNITIES FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES SEPTEMBER 29, 1997

1818 MARKET STREET, PHILADELPHIA, PA 19103

FOR MORE INFORMATION ABOUT
HIGH-YIELD OPPORTUNITIES FUND INSTITUTIONAL CLASS
CALL THE DELAWARE GROUP AT 800-828-5052.

This PROSPECTUS describes shares of High-Yield Opportunities Fund series
(the "Fund") of Delaware Group Income Funds, Inc. ("Income Funds, Inc."), a
professionally-managed mutual fund of the series type. The investment objective
of the Fund is to seek to provide investors with total return and, as a
secondary objective, high current income.

The Fund offers High-Yield Opportunities Fund Institutional Class (the
"Class") of shares.

This PROSPECTUS sets forth information that you should read and consider
before you invest. Please retain it for future reference. The Fund's Statement
of Additional Information ("PART B" of Income Funds, Inc.'s registration
statement) dated September 29, 1997, as it may be amended from time to time,
contains additional information about the Fund and has been filed with the
Securities and Exchange Commission. PART B is incorporated by reference into
this PROSPECTUS and is available, without charge, by writing to Delaware
Distributors, L.P. at the above address or by calling the above telephone
numbers. The Fund's financial statements appear in its ANNUAL REPORT, which
will accompany any response to requests for PART B.

The Fund also offers High-Yield Opportunities Fund A Class , High-Yield
Opportunities Fund B Class and High-Yield Opportunities Fund C Class . Shares
of these classes are subject to sales charges and other expenses, which may
affect their performance. A prospectus for these classes can be obtained by
writing to Delaware Distributors, L.P. at the above address or by calling
800-523-4640.

<PAGE>

TABLE OF CONTENTS

COVER PAGE CLASSES OF SHARES
SYNOPSIS HOW TO BUY SHARES
SUMMARY OF EXPENSES REDEMPTION AND EXCHANGE
FINANCIAL HIGHLIGHTS DIVIDENDS AND DISTRIBUTIONS
INVESTMENT OBJECTIVE AND POLICIES TAXES
SUITABILITY CALCULATION OF NET ASSET
INVESTMENT STRATEGY VALUE PER SHARE
RISK FACTORS MANAGEMENT OF THE FUND
YOUTH AND VOLATILITY OF THE OTHER INVESTMENT POLICIES AND
HIGH-YIELD MARKET RISK CONSIDERATIONS
REDEMPTIONS APPENDIX A--RATINGS
LIQUIDITY AND VALUATION

2
<PAGE>

SYNOPSIS

INVESTMENT OBJECTIVE

RISK FACTORS

The Fund invests primarily in high-yield securities (junk bonds) and
greater risks may be involved with an investment in the Fund than an investment
in a mutual fund comprised primarily of investment grade bonds. See RISK
FACTORS under INVESTMENT OBJECTIVES AND POLICIES.

INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Income Funds, Inc.'s Board of Directors. The Manager also provides investment
management services to certain other funds in the Delaware Group. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for the Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing, accounting services and transfer agent for the Fund and for all of
the other mutual funds in the Delaware Group. See SUMMARY OF EXPENSES and
MANAGEMENT OF THE FUND for further information regarding the Manager and the
fees payable under the Fund's Investment Management Agreement.

PURCHASE PRICE

REDEMPTION AND EXCHANGE

Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See REDEMPTION
AND EXCHANGE.

OPEN-END INVESTMENT COMPANY

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the Investment Company
Act of 1940 (the "1940 Act"). Income Funds, Inc. was first organized as a
Delaware corporation in 1970 and subsequently organized as a Maryland
corporation on March 4, 1983. See SHARES under MANAGEMENT OF THE FUND.

3
<PAGE>

SUMMARY OF EXPENSES

SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . None

Maximum Sales Charge Imposed on Reinvested
Dividends (as a percentage of offering price). . . . None

Exchange Fees . . . . . . . . . . . . . . . . . . . . None*

ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
---------------------------------------------------------------

Management Fees . . . . . . . . . . . . . . . . . . . 0.13%

12b-1 Fees. . . . . . . . . . . . . . . . . . . . . . None

Other Operating Expenses. . . . . . . . . . . . . . . 0.62%+

Total Operating Expenses. . . . . . . . . . . . 0.75%+

*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.

+"Total Operating Expenses" and "Other Operating Expenses" for the Class are
based on estimated amounts for the first full fiscal year of the Class, after
giving effect to the voluntary expense waiver. The Manager has elected
voluntarily to waive that portion, if any, of the annual management fees payable
by the Fund and to pay certain expenses of the Fund to the extent necessary to
ensure that the "Total Operating Expenses" of the Class do not exceed 0.75%
during the commencement of the public offering of the Class through December
31, 1997. If the voluntary expense waivers were not in effect, it is estimated
that the "Total Operating Expenses," as a percentage of average daily net
assets, would be 1.27% for the Class' first full fiscal year, reflecting
management fees of 0.65%.

For expense information about High-Yield Opportunities Fund A Class,
High-Yield Opportunities Fund B Class and High-Yield Opportunities Fund C Class,
see the separate prospectus relating to those classes.

4
<PAGE>

The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, and (2) redemption at the end of each time period. The Fund charges
no redemption fees. The following example assumes the voluntary waiver of the
management fee by the Manager as discussed in this PROSPECTUS.

1 YEAR 3 YEARS
------ -------
$8 $24

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

The purpose of the above tables is to assist the investor in understanding
the various costs and expenses that an investor in the Class will bear directly
or indirectly.

5
<PAGE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------

6
<PAGE>

High-Yield
Opportunities
Fund
Institutional Class
For the
period
1/2/97(1)
through
7/31/97
-------

Net Asset Value, Beginning of Period . . . . . . . . . . . $5.5000

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(2) . . . . . . . . . . . . . . . . . 0.2902
Net Gains on Securities
(both realized and unrealized). . . . . . . . . . . . . 0.2990
Total From Investment Operations . . . . . . . . . . 0.5892

LESS DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . (0.1692)
Distributions from Capital Gains . . . . . . . . . . . . . none
Total Distributions . . . . . . . . . . . . . . . . . . (0.1692)

Net Asset Value, End of Period . . . . . . . . . . . . . . $5.9200

TOTAL RETURN(3). . . . . . . . . . . . . . . . . . . . . . 10.81%

RATIOS/SUPPLEMENTAL DATA

Net Assets, End of Period (000's omitted). . . . . . . . . $3,330
Ratio of Expenses to Average Daily Net Assets. . . . . . . 0.75%
Ratio of Expenses to Average Daily Net Assets
Prior to Expense Limitation . . . . . . . . . . . . . . 1.27%
Ratio of Net Investment Income to Average
Daily Net Assets. . . . . . . . . . . . . . . . . . . . 8.53%

Ratio of Net Investment Income to Average Daily Net Assets
Prior to Expense Limitation . . . . . . . . . . . . . . 8.00%

Portfolio Turnover Rate. . . . . . . . . . . . . . . . . . 270%

(1) Date of initial public offering of Institutional Class; 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) Total return reflects the expense limitations referenced under SUMMARY OF
EXPENSES in the PROSPECTUS.

7
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The objective of the Fund is to seek total return and, as a secondary
objective, high current income. The Fund seeks to achieve its objective by
investing primarily in corporate bonds rated BB or lower by S&P or Ba or lower
by Moody's, or similarly rated by another nationally-recognized statistical
rating organization or, if unrated (which may be more speculative in nature than
rated bonds), judged to be of comparable quality by the Manager. See APPENDIX A
- - RATINGS for more rating information and OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS for a description of the risks associated with investing in
lower-rated fixed-income securities.

SUITABILITY

The types of securities in which the Fund may invest are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Investors should consider asset value fluctuation, as well as
yield, in making an investment decision. While investments in unrated,
lower-rated and certain restricted securities have the potential for greater
price appreciation and higher yields, they are more speculative and increase the
credit risk of the Fund's portfolio. Changes in the market value of portfolio
securities will not affect interest income from such securities, but will be
reflected in a Class' net asset value. Investors should be willing to accept
the risks, including the risk of net asset value fluctuations, associated with
investing in these types of securities. See OTHER INVESTMENT POLICIES AND RISK
CONSIDERATIONS for a complete discussion of the risk factors affecting the
Fund's portfolio securities.

Investors should not consider a purchase of Fund shares as equivalent to a
complete investment program. The Delaware Group includes a family of funds,
generally available through registered investment dealers, which may be used
together to create a more complete investment program.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchases of the types of
securities in which the Fund invests.

INVESTMENT STRATEGY

8
<PAGE>

The Fund may purchase privately-placed debt and other securities the resale
of which is restricted under applicable securities laws. Such securities may be
less liquid than securities that are not subject to resale restrictions. The
Fund will not purchase illiquid assets, if more than 15% of its net assets would
consist of such illiquid securities. See RESTRICTED/ILLIQUID SECURITIES under
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS.

The Fund may invest up to 15% of its total assets in securities of issuers
domiciled in foreign countries. See FOREIGN INVESTMENT INFORMATION under OTHER
INVESTMENT POLICIES AND RISK CONSIDERATIONS.

* * *

For a description of the Fund's other investment policies and for a further
description of some of the policies described above, see OTHER INVESTMENT
POLICIES AND RISK CONSIDERATIONS.

Although the Fund will constantly strive to attain its objective, there can
be no assurance that is will be attained.

9
<PAGE>

RISK FACTORS

GENERALLY

HIGH-YIELD SECURITIES

The Fund may invest primarily in bonds rated BB or lower by S&P or Ba or
lower by Moody's, and in bonds of comparable quality. See APPENDIX A - RATINGS
in this PROSPECTUS for more rating information. Investing in these so-called
"junk" bonds or "high-yield" bonds entails certain risks, including the risk of
loss of principal and default on interest payments which may be greater than the
risks involved in investment grade securities, and which should be considered by
investors contemplating an investment in the Fund. High-yield bonds are
sometimes issued by companies whose earnings at the time of issuance are less
than the projected debt service on the junk bonds. In addition to the
considerations discussed elsewhere in this PROSPECTUS, the risks of lower-rated
bonds include the following:

YOUTH AND VOLATILITY OF THE HIGH-YIELD MARKET. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long economic
expansion which took place in the United States during the 1980s. During the
economic expansion, the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings increased dramatically. As
a result, the high-yield market grew substantially during the economic
expansion. Although experts disagree on the impact recessionary periods have
had and will have on the high-yield market, some analysts believe a protracted
economic downturn would severely disrupt the market for high-yield bonds, would
adversely affect the value of outstanding bonds and would adversely affect the
ability of high-yield issuers to repay principal and interest. Those analysts
cite volatility experienced in the high-yield market in the past as evidence for
their position. It is likely that protracted periods of economic uncertainty
would result in increased volatility in the market prices of high-yield bonds,
an increase in the number of high-yield bond defaults and corresponding
volatility in the Fund's net asset value.

REDEMPTIONS. If, as a result of volatility in the high-yield market or
other factors, the Fund experiences substantial net redemptions of the Fund's
shares for a sustained period of time, the Fund may be required to sell
securities without regard to the investment merits of the securities to be sold.
If the Fund sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Fund will decrease and the Fund's expense
ratios may increase.

10
<PAGE>

regulatory, financial or other reasons, such as the savings and loan crisis. A
less liquid secondary market may havean adverse effect on the Fund's ability to
dispose of particular issues, when necessary, to meet the Fund's liquidity needs
or in response to a specific economic event, such as the deterioration in the
creditworthiness of the issuer. In addition, a less liquid secondary market
makes it more difficult for the Fund to obtain precise valuations of the
high-yield securities in its portfolio. During periods involving such liquidity
problems, judgment plays a greater role in valuing high-yield securities than is
normally the case. The secondary market for high-yield securities is also
generally considered to be more likely to be disrupted by adverse publicity and
investor perceptions than the more established secondary securities markets.
The Fund's privately placed high-yield securities are particularly susceptible
to the liquidity and valuation risks outlined above.

See HIGH-YIELD, HIGH RISK SECURITIES under OTHER INVESTMENT POLICIES AND
RISK CONSIDERATIONS for further information about high-yield securities.

11
<PAGE>

CLASSES OF SHARES

Shares of the Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager, or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.

HIGH-YIELD OPPORTUNITIES FUND A CLASS, HIGH-YIELD OPPORTUNITIES FUND B CLASS AND
HIGH-YIELD OPPORTUNITIES FUND C CLASS

In addition to offering High-Yield Opportunities Fund Institutional Class,
the Fund also offers High-Yield Opportunities Fund A Class, High-Yield
Opportunities Fund B Class and High-Yield Opportunities Fund C Class, which are
described in a separate prospectus. Shares of High-Yield Opportunities Fund A
Class, High-Yield Opportunities Fund B Class and High-Yield Opportunities Fund
C Class may be purchased through authorized investment dealers or directly by
contacting the Fund or the Distributor. High-Yield Opportunities Fund A Class
carries a front-end sales charge and, absent any applicable fee waiver, has
annual 12b-1 expenses equal to a maximum of 0.30%. The maximum front-end sales
charge as a percentage of the offering price is 4.75% and is reduced on certain
transactions of $100,000 or more. High-Yield Opportunities Fund B Class and
High-Yield Opportunities Fund C Class have no front-end sales charge but, absent
any applicable fee waiver, are subject to annual 12b-1 expenses equal to a
maximum of 1%. Shares of High-Yield Opportunities Fund B Class and High-Yield
Opportunities Fund C Class and certain shares of High-Yield Opportunities Fund
A Class may be subject to a contingent deferred sales charge upon redemption.
To obtain a prospectus relating to such classes, contact the Distributor by
writing to the address or by calling the phone numbers listed on the cover of
this PROSPECTUS.

12
<PAGE>

HOW TO BUY SHARES

The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.

INVESTING DIRECTLY BY MAIL
1. INITIAL PURCHASES--An Investment Application, or in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to High-Yield Opportunities Fund
Institutional Class, to Delaware Group at 1818 Market Street, Philadelphia, PA
19103.

2. SUBSEQUENT PURCHASES--Additional purchases may be made at any time by
mailing a check payable to High-Yield Opportunities Fund Institutional Class.
Your check should be identified with your name(s) and account number.

INVESTING DIRECTLY BY WIRE
You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 1412893401 (include
your name(s) and your account number).

1. INITIAL PURCHASES--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement account, an
appropriate retirement plan application, for High-Yield Opportunities Fund
Institutional Class, to Delaware Group at 1818 Market Street, Philadelphia, PA
19103.

INVESTING BY EXCHANGE

If you have an investment in another mutual fund in the Delaware Group and
you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Fund. However, shares of
High-Yield Opportunities Fund B Class and High-Yield Opportunities Fund C Class
and Class B Shares and Class C Shares of the other funds in the Delaware Group
offering such a class of shares may not be exchanged into the Class. If you
wish to open an account by exchange, call your Client Services Representative at
800-828-5052 for more information. See REDEMPTION AND EXCHANGE for more
complete information concerning your exchange privileges.

INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of Fund shares through most investment dealers who,
as part of the service they provide, must transmit orders promptly to the Fund.
They may charge for this service.

13
<PAGE>

PURCHASE PRICE AND EFFECTIVE DATE
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.

The effective date of a purchase made through an investment dealer is the
date the order is received by the Fund, its agent or designee. The effective
date of a direct purchase is the day your wire, electronic transfer or check is
received, unless it is received after the time the share price is determined, as
noted above. Purchase orders received after such time will be effective the
next business day.

THE CONDITIONS OF YOUR PURCHASE
The Fund reserves the right to reject any purchase order. If a purchase is
canceled because your check is returned unpaid, you are responsible for any loss
incurred. The Fund can redeem shares from your account(s) to reimburse itself
for any loss, and you may be restricted from making future purchases in any of
the funds in the Delaware Group. The Fund reserves the right to reject purchase
orders paid by third-party checks or checks that are not drawn on a domestic
branch of a United States financial institution. If a check drawn on a foreign
financial institution is accepted, you may be subject to additional bank charges
for clearance and currency conversion.

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.

14
<PAGE>

REDEMPTION AND EXCHANGE

Your shares will be redeemed or exchanged based on the net asset value next
determined after the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined, as noted above, will be processed on the
next business day. See PURCHASE PRICE AND EFFECTIVE DATE under HOW TO BUY
SHARES. Except as otherwise noted below, for a redemption request to be in
"good order," you must provide your Class account number, account registration,
and the total number of shares or dollar amount of the transaction. With regard
to exchanges, you must also provide the name of the fund you want to receive the
proceeds. Exchange instructions and redemption requests must be signed by the
record owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Fund at 800-828-5052. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.

Shares of the Class may be exchanged into any other Delaware Group mutual
fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of the Class, such exchange will be exchanged at
net asset value. Shares of the Class may not be exchanged into Class B Shares
or Class C Shares of the funds in the Delaware Group. The Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.

WRITTEN REDEMPTION AND EXCHANGE
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your shares or to request an exchange of any or all of
your shares into another mutual fund in the Delaware Group,

15
<PAGE>

subject to the same conditions and limitations as other exchanges noted above.
The request must be signed by all owners of the account or your investment
dealer of record.

You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.

TELEPHONE REDEMPTION AND EXCHANGE
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.

Neither the Fund nor its Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.

TELEPHONE REDEMPTION-CHECK TO YOUR ADDRESS OF RECORD
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request.

16
<PAGE>

TELEPHONE REDEMPTION-PROCEEDS TO YOUR BANK

Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your redemption request to your predesignated bank account. There
are no fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call your Client Services Representative
prior to the time the net asset value is determined, as noted above.

TELEPHONE EXCHANGE
You or your investment dealer of record can exchange shares into any fund
in the Delaware Group under the same registration. As with the written exchange
service, telephone exchanges are subject to the same conditions and limitations
as other exchanges noted above. Telephone exchanges may be subject to
limitations as to amounts or frequency.

17
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Each Class of the Fund will share proportionately in the investment income
and expenses of the Fund, except that the Class will not incur distribution fees
under the Rule 12b-1 Plans which, absent any applicable fee waiver, apply to
High-Yield Opportunities Fund A Class, High-Yield Opportunities Fund B Class
and High-Yield Opportunities Fund C Class.

The Fund's dividends are expected to be declared daily and paid monthly.
However, the Fund does not anticipate declaring or paying dividends during the
first few months following the commencement of its operations. Distributions
from net realized securities profits, if any, will be distributed twice a year.
The first payment normally would be made during the first quarter of the next
fiscal year. The second payment would be made near the end of the calendar year
to comply with certain requirements of the Code. Both dividends and
distributions are automatically reinvested in your account at net asset value.

18
<PAGE>

TAXES

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income tax as ordinary income, even though received in additional shares. It
is expected that only a nominal portion of the Fund's dividends will be eligible
for the dividends-received deduction for corporations.

The Fund may be subject to foreign withholding taxes on income from certain
of its foreign securities.

19
<PAGE>

avoid this withholding requirement by certifying on your Investment Application
your proper Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.

See ACCOUNTING AND TAX ISSUES and TAXES in PART B for additional
information on tax matters relating to the Fund and its shareholders.

20
<PAGE>

CALCULATION OF NET ASSET VALUE PER SHARE

The purchase and redemption price of Class shares is the net asset value
("NAV") per share of the Class shares next computed after the order is received.
The NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Income Fund, Inc.'s
Board of Directors. Equity securities for which market quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Income Funds, Inc.'s Board of Directors.

The net asset values of all outstanding shares of each class of the Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under the Income
Funds, Inc.'s 12b-1 Plans and the High-Yield Opportunities Fund A, B and C
Classes alone will bear the 12b-1 Plan fees payable under their respective
Plans.

21
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors. PART B contains additional information
regarding Income Funds, Inc.'s directors and officers.

INVESTMENT MANAGER

The Manager furnishes investment management services to the Fund.

Paul A. Matlack and Gerald T. Nichols have primary responsibility for
making day-to-day investment decisions for the Fund. Mr. Matlack, a Vice
President/Senior Portfolio Manager of Income Funds, Inc., has been a member of
the Fund's management team since its inception. Mr. Matlack is a CFA
charterholder and a graduate of the University of Pennsylvania with an MBA in
Finance from George Washington University. He began his career at Mellon Bank
as a credit specialist, and later served as a corporate loan officer for Mellon
Bank and then Provident National Bank. Mr. Nichols, a Vice President/Senior
Portfolio Manager of Income Funds, Inc., has been a member of the Fund's
management team since its inception. Mr. Nichols is a graduate of the
University of Kansas, where he received a BS in Business Administration and an
MS in Finance. Prior to joining the Manager, he was a high yield credit analyst
at Waddell & Reed, Inc. and subsequently the investment officer for a private
merchant banking firm. He is a CFA charterholder.

22
<PAGE>

with Oppenheimer Management Corporation where he served as Executive Vice
President and Director of Fixed Income.

PORTFOLIO TRADING PRACTICES

The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective and current market conditions, its annual portfolio
turnover rate is expected to exceed 100%. A turnover rate of 100% occurs, for
example, when all the investments in the Fund's portfolio at the beginning of
the year were replaced by the end of the year. During the period January 2,
1997 (date of initial public offering) through July 31, 1997, the Fund's
portfolio turnover rate was 270% (annualized).

The Fund uses its best efforts to obtain the best available price and most
favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
to their advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, the Fund
may consider a broker/dealer's sales of shares of funds in the Delaware Group
of funds in placing portfolio orders and may place orders with broker/dealers
that have agreed to defray certain expenses of such funds, such as custodian
fees.

PERFORMANCE INFORMATION

From time to time, the Fund may quote yield or total return performance of
the Class in advertising and other types of literature.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

STATEMENTS AND CONFIRMATIONS

FINANCIAL INFORMATION ABOUT THE FUND

DISTRIBUTION AND SERVICE

23
<PAGE>

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated as of December 27, 1996. The Distributor bears all of
the costs of promotion and distribution.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for Income
Funds, Inc. under an amended and restated agreement dated as of December 27,
1996. The Transfer Agent also provides accounting services to the Fund
pursuant to the terms of a separate Fund Accounting Agreement. Certain
recordkeeping services and other shareholder services that otherwise would be
performed by the Transfer Agent may be performed by certain other entities
and the Transfer Agent may elect to enter into an agreement to pay such other
entities for their services. In addition, participant account maintenance
fees may be assessed for certain recordkeeping provided as part of retirement
plan and administration service packages. These fees are based on the number
of participants in the plan and the various services selected. Fees will be
quoted upon request and are subject to change.

The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

EXPENSES

The Fund is responsible for all of its own expenses other than those borne
by the Manager under the Investment Management Agreement and those borne by the
Distributor under the Distribution Agreement. The ratio of operating expenses
to average daily net assets for the Class is expected to equal 0.75% on an
annual basis. The ratio reflects the voluntary waiver and payment of fees by
the Manager.

Income Funds, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983. Income Funds, Inc. was previously organized as a
Delaware corporation in 1970. In addition to the Fund, Income Funds, Inc.
presently offers two other series of shares, the Delchester Fund series and the
Strategic Income Fund series.

Fund shares have a par value of $1.00, equal voting rights, except as
noted below, and are equal in all other respects.

In addition to the Class, the Fund also offers High-Yield Opportunities
Fund A Class, High-Yield Opportunities Fund B Class and High-Yield
Opportunities Fund C Class which represent proportionate interests in the assets
of the Fund and have the same voting and other rights and preferences as the
Class, except that shares of the Class are not subject to, and may not vote on
matters affecting, the Distribution Plans under Rule 12b-1 relating to
High-Yield Opportunities Fund A Class, High-Yield Opportunities Fund B Class
and High-Yield Opportunities Fund C Class.

Lincoln National Corporation Employees' Retirement Trust (the "Trust")
made an initial investment in the Fund, and as of July 31, 1997, the Trust
held 99% of the outstanding shares of the Class. Subject to certain

24
<PAGE>

limited exceptions, there are no limitations on the Trust's ability to redeem
its shares of the Fund and it may elect to do so at any time.

25
<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

HIGH-YIELD, HIGH RISK SECURITIES

The Fund invests primarily in securities rated BB or lower by S&P or Ba or
lower by Moody's, or similarly rated by another nationally-recognized
statistical rating organization or, if unrated (which may be more speculative in
nature than rated bonds), judged to be of comparable quality by the Manager.
See APPENDIX A--RATINGS in this PROSPECTUS for more rating information. The
discussion in this section supplements the description of the risks of
high-yield securities found earlier in this PROSPECTUS in INVESTMENT OBJECTIVE
AND POLICIES and investors should refer to those sections for a further
discussion of the risks of high-yield bonds.

ZERO COUPON BONDS AND PAY-IN-KIND BONDS

26
<PAGE>

FOREIGN INVESTMENT INFORMATION

The risks noted above often are heightened for investments in emerging or
developing countries. Compared to the United States and other developed
countries, emerging or developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. Prices on these exchanges tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Further, investments by foreign investors are subject to a
variety of restrictions in many emerging or developing countries. These
restrictions may take the form of prior governmental approval, limits on the
amount or type of securities held by foreigners, and limits on the type of
companies in which foreigners may invest. Additional restrictions may be

27
<PAGE>

imposed at any time by these or other countries in which the Fund invests. In
addition, the repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain regulations,
including in some cases the need for certain government consents. Although
these restrictions may in the future make it undesirable to invest in emerging
or developing countries, the Manager does not believe that any current
repatriation restrictions would affect the Fund's decision to invest in such
countries.

U.S. GOVERNMENT SECURITIES

U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by federal agencies and U.S.
government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, investors in such securities
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities,
such as the Government National Mortgage Association ("GNMA"), are, in effect,
backed by the full faith and credit of the United States through provisions in
their charters that they may make "indefinite and unlimited" drawings on the
Treasury, if needed to service its debt. Debt from certain other agencies and
instrumentalities, including the Federal Home Loan Bank and Federal National
Mortgage Association, are not guaranteed by the United States, but those
institutions are protected by the discretionary authority for the U.S. Treasury
to purchase certain amounts of their securities to assist the institutions in
meeting their debt obligations. Finally, other agencies and instrumentalities,
such as the Farm Credit System, Tennessee Valley Authority and the Federal Home
Loan Mortgage Corporation, are federally chartered institutions under U.S.
government supervision, but their debt securities are backed only by the
creditworthiness of those institutions, not the U.S. government.

An instrumentality of a U.S. government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks and the Federal National Mortgage Association.

SHORT-TERM INVESTMENTS

The short-term investments in which the Fund may invest are:

28
<PAGE>

Corporation, and (iii) the bank or its securities have received the highest
quality rating by a nationally-recognized statistical rating organization;

(4) U.S. government securities (see U.S. GOVERNMENT SECURITIES); and

(5) Repurchase agreements collateralized by securities listed above.

REPURCHASE AGREEMENTS

In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss of the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund
will limit its investments in repurchase agreements to those which the Manager
under guidelines of the Board of Directors determines to present minimal credit
risks and which are of high quality. In addition, the Fund must have collateral
of at least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.

RESTRICTED/ILLIQUID SECURITIES

29
<PAGE>

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, the Fund's
holdings of illiquid securities exceed the Fund 15% limit on investment in such
securities, the Manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.

UNSEASONED COMPANIES

BORROWING FROM BANKS

The Fund may borrow money as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Fund will not borrow money in excess of
one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.

30
<PAGE>

APPENDIX A--RATINGS

The table set forth below shows the percentage of the Fund's securities
included in each of the specified rating categories and shows the percentage of
the Fund's assets held in U.S. government securities. Certain securities may
not be rated because the rating agencies were either not asked to provide
ratings (e.g., many issuers of privately placed bonds do not seek ratings) or
because the rating agencies declined to provide a rating for some reason, such
as insufficient data. The table below shows the percentage of the Fund's
securities which are not rated. The information contained in the table was
prepared based on a dollar weighted average of the Fund's portfolio composition
based on month end data for the period January 2, 1997 (date of initial public
offering) through July 31, 1997. The paragraphs following the table contain
excerpts from Moody's and S&P's rating descriptions.

Average Weighted
Rating Moody's and/or S&P Percentage of Portfolio
- ------------------------- -----------------------

United States Treasury Obligations 3.13%
Aaa/AAA N/A
Aa/AA N/A
A/A N/A
Baa/BBB N/A
Ba/BB 15.18%
B/B 79.61%
Caa/CCC N/A
Not Rated/Other 2.08%

GENERAL RATING INFORMATION

BONDS

31
<PAGE>

COMMERCIAL PAPER

Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength;
P-2--second highest grade possessing less relative strength than the highest
grade.

32
<PAGE>

For more information contact the Delaware Group at
800-828-5052.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

- ------------------------------------

HIGH-YIELD OPPORTUNITIES FUND

- ------------------------------------

INSTITUTIONAL

- ------------------------------------

P R O S P E C T U S

- ------------------------------------

SEPTEMBER 29, 1997

DELAWARE
GROUP

<PAGE>

The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end equity
funds give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes should
contact their financial adviser or call Delaware Group at 800-523-4640, and
shareholders of the Institutional Class should contact Delaware Group at
800-828-5052.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

SUB-ADVISER
Strategic Income Fund:
Delaware International Advisers Ltd.
Third Floor
80 Cheapside
London, England EC2V 6EE

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIANS
Delchester Fund/High -Yield Opportunities Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

Strategic Income Fund:
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006

- --------------------------------------------------------------------------------

DELAWARE GROUP INCOME FUNDS, INC.

- --------------------------------------------------------------------------------

DELCHESTER FUND

- --------------------------------------------------------------------------------

STRATEGIC INCOME FUND

- --------------------------------------------------------------------------------

HIGH-YIELD OPPORTUNITIES FUND

- --------------------------------------------------------------------------------

PART B

STATEMENT OF
ADDITIONAL INFORMATION

- --------------------------------------------------------------------------------

SEPTEMBER 29, 1997

DELAWARE
GROUP
<PAGE>

PART B--STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 29, 1997

- --------------------------------------------------------------------------------

DELAWARE GROUP INCOME FUNDS, INC.

- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------
FOR MORE INFORMATION ABOUT THE INSTITUTIONAL CLASS OF DELCHESTER FUND,
STRATEGIC INCOME FUND AND HIGH-YIELD OPPORTUNITIES FUND: 800-828-5052

FOR PROSPECTUS AND PERFORMANCE OF CLASS A SHARES, CLASS B SHARES AND
CLASS C SHARES OF DELCHESTER FUND, STRATEGIC INCOME FUND AND HIGH-YIELD
OPPORTUNITIES FUND: NATIONWIDE 800-523-4640

INFORMATION ON EXISTING ACCOUNTS OF CLASS A SHARES, CLASS B SHARES AND
CLASS C SHARES OF DELCHESTER FUND, STRATEGIC INCOME FUND AND HIGH-YIELD
OPPORTUNITIES FUND: (SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918

DEALER SERVICES: (BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
COVER PAGE

INVESTMENT OBJECTIVES AND POLICIES

PERFORMANCE INFORMATION

TRADING PRACTICES AND BROKERAGE

PURCHASING SHARES

INVESTMENT PLANS

DETERMINING OFFERING PRICE AND
NET ASSET VALUE

REDEMPTION AND REPURCHASE

DIVIDENDS AND REALIZED SECURITIES
PROFITS DISTRIBUTIONS

TAXES

INVESTMENT MANAGEMENT AGREEMENTS

OFFICERS AND DIRECTORS

EXCHANGE PRIVILEGE

GENERAL INFORMATION

APPENDIX A--IRA INFORMATION

FINANCIAL STATEMENTS

-1-

<PAGE>

Delaware Group Income Funds, Inc. ("Income Funds, Inc.") is a
professionally-managed mutual fund of the series type which currently offers
three series of shares: the Delchester Fund series (the "Delchester Fund"), the
Strategic Income Fund series (the "Strategic Income Fund") and the High-Yield
Opportunities Fund series (the "High-Yield Opportunities Fund") (individually, a
"Fund" and collectively, the "Funds").

Each Fund of Income Funds, Inc. offers three retail classes: Delchester
Fund A Class, Strategic Income Fund A Class and High-Yield Opportunities Fund A
Class (the "Class A Shares"); Delchester Fund B Class, Strategic Income Fund B
Class and High-Yield Opportunities Fund B Class (the "Class B Shares"); and
Delchester Fund C Class, Strategic Income Fund C Class and High-Yield
Opportunities Fund C Class (the "Class C Shares"). Class A Shares, Class B
Shares and Class C Shares are collectively referred to as the "Fund Classes."
Each Fund also offers an institutional class: Delchester Fund Institutional
Class, Strategic Income Fund Institutional Class and High-Yield Opportunities
Fund Institutional Class (collectively, the "Institutional Classes").

Class B Shares, Class C Shares and Institutional Class shares of each Fund
may be purchased at a price equal to the next determined net asset value per
share. Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge. Class A Shares are subject to a maximum front-end sales charge of
4.75%, absent any applicable fee waiver, and annual 12b-1 Plan expenses which,
for Delchester Fund A Class will vary because of the formula adopted by Income
Funds, Inc.'s Board of Directors but may not exceed 0.30%, for Strategic Income
Fund A Class may not exceed 0.30% and have currently been fixed by the Board at
0.25%, and for High-Yield Opportunities Fund may not exceed 0.30%. Class B
Shares are subject to a contingent deferred sales charge ("CDSC") which may be
imposed on redemptions made within six years of purchase and annual 12b-1 Plan
expenses of up to 1% which are assessed against Class B Shares for approximately
eight years after purchase. See AUTOMATIC CONVERSION OF CLASS B SHARES under
CLASSES OF SHARES in the PROSPECTUSES for the Fund Classes. Class C Shares are
subject to a CDSC which may be imposed on redemptions made within 12 months of
purchase and, absent any applicable fee waiver, annual 12b-1 Plan expenses of up
to 1%, which are assessed against Class C Shares for the life of the investment.
See DISTRIBUTION AND SERVICE under INVESTMENT MANAGEMENT AGREEMENTS.

This STATEMENT OF ADDITIONAL INFORMATION ("PART B" of the registration
statement) supplements the information contained in the current PROSPECTUSES for
Delchester Fund , Strategic Income Fundand High-Yield Opportunities Fund, each
dated September 29, 1997 , as they may be amended from time to time. PART B
should be read in conjunction with the respective class' PROSPECTUS. PART B is
not itself a prospectus but is, in its entirety, incorporated by reference into
each class' PROSPECTUS. A PROSPECTUS for each class may be obtained by writing
or calling your investment dealer or by contacting Income Funds, Inc.'s national
distributor, Delaware Distributors, L.P. (the "Distributor"), 1818 Market
Street, Philadelphia, PA 19103.

All references to "shares" in this PART B refer to all classes of shares of
Income Funds, Inc., except where noted.

-2-
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

Delchester Fund seeks to earn and pay shareholders as high a current income
as is consistent with providing reasonable safety. Strategic Income Fund seeks
to provide investors with high current income and total return. High-Yield
Opportunities Fund seeks total return and, as a secondary objective, high
current income. The investment objectives of Delchester Fund and Strategic
Income Fund are fundamental policies and cannot be changed without shareholder
approval.

DELCHESTER FUND

In investing for income and safety of principal, Delchester Fund's emphasis
in selection will be on securities having a liberal and consistent yield and
those tending to reduce the risk of market fluctuations. The types of
securities in which Delchester Fund invests are subject to price fluctuations
particularly due to changes in interest rates and economic conditions.
Management will seek to achieve Delchester Fund's objective by investing at
least 80% of the Fund's assets at time of purchase in:

(1) CORPORATE BONDS. The Fund will invest in both rated and unrated
bonds. Unrated bonds may be more speculative in nature than rated bonds; or

(2) GOVERNMENT SECURITIES. Securities of, or guaranteed by, the U.S.
government, its agencies or instrumentalities; or

(3) COMMERCIAL PAPER. Commercial paper of companies having, at the time
of purchase, an issue of outstanding debt securities rated as described above or
commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
rated P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or similarly
rated by other rating agencies.

APPENDIX C - RATINGS in Delchester Fund's Fund Classes' PROSPECTUS
(APPENDIX A - RATINGS in the Fund's Institutional Class' PROSPECTUS) describes
the ratings of S&P and Moody's and provides information concerning the ratings
of the securities in the Fund's portfolio.

As a matter of practice, Delchester Fund has consistently invested more
than 80% of its assets in such securities. With respect to the remaining
assets, if any, that Delchester Fund may invest in other securities, the Fund
must invest in income-producing securities, including common stocks and
preferred stocks, some of which may have convertible features or attached
warrants. Additionally, in unusual market conditions, in order to meet
redemption requests, for temporary defensive purposes, and pending investment,
the Fund may hold a substantial portion of its assets in cash or short-term
obligations for an appreciable period of time when market conditions warrant and
the Fund is anticipating higher interest rates. Currently, Delchester Fund's
assets are invested primarily in unrated bonds and bonds rated BB or lower by
S&P or Ba or lower by Moody's.

STRATEGIC INCOME FUND

FOREIGN AND EMERGING MARKETS SECURITIES

Investors should recognize that investing in foreign issuers, including
issuers located in emerging market countries, involves certain considerations,
including those set forth in Strategic Income Fund's PROSPECTUSES, which are not
typically associated with investing in United States issuers. Since the stocks
of foreign companies are frequently denominated in foreign currencies, and since
Strategic Income Fund may temporarily hold uninvested reserves in bank deposits
in foreign currencies, the Fund will be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and may incur
costs in connection with conversions between various currencies. The investment
policies of Strategic Income Fund permit it to enter into forward foreign
currency exchange contracts in

-3-

<PAGE>

order to hedge the Fund's holdings and commitments against changes in the level
of future currency rates. Such contracts involve an obligation to purchase or
sell a specific currency at a future date at a price set at the time of the
contract.

As disclosed in Strategic Income Fund's PROSPECTUSES, there are a number of
risks involved in investing in foreign securities. For example, the assets and
profits appearing on the financial statements of a developing or emerging
country issuer may not reflect its financial position or results of operations
in the way they would be reflected had the financial statements been prepared in
accordance with United States generally accepted accounting principles. Also,
for an issuer that keeps accounting records in local currency, inflation
accounting rules may require for both tax and accounting purposes, that certain
assets and liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency or constant purchasing power. Inflation
accounting may indirectly generate losses on profits.

With reference to the Fund's investment in foreign government securities,
there is the risk that a foreign governmental issuer may default on its
obligations. If such a default occurs, the Fund may have limited effective
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government and government-related debt securities to
obtain recourse may be subject to the political climate in the relevant country.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign government and
government-related debt obligations in the event of default under their
commercial bank loan agreements.

The issuers of the foreign government and government-related debt
securities in which the Fund expects to invest have in the past experienced
substantial difficulties in servicing their external debt obligations, which
have led to defaults on certain obligations and the restructuring of certain
indebtedness. Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by negotiating new or
amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of certain foreign government and government-related high-yield
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the Brady Bonds and other foreign government and
government-related securities in which the Fund may invest will not be subject
to similar defaults or restructuring arrangements which may adversely affect the
value of such investments. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.

There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by Strategic Income Fund.
Payment of such interest equalization tax, if imposed, would reduce the Fund's
rate of return on its investment. Dividends paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on such investments as compared to dividends paid to the Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than
any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However,
foreign currency-related regulated futures contracts and nonequity options are
generally not subject to the special currency rules, if they are or would be
treated as sold for their fair market value at year-end under the marking to
market rules applicable to other futures contracts, unless an election is made
to have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as

-4-

<PAGE>

ordinary gain or loss. A taxpayer may elect to treat as capital gain or loss
foreign currency gain or loss arising from certain identified forward contracts,
futures contracts and options that are capital assets in the hands of the
taxpayer and which are not part of a straddle. Certain transactions subject to
the special currency rules that are part of a "section 988 hedging transaction"
(as defined in the Internal Revenue Code of 1986, as amended (the "Code"), and
the Treasury Regulations) will be integrated and treated as a single transaction
or otherwise treated consistently for purposes of the Code. The income tax
effects of integrating and treating a transaction as a single transaction are
generally to create a synthetic debt instrument that is subject to the original
discount provisions. It is anticipated that some of the non-U.S. dollar
denominated investments and foreign currency contracts Strategic Income Fund may
make or enter into will be subject to the special currency rules described
above.

Investments and opportunities for investments by foreign investors in
emerging market countries are subject to a variety of national policies and
restrictions. These restrictions may take the form of prior governmental
approval, limits on the amount or type of securities held by foreigners, limits
on the types of companies in which foreigners may invest and prohibitions on
foreign investments in issuers or industries deemed sensitive to national
interests. Additional restrictions may be imposed at any time by these or other
countries in which Strategic Income Fund invests. Although these restrictions
may in the future make it undesirable to invest in emerging countries, Delaware
International Advisers Ltd., Strategic Income Fund's sub-adviser (the
"Sub-Adviser"), does not believe that any current registration restrictions
would affect its decision to invest in such countries.

FOREIGN CURRENCY TRANSACTIONS

The foreign investments made by Strategic Income Fund present currency
considerations which pose special risks. The Sub-Adviser uses a purchasing
power parity approach to evaluate currency risk. A purchasing power parity
approach attempts to identify the amount of goods and services that a dollar
will buy in the United States and compares that to the amount of a foreign
currency required to buy the same amount of goods and services in another
country. When the dollar buys less abroad, the foreign currency may be
considered to be overvalued. When the dollar buys more abroad, the foreign
currency may be considered to be undervalued. Eventually, currencies should
trade at levels that should make it possible for the dollar to buy the same
amount of goods and services overseas as in the United States.

Strategic Income Fund may purchase or sell currencies and/or engage in
forward foreign currency transactions in order to expedite settlement of
portfolio transactions and to minimize currency value fluctuations. Forward
foreign currency contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Strategic Income Fund will account for forward
contracts by marking to market each day at daily exchanges rates. When the Fund
enters into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the Fund's assets denominated in such
foreign currency, the Fund's custodian bank or subcustodian will place cash or
liquid high grade debt securities in a separate account of the Fund in an amount
not less than the value of the Fund's total assets committed to the consummation
of such forward contract. If the additional cash or securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of Strategic Income Fund's commitments with respect to such contract.

Strategic Income Fund's use of forward foreign currency exchange contracts
for hedging and other non-speculative purposes involves certain risks. For
example, a lack of correlation between price changes of a forward contract and
the assets being hedged could render Strategic Income Fund's hedging strategy
unsuccessful and could result in losses. The same results could occur if
movements of foreign currencies do not correlate as expected by the Sub-Adviser
at a time when the Fund is using a hedging instrument denominated in one foreign
currency to protect the value of a security denominated in a second foreign
currency against changes caused by fluctuations in the exchange rate for the
dollar and the second currency. If the direction of securities prices, interest
rates or foreign currency prices is incorrectly predicted, Strategic Income Fund
will be in a worse position than if such transactions had not been entered into.
In addition, since there can be no assurance that a liquid secondary market will
exist for any contract purchased or

-5-

<PAGE>

sold, the Fund may be required to maintain a position until exercise or
expiration, which could result in losses. Further, forward contracts entail
particular risks related to conditions affecting the underlying currency.
Over-the-counter transactions in forward contracts also involve risks arising
from the lack of an organized exchange trading environment.

Successful use by Strategic Income Fund of forward foreign currency
exchange contracts for hedging and other non-speculative purposes is subject to
the Sub-Adviser's ability to predict correctly the direction of movements in
foreign currencies relative to the U.S. dollar. This requires different skills
and techniques than predicting changes in the prices of individual securities.

OPTIONS, FUTURES AND OPTIONS ON FUTURES

Strategic Income Fund may purchase call options or purchase put options and
will not engage in option strategies for speculative purposes. Strategic Income
Fund may invest in options that are either listed on U.S. or recognized foreign
exchanges or traded over-the-counter. Certain over-the-counter options may be
illiquid. Thus, it may not be possible to close options positions and this may
have an adverse impact on the Fund's ability to effectively hedge its
securities. Strategic Income Fund will not, however, invest more than 15% of
the value of its net assets in illiquid securities.

PURCHASING CALL OPTIONS--Strategic Income Fund may purchase call options to
the extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund obtains the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who receives
the premium upon writing the option, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. The advantage of purchasing call options is that Strategic Income Fund
may alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.

Strategic Income Fund may, following the purchase of a call option,
liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. Strategic Income Fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the premium
paid to purchase the original call option; the Fund will realize a loss from a
closing sale transaction if the price received on the transaction is less than
the premium paid to purchase the original call option.

Although Strategic Income Fund will generally purchase only those call
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange may exist. In such event, it may not be possible to
effect closing transactions in particular options, with the result that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of such options and upon the
subsequent disposition of the underlying securities acquired through the
exercise of such options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by Strategic Income Fund may
expire without any value to the Fund.

PURCHASING PUT OPTIONS--Strategic Income Fund may invest up to 2% of its
total assets in the purchase of put options. Strategic Income Fund will, at all
times during which it holds a put option, own the security covered by such
option.

A put option purchased by Strategic Income Fund gives it the right to sell
one of its securities for an agreed price up to an agreed date. The Fund
intends to purchase put options in order to protect against a decline in the
market value of the underlying security below the exercise price less the
premium paid for the option ("protective puts"). The ability to purchase put
options will allow Strategic Income Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. If
the security does not drop in value, Strategic Income Fund will lose the value
of the premium paid. The Fund may sell a put option which it has previously
purchased prior to the sale of the

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<PAGE>

securities underlying such option. Such sale will result in a net gain or loss
depending on whether the amount received on the sale is more or less than the
premium and other transaction costs paid on the put option which is sold.

Strategic Income Fund may sell a put option purchased on individual
portfolio securities. Additionally, the Fund may enter into closing sale
transactions. A closing sale transaction is one in which the Fund, when it is
the holder of an outstanding option, liquidates its position by selling an
option of the same series as the option previously purchased.

FUTURES AND OPTIONS ON FUTURES--Strategic Income Fund may enter into
contract for the purchase or sale for future delivery of securities or foreign
currencies. When the Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian bank, assets in a
segregated account to cover its obligations with respect to such contracts,
which assets will consist of cash, cash equivalents or high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the margin payments made by the Fund with respect to such futures contracts.

The Fund may enter into such futures contracts to protect against the
adverse affects of fluctuations in interest or foreign exchange rates without
actually buying or selling the securities or foreign currency. For example, if
interest rates are expected to increase, the Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned by the Fund.
If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates may decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.

With respect to options on futures contracts, when Strategic Income Fund is
not fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The writing of a call
option on a futures contract constitutes a partial hedge against declining
prices of the U.S. government securities which are deliverable upon exercise of
the futures contract. If the futures price at the expiration of the option is
below the exercise price, Strategic Income Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
Strategic Income Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of U.S. government
securities which Strategic Income Fund intends to purchase.

If a put or call option that Strategic Income Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between the value
of its portfolio securities and changes in the value of its futures positions,
Strategic Income Fund's losses from existing options on futures may, to some
extent, be reduced or increased by changes in the value of portfolio securities.
Strategic Income Fund will purchase a put option on futures contracts to hedge
the Fund's portfolio against the risk of rising interest rates.

To the extent that interest rates move in an unexpected direction,
Strategic Income Fund may not achieve the anticipated benefits of futures
contracts or options on futures contracts or may realize a loss. For example,
if Strategic Income Fund hedged against the possibility of an increase in
interest rates which would adversely affect the price of U.S. government
securities held in its portfolio and interest rates decrease instead, Strategic
Income Fund will lose part or all of the benefit of the increased value of its
U.S. government securities which it has because it will have offsetting

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<PAGE>

losses in its futures position. In addition, in such situations, if the Fund
had insufficient cash, it may be required to sell U.S. government securities
from its portfolio to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices which reflect
the rising market. Strategic Income Fund may be required to sell securities at
a time when it may be disadvantageous to do so.

Further, with respect to options on futures contracts, Strategic Income
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.

Although not fundamental policy, the Fund currently intends to limit its
investments in futures contracts and options thereon to the extent that not more
than 5% of the Funds assets are required as futures contract margin deposits and
premiums on options and only to the extent that obligations under such contracts
and transactions represent not more than 20% of the Fund's assets.

APPENDIX C - RATINGS in Strategic Income Fund's Fund Classes' PROSPECTUS
(APPENDIX A - RATINGS in the Fund's Institutional Class' PROSPECTUS) describes
the ratings of S&P, Fitch Investors Service, Inc. and Moody's, and provides
information concerning the ratings of securities in the Fund's portfolio.

NON-TRADITIONAL EQUITY SECURITIES

Strategic Income Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock
("PERCS"), which provide an investor, such as the Fund, with the opportunity to
earn higher dividend income than is available on a company's common stock. A
PERCS is a preferred stock which generally features a mandatory conversion date,
as well as a capital appreciation limit which is usually expressed in terms of a
stated price. Upon the conversion date, most PERCS convert into common stock of
the issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a
call premium over the market price to the investor. This call premium declines
at a preset rate daily, up to the maturity date of the PERCS.

Strategic Income Fund may also invest in other enhanced convertible
securities. These include but are not limited to ACES (Automatically
Convertible Equity Securities), PEPS (Participating Equity Preferred Stock),
PRIDES (Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.

HIGH-YIELD OPPORTUNITIES FUND

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The types of securities in which High-Yield Opportunities Fund invests are
subject to price fluctuations particularly due to changes in interest rates and
economic conditions. Management will seek to achieve High-Yield Opportunities
Fund's objective by investing at least 65% of the Fund's assets at time of
purchase in corporate bonds rated BB or lower by S&P or Ba or lower by Moody's
or similarly rated by other rating agencies, and in unrated bonds judged to be
of comparable quality by Delaware Management Company, Inc. (the "Manager").
Unrated bonds may be more speculative in nature than rated bonds.

The Fund may also invest in securities of, or guaranteed by, the U.S. and
foreign governments, their agencies or instrumentalities and commercial paper of
companies having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated A-1 or A-2 by S&P
or rated P-1 or P-2 by Moody's or similarly rated by other rating agencies, and
in unrated paper judged to be of comparable quality by the Manager.

APPENDIX C - RATINGS in High-Yield Opportunities Fund's Fund Classes'
PROSPECTUS (APPENDIX A - RATINGS in the Fund's Institutional Class' PROSPECTUS)
describes the ratings of S&P and Moody's and provides information concerning the
ratings of the securities in the Fund's portfolio.

FOREIGN AND EMERGING MARKETS SECURITIES

Investors should recognize that investing in foreign issuers, including
issuers located in emerging market countries, involves certain considerations,
including those set forth in High-Yield Opportunities Fund's PROSPECTUSES, which
are not typically associated with investing in United States issuers. Since the
stocks of foreign companies are frequently denominated in foreign currencies,
the Fund will be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and may incur costs in connection with
conversions between various currencies.

As disclosed in High-Yield Opportunities Fund's PROSPECTUSES, there are a
number of risks involved in investing in foreign securities. For example, the
assets and profits appearing on the financial statements of a developing or
emerging country issuer may not reflect its financial position or results of
operations in the way they would be reflected had the financial statements been
prepared in accordance with United States generally accepted accounting
principles. Also, for an issuer that keeps accounting records in local
currency, inflation accounting rules may require for both tax and accounting
purposes, that certain assets and liabilities be restated on the issuer's
balance sheet in order to express items in terms of currency or constant
purchasing power. Inflation accounting may indirectly generate losses on
profits.

There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by High-Yield
Opportunities Fund. Payment of such interest equalization tax, if imposed,
would reduce the Fund's rate of return on its investment. Dividends paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on such investments as compared to dividends paid to the
Fund by United States corporations. Special rules govern the federal income tax
treatment of certain transactions denominated in terms of a currency other than
the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S. dollar. The types of transactions covered by the
special rules generally include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury Regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instruments other than any "regulated futures contract" or "nonequity
option" marked to market. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. Certain transactions subject to the special
currency rules that are part of a "section 988 hedging transaction" (as defined
in the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury

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<PAGE>

Regulations) will be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. The income tax effects of
integrating and treating a transaction as a single transaction are generally to
create a synthetic debt instrument that is subject to the original discount
provisions. It is anticipated that some of the non-U.S. dollar denominated
investments and foreign currency contracts High-Yield Opportunities Fund may
make or enter into will be subject to the special currency rules described
above.

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<PAGE>

ZERO COUPON AND PAY-IN-KIND BONDS

The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon, deferred interest and pay-in-kind bonds. These bonds
carry an additional risk in that, unlike bonds that pay interest throughout the
period to maturity, High-Yield Opportunities Fund will realize no cash until the
cash payment date and, if the issuer defaults, the Fund may obtain no return at
all on its investment. Zero coupon, deferred interest and pay-in-kind bonds
involve additional special considerations.

Zero coupon or deferred interest securities are debt obligations that do
not entitle the holder to any periodic payments of interest prior to maturity or
a specified date when the securities begin paying current interest (the "cash
payment date") and therefore are generally issued and traded at a discount from
their face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, typically
decreases as the final maturity or cash payment date of the security approaches.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
or deferred interest securities having similar maturities and credit quality.
Current federal income tax law requires that a holder of a zero coupon security
report as income each year the portion of the original issue discount on the
security that accrues that year, even though the holder receives no cash
payments of interest during the year.

Pay-in-kind bonds are securities that pay interest through the issuance of
additional bonds. The Fund will be deemed to receive interest over the life of
these bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. Accordingly,
during periods when the Fund receive no cash interest payments on its zero
coupon securities or deferred interest or pay-in-kind bonds, it may be required
to dispose of portfolio securities to meet the distribution requirements and
these sales may be subject to the risk factors discussed above. The Fund is not
limited in the amount of its assets that may be invested in these types of
securities.

CONVERTIBLE, DEBT AND NON-TRADITIONAL EQUITY SECURITIES

From time to time, a portion of the Fund's assets may be invested in
convertible and debt securities of issuers in any industry. A convertible
security is a security which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible and debt securities are senior to common
stocks in a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible and debt
securities provide a fixed-income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock.
Just as with debt securities, convertible securities tend to increase in market
value when interest rates decline and tend to decrease in value when interest
rates rise. However, the price of a convertible security is also influenced by
the market value of the security's underlying common stock and tends to increase
as the market value of the underlying stock rises, whereas it tends to decrease
as the market value of the underlying stock declines. Convertible and debt
securities acquired by the Fund may be rated below investment grade, or unrated.
These lower rated convertible and debt securities are subject to credit risk
considerations substantially similar to such considerations affecting high risk,
high-yield bonds, commonly referred to as "junk bonds." See INVESTMENT
OBJECTIVE AND POLICIES, RISK FACTORS and HIGH-YIELD, HIGH RISK SECURITIEs for a
further discussion of these types of investments.

The Fund may invest in convertible preferred stocks that offer enhanced
yield features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"),
which provide an investor, such as the Fund, with the opportunity to earn higher
dividend income than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion date, as well as
a capital appreciation limit which is usually expressed in terms of a stated
price. Upon the conversion date, most PERCS convert into common stock of the
issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's

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common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a
call premium over the market price to the investor. This call premium declines
at a preset rate daily, up to the maturity date of the PERCS.

The Fund may also invest in other enhanced convertible securities. These
include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.

BORROWING FROM BANKS

The Fund may borrow money as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Fund will not borrow money in excess of
one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.

INVESTMENT POLICIES APPLICABLE TO EACH FUND

HIGH-YIELD SECURITIES

Among the possible risks of investing in high-yield securities are the
possibility of legislative and regulatory action and proposals. There are a
variety of legislative actions which have been taken or which are considered
from time to time by the United States Congress which could adversely affect the
market for high-yield securities. For example, Congressional legislation
limited the deductibility of interest paid on certain high-yield securities used
to

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finance corporate acquisitions. Also, Congressional legislation has, with some
exceptions, generally prohibited federally-insured savings and loan institutions
from investing in high-yield securities. Regulatory actions have also affected
the high-yield market. For example, many insurance companies have restricted or
eliminated their purchases of high-yield securities as a result of, among other
factors, actions taken by the National Association of Insurance Commissioners.
If similar legislative and regulatory actions are taken in the future, they
could result in further tightening of the secondary market for high-yield
issues, could reduce the number of new high-yield securities being issued and
could make it more difficult for a Fund to attain its investment objective.

RESTRICTED SECURITIES

The Funds may purchase privately-placed debt and other securities whose
resale is restricted under applicable securities laws. Such restricted
securities generally offer a higher return than comparable registered securities
but involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under applicable
securities laws. The registration process may involve delays which could result
in the Funds obtaining a less favorable price on a resale. Delchester Fund will
not purchase illiquid assets if more than 10% of its total assets would then
consist of such illiquid securities. Strategic Income Fund and High-Yield
Opportunities Fund will not purchase illiquid assets if more than 15% of its
respective net assets would then consist of such illiquid securities.

REPURCHASE AGREEMENTS

The Funds are permitted to invest in repurchase agreements, but they
normally so only to invest cash balances. A repurchase agreement is a
short-term investment by which the purchaser acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Should an issuer of a repurchase agreement fail to repurchase the underlying
security, the loss to a Fund, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which the Manager, under the
guidelines of the Board of Directors, determines present minimal credit risks
and which are of high quality. In addition, each Fund must have collateral of
at least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.

The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the Investment Company Act of
1940 (the "1940 Act") to allow the Delaware Group funds jointly to invest cash
balances. The Funds may invest cash balances in a joint repurchase agreement in
accordance with the terms of the Order and subject generally to the conditions
described above.

PORTFOLIO LOAN TRANSACTIONS

Each Fund may loan up to 25% of its assets to qualified broker/dealers or
institutional investors for their use relating to short sales or other security
transactions.

It is the understanding of the Manager that the staff of the Securities and
Exchange Commission (the "SEC" or the "Commission") permits portfolio lending by
registered investment companies if certain conditions are met. These conditions
are as follows: 1) each transaction must have 100% collateral in the form of
cash, short-term U.S. government securities, or irrevocable letters of credit
payable by banks acceptable to the Fund involved from the borrower; 2) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; 3) the Fund must be able to terminate any loan after notice, at any time;
4) the Fund must receive reasonable interest on any loan, and any dividends,
interest or other distributions on the lent securities, and any increase in the
market value of such securities; 5) the Fund may pay reasonable custodian fees
in connection with the loan; 6) the voting rights on the lent securities may
pass to the borrower; however, if the directors of Income Funds, Inc. know that
a material event will occur affecting an investment loan, they must either
terminate the loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the directors to vote the proxy.

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<PAGE>

The major risk to which a Fund would be exposed on a loan transaction is
the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, each Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.

INVESTMENT RESTRICTIONS

DELCHESTER FUND

Delchester Fund has the following investment restrictions which may not be
amended without approval of a majority of the outstanding voting securities,
which is the lesser of more than 50% of the outstanding voting securities of
Delchester Fund, or 67% of the voting securities of Delchester Fund present at a
shareholder meeting if 50% or more of the voting securities are present in
person or represented by proxy. The percentage limitations contained in the
restrictions and policies set forth herein apply at the time of purchase of
securities.

1. Delchester Fund will not invest more than 5% of the value of its
assets in securities of any one company (except U.S. government bonds) or
purchase more than 10% of the voting or nonvoting securities of any one company.

2. Delchester Fund will not invest for the purpose of acquiring control
of any company.

3. Delchester Fund will not purchase or retain securities of a company
which has an officer or director who is an officer or director of Income Funds,
Inc., or an officer, director or partner of the Manager if, to the knowledge of
the Fund, one or more of such persons owns beneficially more than 1/2 of 1% of
the shares of the company, and in the aggregate more than 5% thereof.

4. Delchester Fund will not invest in securities of other investment
companies.

5. Delchester Fund will not make any investment in real estate. This
restriction does not preclude the Fund's purchase of securities issued by real
estate investment trusts.

6. Delchester Fund will not sell short any security or property.

7. Delchester Fund will not buy or sell commodities or commodity
contracts.

8. Delchester Fund will not borrow money in excess of 10% of the value of
its assets and then only as a temporary measure for extraordinary or emergency
purposes. Any borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall, within three days thereafter (not including
Sundays and holidays) or such longer period as the SEC may prescribe by rules
and regulations, reduce the amount of its borrowings to an extent that the asset
coverage of such borrowings shall be at least 300%. The Fund shall not issue
senior securities as defined in the 1940 Act, except for notes to banks.

9. Delchester Fund will not make loans. However, (i) the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities, or of other securities authorized to be purchased by the Fund's
investment policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements" are not
to be considered the making of a loan by the Fund; and (ii) the Fund may loan up
to 25% of its assets to qualified broker/dealers or institutional investors for
their use relating to short sales and other security transactions.

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<PAGE>

10. Delchester Fund will not invest in the securities of companies which
have a record of less than three years' continuous operation, including any
predecessor company or companies, if such purchase at the time thereof would
cause more than 5% of the total Fund assets to be invested in the securities of
such company or companies.

11. Delchester Fund will not act as an underwriter of securities of other
issuers, except that the Fund may acquire restricted or not readily marketable
securities under circumstances where, if such securities are sold, the Fund
might be deemed to be an underwriter for purposes of the Securities Act of 1933.

12. No long or short positions on shares of the Fund may be taken by
Income Funds, Inc.'s officers, directors or any of its affiliated persons. Such
persons may buy shares of the Fund for investment purposes, however, as
described under PURCHASING SHARES.

13. Delchester Fund will not invest more than 25% of its assets in any one
particular industry.

Although not a fundamental investment restriction, Delchester Fund
currently does not invest its assets in real estate limited partnerships or oil,
gas and other mineral leases.

STRATEGIC INCOME FUND

Strategic Income Fund has the following investment restrictions which may
not be amended without approval of a majority of the outstanding voting
securities, which is the lesser of more than 50% of the outstanding voting
securities of Strategic Income Fund, or 67% of the voting securities of
Strategic Income Fund present at a shareholder meeting if 50% or more of the
voting securities are present in person or represented by proxy. The percentage
limitations contained in the restrictions and policies set forth herein apply at
the time of purchase of securities.

1. With respect to 75% of its total assets, Strategic Income Fund will
not invest more than 5% of the value of its total assets in securities of any
one issuer (except obligations issued, or guaranteed by, the U.S. government,
its agencies or instrumentalities or certificates of deposit for any such
securities, and cash and cash items) or purchase more than 10% of the voting
securities of any one company.

2. Strategic Income Fund will not make any investment in real estate.
This restriction does not preclude the Fund's purchase of securities issued by
real estate investment trusts, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.

3. Strategic Income Fund will not sell short any security or property.

4. Strategic Income Fund will not buy or sell commodities or commodity
contracts, except that the Fund may enter into futures contracts and options
thereon.

5. Strategic Income Fund will not borrow money in excess of one-third of
the value of its net assets. Any borrowing will be done in accordance with the
rules and regulations prescribed from time to time by the SEC with respect to
open-end investment companies.

6. Strategic Income Fund will not make loans. However, (i) the purchase
of a portion of an issue of publicly distributed bonds, debentures or other
securities, or of other securities authorized to be purchased by the Fund's
investment policies, whether or not the purchase was made upon the original
issuance of the securities, and the entry into "repurchase agreements" are not
to be considered the making of a loan by the Fund; and (ii) the Fund may loan
securities to qualified broker/dealers or institutional investors for their use
relating to short sales and other security transactions.

-15-

<PAGE>

7. Strategic Income Fund will not act as an underwriter of securities of
other issuers, except that the Fund may acquire restricted or not readily
marketable securities under circumstances where, if such securities are sold,
the Fund might be deemed to be an underwriter for purposes of the Securities Act
of 1933.

8. Strategic Income Fund will not invest more than 25% of the value of
its total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

In addition to the above fundamental investment restrictions, Strategic
Income Fund has the following investment restrictions which may be amended or
changed without approval of shareholders.

1. Strategic Income Fund will not invest for the purpose of acquiring
control of any company.

2. Strategic Income Fund will not invest in securities of other
investment companies, except that the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act of 1940 at the time of the
investment.

3. Strategic Income Fund will not purchase or retain securities of a
company which has an officer or director who is an officer or director of Income
Funds, Inc., or an officer, director or partner of the Manager if, to the
knowledge of the Fund, one or more of such persons beneficially owns in the
aggregate more than 5% thereof.

4. Strategic Income Fund will not invest in the securities of companies
which have a record of less than three years' continuous operation, including
any predecessor company or companies, if such investment at the time of purchase
would cause more than 5% of the total Fund assets to be invested in the
securities of such company or companies.

Although not a fundamental investment restriction, Strategic Income Fund
currently does not invest its assets in real estate limited partnerships or oil,
gas and other mineral leases. In addition, Strategic Income Fund currently does
not purchase securities on margin except short-term credits that may be
necessary for the clearance of purchases and sales of securities, and the Fund
may make margin payments as may be necessary in connection with the futures and
options transactions described in the Fund's PROSPECTUSES and this PART B.

HIGH-YIELD OPPORTUNITIES FUND

High-Yield Opportunities Fund has the following investment restrictions
which may not be amended without approval of a majority of the outstanding
voting securities, which is the lesser of more than 50% of the outstanding
voting securities of High-Yield Opportunities Fund, or 67% of the voting
securities of High-Yield Opportunities Fund present at a shareholder meeting if
50% or more of the voting securities are present in person or represented by
proxy. The percentage limitations contained in the restrictions and policies
set forth herein apply at the time the Fund purchases securities.

1. With respect to 75% of its total assets, High-Yield Opportunities Fund
will not invest more than 5% of its total assets in the securities of any one
issuer (other than obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities or certificates of deposit for any such securities
and cash and cash items) or purchase more than 10% of the voting securities of
any one company.

2. High-Yield Opportunities Fund will not make any investment in real
estate. This restriction does preclude the Fund's purchase of securities issued
by real estate investment trusts, the purchase of securities issued by companies
that deal in real estate, or the investment in securities secured by real estate
or interests therein.

3. High-Yield Opportunities Fund will not sell short any security or
property.

-16-

<PAGE>

4. High-Yield Opportunities Fund will not buy or sell commodities or
commodity contracts except that the Fund may enter into futures contracts and
options thereon.

5. High-Yield Opportunities Fund will not borrow money in excess of
one-third of the value of its net assets. Any borrowing will be done in
accordance with the rules and regulations prescribed from time to time by the
SEC with respect to open-end investment companies. The Fund shall not issue
senior securities as defined in the Investment Company Act of 1940, except for
notes to banks.

6. High-Yield Opportunities Fund will not make loans. However, (i) the
purchase of a portion of an issue of publicly distributed bonds, debentures or
other securities, or of other securities authorized to be purchased by the
Fund's investment policies, whether or not the purchase was made upon the
original issuance of the securities, and the entry into "repurchase agreements"
are not to be considered the making of a loan by the Fund; and (ii) the Fund may
loan securities to qualified broker/dealers or institutional investors for their
use relating to short sales and other security transactions.

7. High-Yield Opportunities Fund will not act as an underwriter of
securities of other issuers, except that the Fund may acquire restricted or not
readily marketable securities under circumstances where, if such securities are
sold, the Fund may be deemed to be an underwriter for purposes of the Securities
Act of 1933.

8. High-Yield Opportunities Fund will not invest more than 25% of its
total assets in securities of issuers all of which conduct their principal
business activities in the same industry. This restriction does not apply to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

In addition to the above fundamental investment restrictions, High-Yield
Opportunities Fund has the following investment restrictions which may be
amended or changed without approval of shareholders.

1. High-Yield Opportunities Fund will not invest for the purpose of
acquiring control of any company.

2. High-Yield Opportunities Fund will not invest in securities of other
investment companies, except the Fund may invest in securities of open-end,
closed-end and unregistered investment companies, in accordance with the
limitations contained in the Investment Company Act at the time of the
investment.

3. High-Yield Opportunities Fund will not write, purchase or sell
options, puts, calls or combinations thereof with respect to securities.

4. High-Yield Opportunities Fund will not enter into futures contracts or
options thereon.

5. High-Yield Opportunities Fund will not purchase or retain the
securities of any issuer which has an officer, director or security holder who
is a director or officer of Income Funds, Inc. or of the Manager if or so long
as the directors and officers of Income Funds, Inc. and of the Manager together
own beneficially more than 5% of any class of securities of such issuer.

6. High-Yield Opportunities Fund will not invest in interests in oil, gas
and other mineral leases or other mineral exploration or development programs.

7. High-Yield Opportunities Fund will not purchase securities on margin
except short-term credits that may be necessary for the clearance of purchases
and sales of securities.

-17-

<PAGE>

PERFORMANCE INFORMATION

From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life-of-fund, if applicable) periods. Each
Fund may also advertise aggregate and average total return information of its
Classes over additional periods of time.

The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:

n
P(1 + T) = ERV

Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the maximum
front-end sales charge is deducted;

T = average annual total return;

n = number of years; and

ERV = redeemable value of the hypothetical $1,000 purchase at
the end of the period after the deduction of the
applicable CDSC, if any, with respect to Class B Shares
and Class C Shares.

In presenting performance information for Class A Shares, the Limited CDSC
applicable to only certain redemptions of those shares will not be deducted from
any computation of total return. See the PROSPECTUSES for the Fund Classes for
a description of the Limited CDSC and the limited instances in which it applies.
All references to a CDSC in this PERFORMANCE INFORMATION section will apply to
Class B Shares or Class C Shares of the Funds.

Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the
maximum front-end sales charge, if any, is deducted from the initial $1,000
investment at the time it is made with respect to Class A Shares and that all
distributions are reinvested at net asset value, and, with respect to Class B
Shares and Class C Shares, reflects the deduction of the CDSC that would be
applicable upon complete redemption of such shares. In addition, each Fund may
present total return information that does not reflect the deduction of the
maximum front-end sales charge or any applicable CDSC.

The performance of each Class of Delchester Fund , as shown below, is the
average annual total return quotations through July 31, 1997, computed as
described above. The average annual total return for Delchester Fund A Class at
offer reflects the maximum front-end sales charge of 4.75% paid on the purchase
of shares. The average annual total return for Delchester Fund A Class at net
asset value (NAV) does not reflect any front-end sales charge. Securities
prices fluctuated during the periods covered and past results should not be
considered as representative of future performance.

-18-

<PAGE>

Pursuant to applicable regulation, total return shown for Delchester Fund
Institutional Class for the periods prior to the commencement of operations of
such Class is calculated by taking the performance of Delchester Fund A Class
and adjusting it to reflect the elimination of all front-end sales charges.
However, for those periods, no adjustment has been made to eliminate the impact
of 12b-1 payments, and performance may have been affected had such an adjustment
been made.

AVERAGE ANNUAL TOTAL RETURN

DELCHESTER DELCHESTER DELCHESTER
FUND FUND FUND
A CLASS A CLASS INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS (1)

1 year
ended
7/31/97 11.88% 17.53% 17.82%

3 years
ended
7/31/97 9.50% 11.28% 11.55%

5 years
ended
7/31/97 8.84% 9.89% 10.14%

10 years
ended
7/31/97 9.60% 10.14% 10.39%

15 years
ended
7/31/97 12.49% 12.85% 13.02%

Period
8/20/70(2)
through
7/31/97 9.68% 9.88% 9.97%

- --------------------
(1) Date of initial public offering of Delchester Fund Institutional Class was
June 1, 1992.
(2) Date of initial public offering of Delchester Fund A Class.

-19-

<PAGE>

The performance of Delchester Fund B Class, as shown below, is the average
annual total return quotation through July 31, 1997. The average annual total
return for Delchester Fund B Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at July 31, 1997. The average annual total return for Delchester Fund B Class
excluding deferred sales charge assumes the shares were not redeemed at July 31,
1997 and therefore does not reflect the deduction of a CDSC.

AVERAGE ANNUAL TOTAL RETURN
DELCHESTER FUND DELCHESTER FUND
B CLASS B CLASS
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)

1 year
ended
7/31/97 12.66% 16.66%

3 years
ended
7/31/97 9.63% 10.45%

Period
5/2/94(1)
through
7/31/97 8.32% 9.06%

- ---------------------
(1) Date of initial public offering of Delchester Fund B Class.

The performance of Delchester Fund C Class, as shown below, is the average
annual total return quotation through July 31, 1997. The average annual total
return for Delchester Fund C Class including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at July 31, 1997. The average annual total return for Delchester Fund C Class
excluding deferred sales charge assumes the shares were not redeemed at July 31,
1997 and therefore does not reflect the deduction of a CDSC.

AVERAGE ANNUAL TOTAL RETURN
DELCHESTER FUND DELCHESTER FUND
C CLASS C CLASS
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)

1 year
ended
7/31/97 15.66% 16.66%

Period
11/29/95(1)
through
7/31/97 13.03% 13.03%

- --------------------
(1) Date of initial public offering of Delchester Fund C Class.

-20-

<PAGE>

The performance of Strategic Income Fund A Class and Strategic Income Fund
Institutional Class, as shown below, is the aggregate total return quotations
through July 31, 1997, computed as described above. The aggregate total return
for Strategic Income Fund A Class at offer reflects the maximum front-end sales
charge of 4.75% paid on the purchase of shares. The aggregate total return for
Strategic Income Fund A Class at net asset value (NAV) does not reflect any
front-end sales charge. Securities prices fluctuated during the periods covered
and past results should not be considered as representative of future
performance.

Aggregate Total Return (1)

Strategic Strategic Strategic
Income Income Income
Fund Fund Fund
A Class A Class Institutional
(at Offer) (at NAV) Class

Period
10/1/96(2)
through
7/31/97 4.95% 10.11% 10.36%

- ---------------------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay
certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of each Class of the Fund do not exceed 0.75%
(in each case, exclusive of taxes, interest, brokerage commissions,
extraordinary expenses and applicable 12b-1 expenses) through December
31, 1997. In the absence of such waiver, performance would have been
affected negatively.

(2) Date of initial public offering of Strategic Income Fund A Class and
Strategic Income Fund Institutional Class; total return for this short of a
time period may not be representative of longer-term results.

-21-

<PAGE>

The performance of Strategic Income Fund B Class, as shown below, is the
aggregate total return quotation through July 31, 1997. The aggregate total
return for Strategic Income Fund B Class including deferred sales charge
reflects the deduction of the applicable CDSC that would be paid if the shares
were redeemed at July 31, 1997. The aggregate total return for Strategic Income
Fund B Class excluding deferred sales charge assumes the shares were not
redeemed at July 31, 1997 and therefore does not reflect the deduction of a
CDSC.

Aggregate Total Return

Strategic Income Fund Strategic Income Fund
B Class B Class
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
Period
10/1/96(2)
through
7/31/97 5.53% 9.53%

(2) Date of initial public offering of Strategic Income Fund B Class; total
return for this short of a time period may not be representative of
longer-term results.

-22-
<PAGE>

The performance of Strategic Income Fund C Class, as shown below, is the
aggregate total return quotation through July 31, 1997. The aggregate total
return for Strategic Income Fund C Class including deferred sales charge
reflects the deduction of the applicable CDSC that would be paid if the shares
were redeemed at July 31, 1997. The aggregate total return for Strategic Income
Fund C Class excluding deferred sales charge assumes the shares were not
redeemed at July 31, 1997 and therefore does not reflect the deduction of a
CDSC.

Aggregate Total Return (1)

Strategic Income Fund Strategic Income Fund
C Class C Class
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)

Period
10/1/96(2)
through
7/31/97 8.53% 9.53%

- --------------------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay
certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of each Class of the Fund do not exceed 0.75%
(in each case, exclusive of taxes, interest, brokerage commissions,
extraordinary expenses and applicable 12b-1 expenses) through December
31, 1997. In the absence of such waiver, performance would have been
affected negatively.

(2) Date of initial public offering of Strategic Income Fund C Class; total
return for this short of a time period may not be representative of
longer-term results.

-23-

<PAGE>

The performance of High-Yield Opportunities Fund A Class and High-Yield
Opportunities Fund Institutional Class, as shown below, is the aggregate total
return quotations through July 31, 1997, computed as described above. The
aggregate total return for High-Yield Opportunities Fund A Class at offer
reflects the maximum front-end sales charge of 4.75% paid on the purchase of
shares. The aggregate total return for High-Yield Opportunities Fund A Class at
net asset value (NAV) does not reflect any front-end sales charge. Securities
prices fluctuated during the periods covered and past results should not be
considered as representative of future performance. Performance information is
not provided for High-Yield Opportunities Fund B Class and C Class because such
shares were not offered to the public prior to the date of this PART B.

Aggregate Total Return (1)

High-Yield High-Yield High-Yield
Opportunities Opportunities Opportunities
Fund Fund Fund
A Class (2) A Class (2) Institutional
(at Offer) (at NAV) Class

Period
1/2/97(3)
through
7/31/97 5.62% 10.81% 10.81%

- --------------------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by High-Yield Opportunities Fund and to
pay certain expenses of the Fund to the extent necessary to ensure that
the Total Operating Expenses of each Class of the Fund do not exceed
0.75% (in each case, exclusive of taxes, interest, brokerage commissions,
extraordinary expenses) through December 31, 1997. In the absence of
such waiver, performance would have been affected negatively.

(2) Delaware Distributors, L.P. has elected voluntarily to waive its right to
receive 12b-1 Plan fees (including service fees) from the commencement of
the public offering of Class A Share of the Fund through December 31,
1997. In the absence of such waiver, performance would have been affected
negatively.

(3) Date of initial public offering of High-Yield Opportunities Fund A Class
and High-Yield Opportunities Fund Institutional Class; total return for
this short of a time period may not be representative of longer-term
results.

-24-

<PAGE>

As stated in the Funds' PROSPECTUSES, each Fund may also quote the current
yield of each of its Classes in advertisements and investor communications.

The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:

a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and

d = the maximum offering price per share on the last day of
the period.

The above formula will be used in calculating quotations of yield for each
Class of the Funds, based on specified 30-day periods identified in advertising
by the Funds. Yield calculations assume the maximum front-end sales charge, if
any, and do not reflect the deduction of any contingent deferred sales charge.
Actual yield on Class A Shares may be affected by variations in sales charges on
investments. Past performance, such as is reflected in quoted yields, should
not be considered as a representation of the results which may be realized from
an investment in any class of Income Funds, Inc. in the future. For the 30-day
period ended July 31, 1997, the yield of each Class of Delchester Fund,
Strategic Income Fund and High-Yield Opportunities Fund was as follows:

Strategic High-Yield
Delchester Fund Income Fund Opportunities Fund

Class A Shares 8.51% 7.11% N/A
Class B Shares 8.16% 6.68% N/A
Class C Shares 8.16% 6.68% N/A
Institutional Class 9.16% 7.72% N/A

Investors should note that the income earned and dividends paid by the
Funds will vary with the fluctuation of interest rates and performance of the
portfolio to the extent of the Funds' investments in debt securities. The net
asset values of the Funds may change. Unlike money market funds, the Funds
invest in longer-term securities that fluctuate in value and do so in a manner
inversely correlated with changing interest rates. The Funds' net asset values
will tend to rise when interest rates fall. Conversely, the Funds' net asset
values will tend to fall as interest rates rise. Normally, fluctuations in
interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held by the Funds will vary from day to day and
investors should consider the volatility of the Funds' net asset values as well
as their yields before making a decision to invest.

The average weighted portfolio maturity at July 31, 1997 for Delchester
Fund, Strategic Income Fund and High-Yield Opportunities Fund was 8.0 years,
6.67 years and 9.01 years, respectively.

-25-

<PAGE>

Statistical and performance information and various indices compiled and
maintained by organizations such as the following may also be used in preparing
exhibits comparing certain industry trends and competitive mutual fund
performance to comparable activities and performances of the Funds and in
illustrating general financial planning principles. From time to time, certain
mutual fund performance ranking information, calculated and provided by these
organizations, may also be used in the promotion of sales of the Funds. Any
indices used are not managed for any investment goal, and a direct investment in
an index is not possible.

CDA TECHNOLOGIES, INC., LIPPER ANALYTICAL SERVICES, INC. and
MORNINGSTAR, INC. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.

IBBOTSON ASSOCIATES, INC. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With its permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.

INTERACTIVE DATA CORPORATION is a statistical access service that
maintains a database of various international industry indicators,
such as historical and current price/earning information, individual
equity and fixed-income price and return information.

COMPUSTAT INDUSTRIAL DATABASES, a service of S&P, may also be used in
preparing performance and historical stock and bond market exhibits.
This firm maintains fundamental databases that provide financial,
statistical and market information covering more than 7,000 industrial
and non-industrial companies.

SALOMON BROTHERS and LEHMAN BROTHERS are statistical research firms
that maintain databases of international market, bond market,
corporate and government-issued securities of various maturities.
This information, as well as unmanaged indices compiled and maintained
by these firms, will be used in preparing comparative illustrations.
In addition, the performance of multiple indices compiled and
maintained by these firms may be combined to create a blended
performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which
the Funds may invest and the assumptions that were used in calculating
the blended performance will be described.

Current interest rate and yield information on government debt obligations
of various durations, as reported weekly by the FEDERAL RESERVE (Bulletin H.15),
may also be used. In addition, current rate information on municipal debt
obligations of various durations, as reported daily by THE BOND BUYER, may also
be used. THE BOND BUYER is published daily and is an industry-accepted source
for current municipal bond market information.

From time to time, the Funds may quote actual total return performance for
each Class in advertising and other types of literature compared to indices or
averages of alternative financial products available to prospective investors.
For example, the performance comparisons may include the average return of
various bank instruments, some of which may carry certain return guarantees,
offered by leading banks and thrifts as monitored by BANK RATE MONITOR, and
those of generally-accepted corporate bond and government security price indices
of various durations prepared by Lehman Brothers and Salomon Brothers, Inc.
These indices are not managed for any investment goal. Comparative information
on the Consumer Price Index may also be included. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.

-26-

<PAGE>

Total return performance for each Class of the Funds will reflect the
appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period, and, in the case
of Class A Shares, the impact of the maximum front-end sales charge, if any,
paid on the illustrated investment amount, annualized. Performance of Class A
Shares may also be shown without reflecting the impact of any front-end sales
charge. The results will not reflect any income taxes, if applicable, payable
by shareholders on the reinvested distributions included in the calculations.
The performance of Class B Shares and Class C Shares will be calculated both
with the applicable CDSC included and excluded. The net asset values of the
Funds fluctuate so shares, when redeemed, may be worth more or less than the
original investment, and the Funds' results should not be considered a guarantee
of future performance.

The following tables present examples, for purposes of illustration only,
of cumulative total return performance for each Class through July 31, 1997.
For these purposes, the calculations reflect maximum sales charges, if any, and
assume the reinvestment of any capital gains distributions and income dividends
paid during the indicated periods. The performance does not reflect any income
taxes payable by shareholders on the reinvested distributions included in the
calculations. The performance of Class A Shares reflects the maximum front-end
sales charge paid on the purchase of shares but may also be shown without
reflecting the impact of any front-end sales charge. The performance of Class B
Shares and Class C Shares is calculated both with the applicable CDSC included
and excluded. Comparative information on the Consumer Price Index is also
included.

-27-

<PAGE>

CUMULATIVE TOTAL RETURN
DELCHESTER DELCHESTER
FUND FUND CONSUMER
A CLASS INSTITUTIONAL PRICE
(AT OFFER) CLASS(2) INDEX(3)
3 months
ended
7/31/97 1.84% 6.86% 0.19%

6 months
ended
7/31/97 2.74%(4) 8.04% 0.88%

9 months
ended
7/31/97 7.33% 12.86% 1.39%

1 year
ended
7/31/97 11.88% 17.82% 2.23%

3 years
ended
7/31/97 31.28% 38.82% 8.15%

5 years
ended
7/31/97 52.71% 62.08% 14.23%

10 years
ended
7/31/97 150.06% 168.80% 41.08%

15 years
ended
7/31/97 513.10% 527.42% 64.54%

Period
8/20/70(1)
through
7/31/97 1,105.40% 1,195.55% 309.19%

- ---------------------
(1) Date of initial public offering of Delchester Fund A Class.
(2) Date of initial public offering of Delchester Fund Institutional Class was
June 1, 1992. Pursuant to applicable regulation, total return shown for
Delchester Fund Institutional Class for the periods prior to the
commencement of operations of such Class is calculated by taking the
performance of Delchester Fund A Class and adjusting it to reflect the
elimination of all sales charges. However, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments, and
performance may have been affected had such an adjustment been made.
(3) Source--Lipper Analytical.
(4) Cumulative total return at net asset value for the six months ended July
31, 1997 was 7.90%.

-28-

<PAGE>

CUMULATIVE TOTAL RETURN
DELCHESTER DELCHESTER
FUND FUND
B CLASS B CLASS
(INCLUDING (EXCLUDING CONSUMER
DEFERRED DEFERRED PRICE
SALES CHARGE) SALES CHARGE) INDEX(2)

3 months
ended
7/31/97 2.66% 6.66% 0.19%

6 months
ended
7/31/97 3.51% 7.51% 0.88%

9 months
ended
7/31/97 8.03% 12.03% 1.39%

1 year
ended
7/31/97 12.66% 16.66% 2.23%

3 years
ended
7/31/97 31.74% 34.74% 8.15%

Period
5/2/94(1)
through
7/31/97 29.64% 32.56% 8.89%

- --------------------
(1) Date of initial public offering of Delchester Fund B Class.
(2) Source--Lipper Analytical.

-29-

<PAGE>

CUMULATIVE TOTAL RETURN

DELCHESTER DELCHESTER
FUND FUND
C CLASS C CLASS
(INCLUDING (EXCLUDING CONSUMER
DEFERRED DEFERRED PRICE
SALES CHARGE) SALES CHARGE) Index(2)

3 months
ended
7/31/97 5.66% 6.66% 0.19%

6 months
ended
7/31/97 6.50% 7.50% 0.88%

9 months
ended
7/31/97 11.03% 12.03% 1.39%

1 year
ended
7/31/97 15.66% 16.66% 2.23%

Period
11/29/95(1)
through
7/31/97 22.72% 22.72% 4.49%

- ---------------------
(1) Date of initial public offering of Delchester Fund C Class.
(2) Source--Lipper Analytical.

-30-

<PAGE>

Cumulative Total Return (1)
---------------------------
Strategic Strategic
Income Income
Fund Fund Consumer
A Class Institutional Price
(at Offer) Class Index(2)
---------- ----- --------
3 months
ended
7/31/97 0.22% 5.38% 0.19%

6 months
ended
7/31/97 0.81%(4) 6.01% 0.88%

9 months
ended
7/31/97 3.52% 8.78% 1.39%

Period
10/1/96(3)
through
7/31/97 4.95% 10.36% 1.71%

- -----------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total
Operating Expenses of each Class of the Fund does not exceed 0.75% (in each
case, exclusive of taxes, interest, brokerage commissions, extraordinary
expenses and applicable 12b-1 expenses) through December 31, 1997. In the
absence of such waiver, performance would have been affected negatively.

(2) Source--Lipper Analytical.

(3) Date of initial public offering of Strategic Income Fund A Class and
Strategic Income Fund Institutional Class; total return for this short of a
time period may not be representative of longer term results.

(4) Cumulative total return at net asset value for the six months ended July
31, 1997 was 5.85%.

-31-
<PAGE>

Cumulative Total Return (1)
---------------------------
Strategic Strategic
Income Income
Fund Fund
B Class B Class
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
------------- ------------- --------

3 months
ended
7/31/97 1.12% 5.12% 0.19%

6 months
ended
7/31/97 1.49% 5.49% 0.88%

9 months
ended
7/31/97 4.18% 8.18% 1.39%

Period
10/1/96(3)
through
7/31/97 5.53% 9.53% 1.71%

- -----------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total
Operating Expenses of each Class of the Fund do not exceed 0.75% (in each
case, exclusive of taxes, interest, brokerage commissions, extraordinary
expenses and applicable 12b-1 expenses) through December 31, 1997. In the
absence of such waiver, performance would have been affected negatively.

(2) Source--Lipper Analytical.

(3) Date of initial public offering of Strategic Income Fund B Class; total
return for this short of a time period may not be representative of longer
term results.

-32-
<PAGE>

Cumulative Total Return (1)
---------------------------
Strategic Strategic
Income Income
Fund Fund
C Class C Class
(Including (Excluding Consumer
Deferred Deferred Price
Sales Charge) Sales Charge) Index(2)
------------- ------------- --------
3 months
ended
7/31/97 4.12% 5.12% 0.19%

6 months
ended
7/31/97 4.49% 5.49% 0.88%

9 months
ended
7/31/97 7.18% 8.18% 1.39%

Period
10/1/96(3)
through
7/31/97 8.53% 9.53% 1.71%

- ----------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total
Operating Expenses of each Class of the Fund do not exceed 0.75% (in each
case, exclusive of taxes, interest, brokerage commissions, extraordinary
expenses and applicable 12b-1 expenses) through December 31, 1997. In the
absence of such waiver, performance would have been affected negatively.

(2) Source--Lipper Analytical.

(3) Date of initial public offering of Strategic Income Fund C Class; total
return for this short of a time period may not be representative of longer
term results.

-33-
<PAGE>

Cumulative Total Return (1)
---------------------------
High-Yield High-Yield
Opportunities Opportunities
Fund Fund Consumer
A Class(2) Institutional Price
(at Offer) Class Index(3)
---------- ----- --------
3 months
ended
7/31/97 2.22% 7.29% 0.19%

6 months
ended
7/31/97 3.47%(4) 8.63% 0.88%

Period
1/2/97 (5)
through
7/31/97 5.62% 10.81% 1.20%

- ----------
(1) The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by High-Yield Opportunities Fund and to pay
certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of each Class of the Fund do not exceed 0.75% (in
each case, exclusive of taxes, interest, brokerage commissions,
extraordinary expenses) through December 31, 1997. In the absence of such
waiver, performance would have been affected negatively.

(2) Delaware Distributors, L.P. has elected voluntarily to waive its right to
receive 12b-1 Plan fees (including service fees) from the commencement of
the public offering of Class A Share of the Fund through December 31, 1997.
In the absence of such waiver, performance would have been affected
negatively.

(3) Source -- Lipper Analytical.

(4) Cumulative total return at net asset value for the six months ended July
31, 1997 was 8.63%.

(5) Date of initial public offering of High-Yield Opportunities Fund A Class
and High-Yield Opportunities Fund Institutional Class; total return for
this short of a time period may not be representative of longer term
results.

-34-
<PAGE>

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for Income Funds, Inc. and other mutual funds in the
Delaware Group, will provide general information about investment alternatives
and scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's and, in the case of
Strategic Income Fund, the Sub-Adviser's, overriding investment philosophy and
how that philosophy impacts the Funds', and other Delaware Group funds',
investment disciplines employed in seeking their objectives. The Distributor
may also from time to time cite general or specific information about the
institutional clients of the Manager and the Sub-Adviser, including the number
of such clients serviced by the Manager and the Sub-Adviser.

DOLLAR-COST AVERAGING

For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a
regular basis, that money will always buy more shares when the price is low and
fewer when the price is high. You can choose to invest at any regular
interval--for example, monthly or quarterly--as long as you stick to your
regular schedule. Dollar-cost averaging looks simple and it is, but there are
important things to remember.

-35-
<PAGE>

Dollar-cost averaging works best over longer time periods, and it doesn't
guarantee a profit or protect against losses in declining markets. If you need
to sell your investment when prices are low, you may not realize a profit no
matter what investment strategy you utilize. That's why dollar-cost averaging
can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Group offers three services -- Automatic Investing Plan, Direct Deposit Purchase
Plan and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See INVESTING BY ELECTRONIC FUND TRANSFER - DIRECT
DEPOSIT PURCHASE PLAN and AUTOMATIC INVESTING PLAN under INVESTMENT PLANS and
WEALTH BUILDER OPTION under INVESTMENT PLANS for a complete description of these
services, including restrictions or limitations.

The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.

NUMBER
INVESTMENT PRICE PER OF SHARES
AMOUNT SHARE PURCHASED

Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10

--------------------------------------------------------
$400 $37.50 48

Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average COST Per Share: $8.33 ($400/48 shares)

This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund in the Delaware Group
of funds.

-36-
<PAGE>

THE POWER OF COMPOUNDING

When you opt to reinvest your current income for additional shares of the
Funds, your investment is given yet another opportunity to grow. It's called
the Power of Compounding and the following chart illustrates just how powerful
it can be.

COMPOUNDED RETURNS

Results of various assumed fixed rates of return on a $10,000 investment
compounded monthly for 10 years:

7% Rate 9% Rate 11% Rate
of Return of Return of Return
--------- --------- ---------

1 year $10,723 $10,938 $11,157
2 years $11,498 $11,964 $12,448
3 years $12,330 $13,086 $13,889
4 years $13,221 $14,314 $15,496
5 years $14,177 $15,657 $17,289
6 years $15,201 $17,126 $19,289
7 years $16,300 $18,732 $21,522
8 years $17,479 $20,489 $24,012
9 years $18,743 $22,411 $26,791
10 years $20,098 $24,514 $29,891

These figures are calculated assuming a fixed constant investment return
and assume no fluctuation in the value of principal. These figures, which do
not reflect payment of applicable taxes or sales charges, are not intended to be
a projection of investment results and do not reflect the actual performance
results of any of the classes.

-37-
<PAGE>

TRADING PRACTICES AND BROKERAGE

Delchester Fund, High-Yield Opportunities Fund and, in the case of its
domestic securities, Strategic Income Fund, each select banks, brokers or
dealers to execute transactions for the purchase or sale of portfolio securities
on the basis of the Fund's judgment of the professional capability of such
banks, brokers or dealers to provide the service. In the case of Strategic
Income Fund, the Sub-Adviser to the Fund selects banks, brokers or dealers to
execute transactions for the purchase or sale of foreign securities in managing
the Fund's international sector. The primary consideration is to have banks,
brokers or dealers execute transactions at best price and execution. Best price
and execution refers to many factors, including the price paid or received for a
security, the commission charged, the promptness and reliability of execution,
the confidentiality and placement accorded the order and other factors affecting
the overall benefit obtained by the account on the transaction. In most
instances, trades of fixed-income securities are made on a net basis where the
Funds either buy the securities directly from the dealer or sell them to the
dealer. In these instances, there is no direct commission charged but there is
a spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, the Fund involved pays reasonably
competitive brokerage commission rates based upon the professional knowledge of
the Manager or the Sub-Adviser as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.

During the fiscal years ended July 31, 1995 , 1996 and 1997, no brokerage
commissions were paid by Delchester Fund, Strategic Income Fund or High-Yield
Opportunities Fund.

The Manager or the Sub-Adviser may allocate out of all commission business
generated by all of the funds and accounts under its management, brokerage
business to brokers or dealers who provide brokerage and research services.
These services include advice, either directly or through publications or
writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends; assisting in determining portfolio strategy; providing
computer software and hardware used in security analyses; and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Manager or the Sub-Adviser in connection with its investment
decision-making processes with respect to one or more funds and accounts managed
by it, and may not be used, or used exclusively, with respect to the fund or
account generating the brokerage.

During the fiscal year ended July 31, 1997, there were no portfolio
transactions of Delchester Fund, Strategic Income Fund or High-Yield
Opportunities Fund resulting in brokerage commissions directed to brokers for
brokerage and research services.

As provided in the Securities Exchange Act of 1934 (the "1934 Act"), the
Funds' Investment Management Agreements and the Sub-Advisory Agreement (in the
case of Strategic Income Fund), higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Funds believe that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager or Sub-Adviser which constitute in some part brokerage and research
services used by the Manager or Sub-Adviser in connection with its investment
decision-making process and constitute in some part services used by the Manager
or Sub-Adviser in connection with administrative or other functions not related
to its investment decision-making process. In such cases, the Manager or
Sub-Adviser will make a good faith allocation of brokerage

-38-
<PAGE>

and research services and will pay out of its own resources for services used by
the Manager or Sub-Adviser in connection with administrative or other functions
not related to its investment decision-making process. In addition, so long as
no fund is disadvantaged, portfolio transactions which generate commissions or
their equivalent are allocated to broker/dealers who provide daily portfolio
pricing services to the Funds and to other funds in the Delaware Group. Subject
to best price and execution, commissions allocated to brokers providing such
pricing services may or may not be generated by the funds receiving the pricing
service.

The Manager or the Sub-Adviser may place a combined order for two or more
accounts or funds engaged in the purchase or sale of the same security if, in
its judgment, joint execution is in the best interest of each participant and
will result in best price and execution. Transactions involving commingled
orders are allocated in a manner deemed equitable to each account or fund. When
a combined order is executed in a series of transactions at different prices,
each account participating in the order may be allocated an average price
obtained from the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the
joint execution of orders could adversely affect the price or volume of the
security that a particular account or fund may obtain, it is the opinion of the
Manager, the Sub-Adviser and Income Funds, Inc.'s Board of Directors that the
advantages of combined orders outweigh the possible disadvantages of separate
transactions.

Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Funds may place orders with broker/dealers that have agreed to
defray certain expenses of the funds in the Delaware Group of funds such as
custodian fees, and may, at the request of the Distributor, give
consideration to sales of shares of such funds as a factor in the selection
of brokers and dealers to execute the Funds' portfolio transactions.

PORTFOLIO TURNOVER

The rate of portfolio turnover will not be a limiting factor when portfolio
changes are deemed appropriate. Delchester Fund anticipates that its annual
rate of portfolio turnover will not generally exceed 150%, although it is
possible that in any particular year market conditions or other factors might
result in portfolio activity at a greater rate than anticipated. Due to current
market conditions, Strategic Income Fund and High-Yield Opportunities Fund
anticipate that their respective annual rates of portfolio turnover will exceed
100%. Because of the historically high rate of new issuances and refinancings
in the high-yield bond market during the Funds' most recent fiscal year, the
portfolio turnover rate for each Fund was higher than anticipated. This higher
rate of portfolio turnover is expected to continue so long as the current rate
of new issuances and refinancings is maintained.

The degree of portfolio activity may affect taxes payable by the Funds'
shareholders. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were replaced by
the end of the year. In investing for liberal current income, in the case of
Delchester Fund, and for high current income with total return, in the case of
Strategic Income Fund, the Funds may hold securities for any period of time. To
the extent a Fund realizes gains on securities held for less than six months,
such gains are taxable to the shareholder or to the Fund at ordinary income tax
rates. The turnover rates also may be affected by cash requirements from
redemptions and repurchases of Fund shares.

The portfolio turnover rate of the Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.

-39-
<PAGE>

During the past two fiscal years, the portfolio turnover rates of the Funds
were as follows:

JULY 31
1996 1997
---- ----
DELCHESTER FUND 108% 154%
STRATEGIC INCOME FUND (1) N/A 183% (3)
HIGH-YIELD OPPORTUNITIES FUND (2) N/A 270% (3)

(1) DATE OF INITIAL PUBLIC OFFERING WAS OCTOBER 1, 1996.
(2) DATE OF INITIAL PUBLIC OFFERING WAS JANUARY 2, 1997.
(3) ANNUALIZED.

-40-
<PAGE>

PURCHASING SHARES

The Distributor serves as the national distributor for each Fund's classes
of shares - Class A Shares, Class B Shares, Class C Shares and the Institutional
Class - and has agreed to use its best efforts to sell shares of each Fund. See
the PROSPECTUSES for additional information on how to invest. Shares of the
Funds are offered on a continuous basis, and may be purchased through authorized
investment dealers or directly by contacting Income Funds, Inc. or the
Distributor.

The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any Delaware Group fund, the Manager or the Sub-Adviser or any of
the their affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or
Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. Accounts opened under the Delaware Group
Asset Planner service are subject to a minimum initial investment of $2,000 per
Asset Planner Strategy selected. There are no minimum purchase requirements for
the Funds' Institutional Classes, but certain eligibility requirements must be
satisfied.

Each purchase of Class B Shares is subject to a maximum purchase limitation
of $250,000. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. See INVESTMENT PLANS for purchase limitations applicable
to retirement plans. Income Funds, Inc. will reject any purchase order for more
than $250,000 of Class B Shares and $1,000,000 or more of Class C Shares. An
investor may exceed these limitations by making cumulative purchases over a
period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that, absent any applicable fee waiver, Class A Shares are subject
to lower annual 12b-1 Plan expenses than Class B Shares and Class C Shares and
generally are not subject to a CDSC.

Selling dealers are responsible for transmitting orders promptly. Income
Funds, Inc. reserves the right to reject any order for the purchase of shares of
either Fund if in the opinion of management such rejection is in such Fund's
best interests.

The NASD has adopted Conduct Rules, as amended, relating to investment
company sales charges. Income Funds, Inc. and the Distributor intend to operate
in compliance with these rules.

Class A Shares are purchased at the offering price which reflects a maximum
front-end sales charge of 4.75%; however, lower front-end sales charges apply
for larger purchases. See the table below. Class A Shares, absent any
applicable fee waiver, are also subject to annual 12b-1 Plan expenses.

Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares
are also subject to annual 12b-1 Plan expenses which, absent any applicable fee
waiver, are higher than those to which Class A Shares are subject and are
assessed against Class B Shares for approximately eight years after purchase.
See AUTOMATIC CONVERSION OF CLASS B SHARES under CLASSES OF SHARES in the Fund
Classes' PROSPECTUSES.

-41-
<PAGE>

Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C
Shares, absent any applicable fee waiver, are also subject to annual 12b-1 Plan
expenses for the life of the investment which are equal to those to which Class
B Shares are subject.

The Distributor has voluntarily elected to waive the payment of 12b-1 Plan
expenses by High-Yield Opportunities Fund from the commencement of public
offering through December 31, 1997.

Institutional Class shares are purchased at the net asset value per share
without the imposition of a front-end or contingent deferred sales charge or
12b-1 Plan expenses. See DETERMINING OFFERING PRICE AND NET ASSET VALUE AND
PLANS UNDER RULE 12b-1 FOR THE FUND CLASSES in this PART B.

Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses, if any, under a Fund's 12b-1 Plans.

Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares or in the case of any retirement plan
accounts including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership
with respect to such shares as if certificates had been issued. An investor
that is permitted to obtain a certificate may receive a certificate representing
full share denominations purchased by sending a letter signed by each owner of
the account to the Transfer Agent requesting the certificate. No charge is
assessed by Income Funds, Inc. for any certificate issued. A shareholder may be
subject to fees for replacement of a lost or stolen certificate, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact a Fund for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.

ALTERNATIVE PURCHASE ARRANGEMENTS

The alternative purchase arrangements of Class A, Class B and Class C
Shares of each Fund permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares of a Fund and
incur a front-end sales charge and, absent any applicable fee waiver, annual
12b-1 Plan expenses of up to a maximum of 0.30% of the average daily net assets
of Class A Shares (currently, no more than 0.25% of the average daily net assets
of Class A Shares of Strategic Income Fund, pursuant to Board action) or to
purchase either Class B or Class C Shares of a Fund and have the entire initial
purchase amount invested in the Fund with the investment thereafter subject to a
CDSC and annual 12b-1 Plan expenses. Class B Shares are subject to a CDSC if
the shares are redeemed within six years of purchase, and Class C Shares are
subject to a CDSC if the shares are redeemed within 12 months of purchase.
Class B and Class C Shares are each subject to annual 12b-1 Plan expenses of up
to a maximum of 1% (0.25% of which are service fees to be paid to the
Distributor, dealers or others for providing personal service and/or maintaining
shareholder accounts) of average daily net assets of the respective Class.
Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase and, thereafter, be subject to annual
12b-1 Plan expenses of up to a maximum of 0.30% of average daily net assets of
such shares. Unlike Class B Shares, Class C Shares do not convert to another
class.

-42-
<PAGE>

CLASS A SHARES - DELCHESTER FUND, STRATEGIC INCOME FUND AND HIGH-YIELD
OPPORTUNITIES FUND

Purchases of $100,000 or more of Class A Shares at the offering price carry
reduced front-end sales charges as shown in the accompanying table, and may
include a series of purchases over a 13-month period under a Letter of Intention
signed by the purchaser. See SPECIAL PURCHASE FEATURES -- CLASS A SHARES, below
for more information on ways in which investors can avail themselves of reduced
front-end sales charges and other purchase features.

DELCHESTER FUND
STRATEGIC INCOME FUND
HIGH-YIELD OPPORTUNITIES FUND
CLASS A SHARES
- --------------------------------------------------------------------------------------------------------------
DEALER'S
COMMISSION***
FRONT-END SALES CHARGE AS % OF AS % OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED** PRICE
- --------------------------------------------------------------------------------------------------------------
STRATEGIC HIGH-YIELD
DELCHESTER INCOME OPPORTUNITIES
FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Less than $100,000 4.75% 5.02% 4.91% 5.07% 4.00%

$100,000 but under $250,000 3.75 3.95 3.86 3.89 3.00

$250,000 but under $500,000 2.50 2.58 2.63 2.53 2.00

$500,000 but under $1,000,000* 2.00 1.97 2.11 2.03 1.60

</TABLE>

* There is no front-end sales charge on purchases of $1,000,000 or more of
Class A Shares but, under certain limited circumstances, a 1% contingent
deferred sales charge may apply upon redemption of such shares. The
contingent deferred sales charge ("Limited CDSC") that may be applicable
arises only in the case of certain shares that were purchased at net asset
value and triggered the payment of a dealer's commission.

** Based on the net asset value per share of Class A Shares as of the end of
Income Funds, Inc.'s most recent fiscal year.

*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------

A Fund must be notified when a sale takes place which would qualify for the
reduced front-end sales charge on the basis of previous or current
purchases. The reduced front-end sales charge will be granted upon
confirmation of the shareholder's holdings by such Fund. Such reduced
front-end sales charges are not retroactive.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of front-end
sales charges shown above. Dealers who receive 90% or more of the sales
charge may be deemed to be underwriters under the Securities Act of 1933
(the "1933 Act").

- --------------------------------------------------------------------------------

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<PAGE>

Certain dealers who enter into an agreement to provide extra training and
information on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to 0.15% of the
offering price in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.

DEALER'S COMMISSION

For initial purchases of Class A Shares of $1,000,000 or more, a dealer's
commission may be paid by the Distributor to financial advisers through whom
such purchases are effected in accordance with the following schedule:

DEALER'S COMMISSION
(AS A PERCENTAGE OF
AMOUNT OF PURCHASE AMOUNT PURCHASED)
------------------ -----------------

Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (see CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN
REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under REDEMPTION AND
EXCHANGE in the Fund Classes' PROSPECTUSES) may be aggregated with those of
Class A Shares of a Fund. Financial advisers also may be eligible for a
dealer's commission in connection with certain purchases made under a Letter of
Intention or pursuant to an investor's Right of Accumulation. Financial
advisers should contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of combined purchases.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES

Class B Shares and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below, and Class C Shares redeemed within 12
months of purchase may be subject to a CDSC of 1%. CDSCs are charged as a
percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. See WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND
CLASS C SHARES under REDEMPTION AND EXCHANGE in the PROSPECTUSES for the Fund
Classes for a list of the instances in which the CDSC is waived.

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<PAGE>

The following table sets forth the rates of the CDSC for Class B Shares of
each Fund:

CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
------------------------ ------------------

0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares, absent any applicable fee
waiver, will still be subject to the annual 12b-1 Plan expenses of up to 1% of
average daily net assets of those shares. At the end of approximately eight
years after purchase, the investor's Class B Shares will be automatically
converted into Class A Shares of the same Fund. See AUTOMATIC CONVERSION OF
CLASS B SHARES under CLASSES OF SHARES in the Fund Classes' PROSPECTUSES. Such
conversion will constitute a tax-free exchange for federal income tax purposes.
See TAXES in the PROSPECTUSES for the Fund Classes.

PLANS UNDER RULE 12b-1 FOR THE FUND CLASSES

Pursuant to Rule 12b-1 under the 1940 Act, Income Funds, Inc. has adopted a
separate plan for each of the Class A Shares, Class B Shares and Class C Shares
of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the class of shares to which the Plan applies. The Plans do not apply
to Institutional Classes of shares. Such shares are not included in calculating
the Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of the Institutional Classes. Shareholders of the
Institutional Classes may not vote on matters affecting the Plans.

The Plans permit a Fund, pursuant to its Distribution Agreement, to pay out
of the assets of Class A Shares, Class B Shares and Class C Shares monthly fees
to the Distributor for its services and expenses in distributing and promoting
sales of shares of such classes. These expenses include, among other things,
preparing and distributing advertisements, sales literature and prospectuses and
reports used for sales purposes, compensating sales and marketing personnel, and
paying distribution and maintenance fees to securities brokers and dealers who
enter into agreements with the Distributor. The Plan expenses relating to Class
B and Class C Shares are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.

In addition, absent any applicable fee waiver, each Fund may make payments
out of the assets of Class A, Class B and Class C Shares directly to other
unaffiliated parties, such as banks, who either aid in the distribution of
shares of, or provide services to, such classes.

The maximum aggregate fee payable by a Fund under its Plans, and the Funds'
Distribution Agreements, is on an annual basis, up to 0.30% of the Class A
Shares' average daily net assets for the year, and up to 1% (0.25% of which are
service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets for the year. Income
Funds, Inc.'s Board of Directors may reduce these amounts at any time. The
Distributor has agreed to waive the distribution fees with respect to Delchester
Fund and High-Yield Opportunities Fund to the extent such fee for any day
exceeds the net investment income realized by such Funds' respective Class A,
Class B and Class C Shares for such day.

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<PAGE>

In addition, the Distributor has elected voluntarily to waive all payments under
the 12b-1 Plan for Class A Shares, Class B Shares and Class C Shares of
High-Yield Opportunities Fund during the commencement of the public offering of
the Fund through December 31, 1997.

Although the maximum fee payable under the 12b-1 Plan relating to
Delchester Fund A Class is 0.30% of average daily net assets of such class, the
Board of Directors has determined that the annual fee, payable on a monthly
basis, under the Plan relating to Delchester Fund A Class, will be equal to the
sum of: (i) the amount obtained by multiplying 0.10% by the average daily net
assets represented by Delchester Fund A Class that were originally purchased
prior to June 1, 1992 in Delchester I class (which was converted into what is
now referred to as Class A Shares on June 1, 1992 pursuant to a Plan of
Recapitalization approved by shareholders of Delchester I class), and (ii) the
amount obtained by multiplying 0.30% by the average daily net assets represented
by all other Delchester Fund A Class shares. While this is the method to be
used to calculate the 12b-1 fees to be paid by Delchester Fund A Class under its
Plan, the fee is a Class A Shares' expense so that all shareholders of
Delchester Fund A Class, regardless of whether they originally purchased or
received shares in Delchester I class, or in one of the other classes that is
now known as Class A Shares, will bear 12b-1 expenses at the same rate. In
addition, pursuant to Board action, the maximum aggregate fee payable by Class A
Shares of Strategic Income Fund is 0.25%. While this describes the current
basis for calculating the fees which will be payable under the Delchester Fund A
Class' and Strategic Income Fund A Class' Plans, such Plans permit a full 0.30%
on all Class A Shares' assets to be paid at any time following appropriate Board
approval.

All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A, Class
B and Class C Shares would be borne by such persons without any reimbursement
from such Fund Classes. Subject to seeking best price and execution, a Fund
may, from time to time, buy or sell portfolio securities from or to firms which
receive payments under the Plans.

From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.

The Plans and the Distribution Agreements, as amended, have all been
approved by the Board of Directors of Income Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Income Funds, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Agreements. Continuation of the Plans and the
Distribution Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.

Each year, the directors must determine whether continuation of the Plans
is in the best interest of shareholders of, respectively, Class A Shares, Class
B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreements, as amended, may be terminated
with respect to a Class at any time without penalty by a majority of those
directors who are not "interested persons" or by a majority vote of the
outstanding voting securities of the relevant Fund Class. Any amendment
materially increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the relevant
Fund Class, as well as by a majority vote of those directors who are not
"interested persons." With respect to each Class A Shares' Plan, any material
increase in the maximum percentage payable thereunder must also be approved by a
majority of the outstanding voting securities of Class B of the same Fund.
Also, any other material amendment to the Plans must be approved by a majority
vote of the directors including a majority of the noninterested directors of
Income Funds, Inc. having no interest in the Plans. In addition, in order for
the Plans to remain effective, the selection and nomination of directors who are
not "interested persons" of Income Funds, Inc. must be effected by the directors
who themselves are not "interested persons" and who

-46-
<PAGE>

have no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least quarterly
to the Board of Directors for their review.

For the fiscal year ended July 31, 1997, payments from Class A Shares,
Class B Shares and Class C Shares of Delchester Fund amounted to $2,559,303,
$2,230,146 and $121,277, respectively. Such amounts were used for the following
purposes:

DELCHESTER DELCHESTER DELCHESTER
FUND FUND FUND
A CLASS B CLASS C CLASS
------- ------- -------

Advertising $3,049 $437 -
Annual/Semi-Annual Reports $40,497 - -
Broker Trails $2,111,970 $505,510 $7,011
Broker Sales Charges - $877,021 $91,615
Dealer Service Expenses $10,633 $2,414 -
Interest on Broker Sales Charges - $684,081 $4,463
Commissions to Wholesalers $125,819 $87,012 $9,509
Promotional-Broker Meetings $117,981 $28,153 $531
Promotional-Other $108,424 $127 -
Prospectus Printing $19,964 - -
Telephone $6,651 $927 $36
Wholesaler Expenses $14,315 $44,464 $8,112
Other - - -

For the period ended July 31, 1997, payments from Class A Shares, Class B
Shares and Class C Shares of Strategic Income Fund amounted to $15,465, $28,489
and $8,275, respectively. Such amounts were used for the following purposes:

Strategic Strategic Strategic
Income Income Income
Fund Fund Fund
A Class B Class C Class
------- ------- -------

Advertising $2,729 - -
Annual/Semi-Annual Reports $22,442 - -
Broker Trails $11,788 $5,527 -
Broker Sales Charges - $399,692 $7,278
Dealer Service Expenses $35,572 $29,326 $3,143
Interest on Broker Sales Charges - $11,758 $431
Commissions to Wholesalers $54,673 $43,563 $3,731
Promotional-Broker Meetings $1,286 $506 $175
Promotional-Other $88,546 - -
Prospectus Printing $9,425 - -
Telephone $220 $144 $19
Wholesaler Expenses $91,552 $73,467 $10,210
Other - - -

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<PAGE>

OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES

From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Group fund shares.

SPECIAL PURCHASE FEATURES -- CLASS A SHARES

BUYING CLASS A SHARES AT NET ASSET VALUE

Class A Shares may be purchased without a front-end sales charge under the
DIVIDEND REINVESTMENT PLAN and, under certain circumstances, the EXCHANGE
PRIVILEGE and the 12-MONTH REINVESTMENT PRIVILEGE.

Current and former officers, directors and employees of Income Funds, Inc.,
any other fund in the Delaware Group, the Manager, the Manager's affiliates, the
Sub-Adviser or any of the Manager's affiliates that may in the future be
created, legal counsel to the funds and registered representatives and employees
of broker/dealers who have entered into Dealer's Agreements with the Distributor
may purchase Class A Shares of the Funds and any such class of shares of any of
the other funds in the Delaware Group, including any fund that may be created,
at the net asset value per share. Family members of such persons at their
direction, and any employee benefit plan established by any of the foregoing
funds, corporations, counsel or broker/dealers may also purchase Class A Shares
at net asset value. Class A Shares may also be purchased at net asset value by
current and former officers, directors and employees (and members of their
families) of the Dougherty Financial Group LLC. Purchases of Class A Shares may
also be made by clients of registered representatives of an authorized
investment dealer at net asset value within 12 months of a change of the
registered representative's employment, if the purchase is funded by proceeds
from an investment where a front-end sales charge, contingent deferred sales
charge or other sales charge has been assessed. Purchases of Class A Shares may
also be made at net asset value by bank employees who provide services in
connection with agreements between the bank and unaffiliated brokers or dealers
concerning sales of shares of Delaware Group funds. Officers, directors and key
employees of institutional clients of the Manager, the Sub-Adviser or any of
their affiliates, may purchase Class A Shares at net asset value. Moreover,
purchases may be effected at net asset value for the benefit of the clients of
brokers, dealers and registered investment advisers affiliated with a broker or
dealer, if such broker, dealer or investment adviser has entered into an
agreement with the Distributor providing specifically for the purchase of Class
A Shares in connection with special investment products, such as wrap accounts
or similar fee based programs. Such purchasers are required to sign a letter
stating that the purchase is for investment only and that the securities may not
be resold except to the issuer. Such purchasers may also be required to sign or
deliver such other documents as Income Funds, Inc. may reasonably require to
establish eligibility for purchase at net asset value.

Investors in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
of the Funds in the Delaware Group at net asset value.

Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the institutional class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Delaware Investment & Retirement Services, Inc. ("DIRSI")
proprietary record keeping system that (i) has in excess of $500,000 of plan
assets invested in Class A Shares of Delaware Group funds and any stable value
product available through the Delaware Group, or (ii) is sponsored by an
employer that has at any point after May 1, 1997 had more than 100

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<PAGE>

employees while such plan has held Class A Shares of a Delaware Group fund and
such employer has properly represented to DIRSI in writing that it has the
requisite number of employees and has received written confirmation back from
DIRSI.

Purchases of Class A Shares of Delchester Fund at net asset value may also
be made by bank sponsored retirement plans that are no longer eligible to
purchase Institutional Class Shares as a result of a change in the distribution
arrangements.

The Funds must be notified in advance that the trade qualifies for purchase
at net asset value.

LETTER OF INTENTION

The reduced front-end sales charges described above with respect to Class A
Shares are also applicable to the aggregate amount of purchases made within a
13-month period pursuant to a written Letter of Intention provided by the
Distributor and signed by the purchaser, and not legally binding on the signer
or Income Funds, Inc., which provides for the holding in escrow by the Transfer
Agent of 5% of the total amount of Class A Shares intended to be purchased until
such purchase is completed within the 13-month period. A Letter of Intention
may be dated to include shares purchased up to 90 days prior to the date the
Letter is signed. The 13-month period begins on the date of the earliest
purchase. If the intended investment is not completed, except as noted below,
the purchaser will be asked to pay an amount equal to the difference between the
front-end sales charge on Class A Shares purchased at the reduced rate and the
front-end sales charge otherwise applicable to the total shares purchased. If
such payment is not made within 20 days following the expiration of the 13-month
period, the Transfer Agent will surrender an appropriate number of the escrowed
shares for redemption in order to realize the difference. Such purchasers may
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares of the Funds and of any class of any of the other
mutual funds in the Delaware Group (except shares of any Delaware Group fund
which do not carry a front-end sales charge, CDSC or Limited CDSC, other than
shares of Delaware Group Premium Fund, Inc. beneficially owned in connection
with the ownership of variable insurance products, unless they were acquired
through an exchange from a Delaware Group fund which carried a front-end sales
charge, CDSC or Limited CDSC) previously purchased and still held as of the date
of their Letter of Intention toward the completion of such Letter.

Employers offering a Delaware Group retirement plan may also complete a
Letter of Intention to obtain a reduced front-end sales charge on investments in
Class A Shares made by the plan. The aggregate investment level of the Letter
of Intention will be determined and accepted by the Transfer Agent at the point
of plan establishment. The level and any reduction in front-end sales charge
will be based on actual plan participation and the projected investments in
Delaware Group funds that are offered with a front-end sales charge, CDSC or
Limited CDSC for a 13-month period. The Transfer Agent reserves the right to
adjust the signed Letter of Intention based on this acceptance criteria. The
13-month period will begin on the date this Letter of Intention is accepted by
the Transfer Agent. If actual investments exceed the anticipated level and
equal an amount that would qualify the plan for further discounts, any front-end
sales charges will be automatically adjusted. In the event this Letter of
Intention is not fulfilled within the 13-month period, the plan level will be
adjusted (without completing another Letter of Intention) and the employer will
be billed for the difference in front-end sales charges due, based on the plan's
assets under management at that time. Employers may also include the value (at
offering price at the level designated in their Letter of Intention) of all
their shares intended for purchase that are offered with a front-end sales
charge, CDSC or Limited CDSC of any class. Class

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<PAGE>

B Shares and Class C Shares of a Fund and other Delaware Group funds which offer
corresponding classes of shares may also be aggregated for this purpose.

-50-
<PAGE>

COMBINED PURCHASES PRIVILEGE

In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
Delaware Group funds (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC). In addition, assets held by investment advisory clients of
the Manager or its affiliates in a stable value account may be combined with
other Delaware Group fund holdings.

The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).

RIGHT OF ACCUMULATION

In determining the availability of the reduced front-end sales charge with
respect to Class A Shares, purchasers may also combine any subsequent purchases
of Class A Shares, Class B Shares and Class C Shares of a Fund, as well as
shares of any other class of any of the other Delaware Group funds which offer
such classes (except shares of any Delaware Group fund which do not carry a
front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC). If, for example, any such purchaser has previously purchased and still
holds Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $60,000 purchase would currently be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.

12-MONTH REINVESTMENT PRIVILEGE

Holders of Class A Shares of a Fund (and of the Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Group offered with a front-end sales charge) who
redeem such shares have one year from the date of redemption to reinvest all or
part of their redemption proceeds in Class A Shares of that Fund or in Class A
Shares of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B Shares or Class C
Shares.

Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at
the net asset value next determined after receipt of remittance. A redemption
and reinvestment could have income tax consequences. It is recommended that a
tax adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.

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<PAGE>

Investors should consult their financial advisers or the Transfer Agent,
which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see CONTINGENT DEFERRED SALES CHARGE FOR
CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE under
REDEMPTION AND EXCHANGE in the Fund Classes' PROSPECTUSES) in connection with
the features described above.

GROUP INVESTMENT PLANS

Group Investment Plans that are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares set forth in the table on page _____, based on
total plan assets. If a company has more than one plan investing in the
Delaware Group of funds, then the total amount invested in all plans would be
used in determining the applicable front-end sales charge reduction upon each
purchase, both initial and subsequent, upon notification to the Fund in which
the investment is being made at the time of each such purchase. Employees
participating in such Group Investment Plans may also combine the investments
made in their plan account when determining the applicable front-end sales
charge on purchases to non-retirement Delaware Group investment accounts if they
so notify the Fund in connection with each purchase. For other retirement plans
and special services, see RETIREMENT PLANS FOR THE FUND CLASSES under INVESTMENT
PLANS.

THE INSTITUTIONAL CLASSES

The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their affiliates and those
having client relationships with Delaware Investment Advisers, a division of the
Manager, or its affiliates and their corporate sponsors, as well as subsidiaries
and related employee benefit plans and rollover individual retirement accounts
from such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 Plan fee; and (e) registered investment advisers investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment purposes, but
only if the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services.

Shares of the Institutional Classes are available for purchase at net asset
value, without the imposition of a front-end or contingent deferred sales charge
and are not subject to Rule 12b-1 expenses.

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<PAGE>

INVESTMENT PLANS

REINVESTMENT PLAN/OPEN ACCOUNT

Unless otherwise designated by shareholders in writing, dividends from net
investment income and distributions from realized securities profits, if any,
will be automatically reinvested in additional shares of the respective Fund
Classes of Delchester Fund and Strategic Income Fund in which an investor has an
account (based on the net asset value in effect on the reinvestment date) and
will be credited to the shareholder's account on that date. All dividends and
distributions of the Institutional Classes of each Fund and the Fund Classes of
High-Yield Opportunities Fund are reinvested in the accounts of the holders of
such shares (based on the net asset value in effect on the reinvestment date).
A confirmation of each distribution from realized securities profits, if any,
will be mailed to shareholders in the first quarter of the fiscal year.

Under the Reinvestment Plan/Open Account, shareholders may purchase and add
full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the PROSPECTUSES
and this PART B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class shares at the net
asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.

REINVESTMENT OF DIVIDENDS IN OTHER DELAWARE GROUP FUNDS

Subject to applicable eligibility and minimum initial purchase requirements
and the limitations set forth below, holders of Class A, Class B and Class C
Shares may automatically reinvest dividends and/or distributions in any of the
mutual funds in the Delaware Group, including the Funds, in states where their
shares may be sold. Such investments will be at net asset value at the close of
business on the reinvestment date without any front-end sales charge or service
fee. The shareholder must notify the Transfer Agent in writing and must have
established an account in the fund into which the dividends and/or distributions
are to be invested. Any reinvestment directed to a fund in which the investor
does not then have an account will be treated like all other initial purchases
of a fund's shares. Consequently, an investor should obtain and read carefully
the prospectus for the fund in which the investment is intended to be made
before investing or sending money. The prospectus contains more complete
information about the fund, including charges and expenses. See also ADDITIONAL
METHODS OF ADDING TO YOUR INVESTMENT - DIVIDEND REINVESTMENT PLAN under HOW TO
BUY SHARES in the PROSPECTUSES for the Fund Classes.

Subject to the following limitations, dividends and/or distributions from
other funds in the Delaware Group may be invested in shares of the Funds,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. Dividends from Class B Shares
may only be directed to other Class B Shares and dividends from Class C Shares
may only be directed to other Class C Shares. See APPENDIX B--CLASSES OFFERED
in the Fund Classes' Prospectus for the funds in the Delaware Group that are
eligible for investment by holders of Fund shares.

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INVESTING BY ELECTRONIC FUND TRANSFER

DIRECT DEPOSIT PURCHASE PLAN -- Investors may arrange for a Fund to accept
for investment in Class A, Class B or Class C Shares, through an agent bank,
preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and
delayed checks.

AUTOMATIC INVESTING PLAN -- Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at
a specified date although no check is required to initiate the transaction. (2)
If the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.

* * *

Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.

Payments to a Fund from the federal government or its agencies on behalf of
a shareholder may be credited to the shareholder's account after such payments
should have been terminated by reason of death or otherwise. Any such payments
are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient
shares in the shareholder's account, the shareholder is expected to reimburse
the Fund.

DIRECT DEPOSIT PURCHASES BY MAIL

Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Income Funds, Inc. for proper
instructions.

WEALTH BUILDER OPTION

Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Fund Classes may elect to
invest in one or more of the other mutual funds in the Delaware Group through
the Wealth Builder Option. See WEALTH BUILDER OPTION and REDEMPTION AND
EXCHANGE in the PROSPECTUSES for the Fund Classes.

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Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Fund Classes'
PROSPECTUSES. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of
the shareholder's account is less than the amount specified for investment.

Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See EXCHANGE PRIVILEGE for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation in Wealth Builder at
any time by written notice to the fund from which exchanges are made.

Delaware Group Asset Planner

To invest in Delaware Group funds using the Delaware Group Asset Planner
asset allocation service, you should complete a Delaware Group Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Delaware Group Asset
Planner Service is only available to financial advisers or investment dealers
who have previously used this service. The Delaware Group Asset Planner service
offers a choice of four predesigned asset allocation strategies (each with a
different risk/reward profile) in predetermined percentages in Delaware Group
funds. With the help of a financial adviser, you may also design a customized
asset allocation strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing
Delaware Group accounts into the Asset Planner service may be made at net asset
value under the circumstances described under INVESTING BY EXCHANGE in the
PROSPECTUS. Also see BUYING CLASS A SHARES AT NET ASSET VALUE under CLASSES OF
SHARES. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A, Class B and Class C
Shares are available through the Asset Planner service. Generally, only shares
within the same class may be used within the same Strategy. However, Class A
Shares of the Fund and of other funds in the Delaware Group may be used in the
same Strategy with consultant class shares that are offered by certain other
Delaware Group funds. See APPENDIX B - CLASSES OFFERED in the PROSPECTUS for
the funds in the Delaware Group that offer consultant class shares.

An annual maintenance fee, currently $35 per Strategy, is due at the time
of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will
continue to pay an annual IRA fee of $15 per Social Security number.

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Investors will receive a customized quarterly Strategy Report summarizing
all Delaware Group Asset Planner investment performance and account activity
during the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.

Certain shareholder services are not available to investors using the Asset
Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.

RETIREMENT PLANS FOR THE FUND CLASSES

An investment in either Fund may be suitable for tax-deferred retirement
plans. Among the retirement plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, SIMPLE IRAs, Simplified
Employee Pension Plans, Salary Reduction Simplified Employee Pension Plans, 457
Deferred Compensation Plans and 403(b)(7) Deferred Compensation Plans. The CDSC
may be waived on certain redemptions of Class B Shares and Class C Shares. See
WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES under
REDEMPTION AND EXCHANGE in the PROSPECTUSES for the Fund Classes for a list of
the instances in which the CDSC is waived.

Purchases of Class B Shares are subject to a maximum purchase limitation of
$250,000 for retirement plans. Purchases of Class C Shares must be in an amount
that is less than $1,000,000 for such plans. The maximum purchase limitations
apply only to the initial purchase of shares by the retirement plan.

Minimum investment limitations generally applicable to other investors do
not apply to retirement plans, other than Individual Retirement Accounts for
which there is a minimum initial purchase of $250, and a minimum subsequent
purchase of $25, regardless of which class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.

Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Classes.
See THE INSTITUTIONAL CLASSES, above. For additional information on any of the
plans and Delaware's retirement services, call the Shareholder Service Center
telephone number.

IT IS ADVISABLE FOR AN INVESTOR CONSIDERING ANY ONE OF THE RETIREMENT PLANS
DESCRIBED BELOW TO CONSULT WITH AN ATTORNEY, ACCOUNTANT OR A QUALIFIED
RETIREMENT PLAN CONSULTANT. FOR FURTHER DETAILS, INCLUDING APPLICATIONS FOR ANY
OF THESE PLANS, CONTACT YOUR INVESTMENT DEALER OR THE DISTRIBUTOR.

Taxable distributions from the retirement plans described below may be
subject to withholding.

Please contact your investment dealer or the Distributor for the special
application forms required for the plans described below.

PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS

Prototype Plans are available for self-employed individuals, partnerships
and corporations. These plans can be maintained as Section 401(k), profit
sharing or money purchase pension plans. Contributions may be invested only in
Class A and Class C Shares.

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INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

A document is available for an individual who wants to establish an IRA and
make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year or, for years prior to
1997, elects to be treated as having no compensation for the year. Investments
in each of the Fund Classes are permissible.

An individual can contribute up to $2,000 to his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or
his or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 deduction is still available if the taxpayer's adjusted
gross income is below $25,000 ($40,000 for taxpayers filing joint returns). A
partial deduction is allowed for married couples with incomes between $40,000
and $50,000, and for single individuals with incomes between $25,000 and
$35,000. No deductions are available for contributions to IRAs by taxpayers
whose adjusted gross income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an employer-sponsored retirement
plan. Taxpayers who are not allowed deductions on IRA contributions still can
make nondeductible IRA contributions of as much as $2,000 for each working
spouse ($2,250 for one-income couples for years prior to 1997), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for
determining the deductibility of contributions made by married individuals
filing separate returns.

Effective for tax years beginning after 1996, one-income couples can
contribute up to $2,000 to each spouse's IRA provided the combined compensation
of both spouses is at least equal to the total contributions for both spouses.
If the working spouse is an active participant in an employer-sponsored
retirement plan and earns over $40,000, the maximum deduction limit is reduced
in the same way that the limit is reduced for contributions to a non-spousal
IRA.

A company or association may establish a Group IRA for employees or members
who want to purchase shares of a Fund. Purchases of $1 million or more of Class
A Shares qualify for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See PURCHASING SHARES for
information on reduced front-end sales charges applicable to Class A Shares.

Investments generally must be held in the IRA until age 59 1/2 in order to
avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. See ALTERNATIVE PURCHASE ARRANGEMENTS - CLASS B SHARES and CLASS
C SHARES under CLASSES OF SHARES, CONTINGENT DEFERRED SALES CHARGE - CLASS B
SHARES AND CLASS C SHARES under CLASSES OF SHARES, and WAIVER OF CONTINGENT
DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES under REDEMPTION AND EXCHANGE
in the Fund Classes' PROSPECTUSES concerning the applicability of a CDSC upon
redemption.

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Effective January 1, 1997, the 10% premature distribution penalty will not
apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks.

See APPENDIX A -- IRA INFORMATION for additional IRA information.

SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")

A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Fund Classes is available for investment by a
SEP/IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")

PROTOTYPE 401(K) DEFINED CONTRIBUTION PLAN

Section 401(k) of the Code permits employers to establish qualified plans
based on salary deferral contributions. Plan documents are available to enable
employers to establish a plan. An employer may also elect to make profit
sharing contributions and/or matching contributions with investments in only
Class A Shares and Class C Shares or certain other funds in the Delaware Group.
Purchases under the plan may be combined for purposes of computing the reduced
front-end sales charge applicable to Class A Shares as set forth in the table on
page 00.

DEFERRED COMPENSATION PLAN FOR PUBLIC SCHOOLS AND NON-PROFIT ORGANIZATIONS
("403(B)(7)")

Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase any of
the Fund Classes in conjunction with such an arrangement. Applicable front-end
sales charges with respect to Class A Shares for such purchases are set forth in
the table on page 00.

DEFERRED COMPENSATION PLAN FOR STATE AND LOCAL GOVERNMENT EMPLOYEES ("457")

Section 457 of the Code permits state and local governments, their agencies
and certain other entities to establish a deferred compensation plan for their
employees who wish to participate. This enables employees to defer a portion of
their salaries and any federal (and possibly state) taxes thereon. Such plans
may invest in shares of any of the Fund Classes. Although investors may use
their own plan, there is available a Delaware Group 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Applicable front-end sales charges for
such purchases of Class A Shares are set forth in the table on page 00.

SIMPLE IRA

SIMPLE 401(k)

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DETERMINING OFFERING PRICE AND NET ASSET VALUE

Orders for purchases of Class A Shares are effected at the offering price
next calculated by the Fund in which shares are being purchased after receipt of
the order by the Fund or its agent. Orders for purchases of Class B Shares,
Class C Shares and the Institutional Classes are effected at the net asset value
per share next calculated after receipt of the order by the Fund in which shares
are being purchased or its agent. Selling dealers have the responsibility of
transmitting orders promptly.

The offering price for Class A Shares consists of the net asset value per
share plus any applicable sales charges. Offering price and net asset value are
computed as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when the Exchange is open. The New
York Stock Exchange is scheduled to be open Monday through Friday throughout the
year except for New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.

An example showing how to calculate the net asset value per share and, in
the case of Class A Shares, the offering price per share, is included in each
Fund's financial statements which are incorporated by reference into this PART
B.

Each Fund's net asset value per share is computed by adding the value of
all the securities and other assets in the portfolio, deducting any liabilities
and dividing by the number of shares outstanding. Expenses and fees are accrued
daily. In determining a Fund's total net assets, portfolio securities listed or
traded on a national securities exchange, except for bonds, are valued at the
last sale price on the exchange upon which such securities are primarily traded.
Securities not traded on a particular day, over-the-counter securities and
government and agency securities are valued at the mean value between bid and
asked prices. Money market instruments having a maturity of less than 60 days
are valued at amortized cost. 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.
Foreign currencies and the prices of foreign securities denominated in foreign
currencies are translated to U.S. Dollars based on rates in effect as of 12
p.m., Eastern time. Use of a pricing service has been approved by the Board of
Directors. Prices provided by a pricing service take into account appropriate
factors such as institutional trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. 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.

Each Class of a Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in that Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that Institutional Classes will not incur any of the expenses under
Income Funds, Inc.'s 12b-1 Plans and Class A, Class B and Class C Shares alone
will bear the 12b-1 Plan expenses payable under their respective Plans. Due to
the specific distribution expenses and other costs that may be allocable to each
Class of a Fund, the dividends paid to each Class of the Fund may vary. The net
asset value per share of each Class of a Fund is expected to be equivalent.

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REDEMPTION AND REPURCHASE

Any shareholder may require a Fund to redeem shares by sending a WRITTEN
REQUEST, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C
Shares. If stock certificates have been issued for shares being redeemed, they
must accompany the written request. For redemptions of $50,000 or less paid to
the shareholder at the address of record, the request must be signed by all
owners of the shares or the investment dealer of record, but a signature
guarantee is not required. When the redemption is for more than $50,000, or if
payment is made to someone else or to another address, signatures of all record
owners are required and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. Each Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Funds may request further
documentation from corporations, retirement plans, executors, administrators,
trustees or guardians.

In addition to redemption of Fund shares, the Distributor, acting as agent
of the Funds, offers to repurchase Fund shares from broker/dealers acting on
behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund or
its agent, subject to any applicable CDSC or Limited CDSC. This is computed and
effective at the time the offering price and net asset value are determined.
See DETERMINING OFFERING PRICE AND NET ASSET VALUE. The Funds and the
Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by the
Distributor.

Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility
of transmitting orders to the Distributor promptly. Such repurchase is then
settled as an ordinary transaction with the broker/dealer (who may make a charge
to the shareholder for this service) delivering the shares repurchased.

Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See CONTINGENT DEFERRED SALES
CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE
under REDEMPTION AND EXCHANGE in the PROSPECTUSES for the Fund Classes. Class B
Shares are subject to a CDSC of: (i) 4% if shares are redeemed within two years
of purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See CONTINGENT DEFERRED SALES
CHARGE - CLASS B SHARES AND CLASS C SHARES under CLASSES OF SHARES in the
PROSPECTUSES for the Fund Classes. Except for the applicable CDSC or Limited
CDSC and, with respect to the expedited payment by wire described below for
which, in the case of the Fund Classes, there is currently a $7.50 bank wiring
cost, neither the Funds nor the Funds' Distributor charges a fee for redemptions
or repurchases, but such fees could be charged at any time in the future.

Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.

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Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the check has cleared. This potential delay can be
avoided by making investments by wiring Federal Funds.

If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to the Fund or to the Distributor.

In case of a suspension of the determination of the net asset value because
the New York Stock Exchange is closed for other than weekends or holidays, or
trading thereon is restricted or an emergency exists as a result of which
disposal by a Fund of securities owned by it is not reasonably practical, or it
is not reasonably practical for a Fund fairly to value its assets, or in the
event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.

Payment for shares redeemed or repurchased may be made either in cash or
kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in DETERMINING OFFERING PRICE
AND NET ASSET VALUE. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Income
Funds, Inc. has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 pursuant to which each Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of such
Fund during any 90-day period for any one shareholder.

The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.

SMALL ACCOUNTS

Before a Fund involuntarily redeems shares from an account that, under the
circumstances listed in the relevant PROSPECTUS, has remained below the minimum
amounts required by the Fund's PROSPECTUSES and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than the minimum required and will be allowed 60
days from the date of notice to make an additional investment to meet the
required minimum. See THE CONDITIONS OF YOUR PURCHASE under HOW TO BUY SHARES
in the PROSPECTUSES. Any redemption in an inactive account established with a
minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC
will apply to the redemptions described in this paragraph.

Effective November 29, 1995, the minimum initial investment in Delchester
Fund A Class was increased from $250 to $1,000. Class A accounts of Delchester
Fund that were established prior to November 29, 1995 and maintain a balance in
excess of $250 will not presently be subject to the $9 quarterly service fee
that may be assessed against accounts with balances below the stated minimum nor
subject to involuntary redemption.

* * *

Each Fund has made available certain redemption privileges, as described
below. The Funds reserve the right to suspend or terminate these expedited
payment procedures upon 60 days' written notice to shareholders.

EXPEDITED TELEPHONE REDEMPTIONS

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Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523-1918 or,
in the case of shareholders of the Institutional Classes, their Client Services
Representative at 800-828-5052 prior to the time the offering price and net
asset value are determined, as noted above, and have the proceeds mailed to them
at the address of record. Checks payable to the shareholder(s) of record will
normally be mailed the next business day, but no later than seven days, after
the receipt of the redemption request. This option is only available to
individual, joint and individual fiduciary-type accounts.

In addition, redemption proceeds of $1,000 or more can be transferred to
your predesignated bank account by wire or by check by calling the phone numbers
listed above. An authorization form must have been completed by the shareholder
and filed with the relevant Fund BEFORE the request is received. Payment will
be made by wire or check to the bank account designated on the authorization
form as follows:

1. PAYMENT BY WIRE: Request that Federal Funds be wired to the bank account
designated on the authorization form. Redemption proceeds will normally be
wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption from Class A Shares, Class B Shares and Class C Shares.
If the proceeds are wired to the shareholder's account at a bank which is not a
member of the Federal Reserve System, there could be a delay in the crediting of
the funds to the shareholder's bank account.

2. PAYMENT BY CHECK: Request a check be mailed to the bank account designated
on the authorization form. Redemption proceeds will normally be mailed the next
business day, but no later than seven days, from the date of the telephone
request. This procedure will take longer than the PAYMENT BY WIRE option (1
above) because of the extra time necessary for the mailing and clearing of the
check after the bank receives it.

REDEMPTION REQUIREMENTS: In order to change the name of the bank and the
account number it will be necessary to send a written request to the relevant
Fund and a signature guarantee may be required. Each signature guarantee must
be supplied by an eligible guarantor institution. The Funds reserve the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.

To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.

If expedited payment under these procedures could adversely affect a Fund,
the Fund may take up to seven days to pay the shareholder.

Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.

SYSTEMATIC WITHDRAWAL PLANS

Shareholders of Class A, Class B and Class C Shares of Delchester Fund and
Strategic Income Fund who own or purchase $5,000 or more of shares at the
offering price, or net asset value, as applicable, for which certificates have
not been issued may establish a Systematic Withdrawal Plan for monthly
withdrawals of $25 or more, or quarterly

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withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. This $5,000 minimum does not apply for a Fund's prototype
retirement plans. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.

Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may, in time, be depleted, particularly in a declining market.

The sale of shares for withdrawal payments constitutes a taxable event and
a shareholder may incur a capital gain or loss for federal income tax purposes.
This gain or loss may be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals from retirement plans
may have adverse tax consequences.

Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares of Delchester Fund and Strategic Income Fund through a periodic
investment program in a fund managed by the Manager must be terminated before a
Systematic Withdrawal Plan with respect to such shares can take effect, except
if the shareholder is a participant in one of our retirement plans or is
investing in Delaware Group funds which do not carry a sales charge.
Redemptions of Class A Shares pursuant to a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the purchase was made at net asset value and a
dealer's commission has been paid on that purchase. Redemptions of Class B
Shares or Class C Shares pursuant to a Systematic Withdrawal Plan may be subject
to a CDSC, unless the annual amount selected to be withdrawn is less than 12% of
the account balance on the date that the Systematic Withdrawal Plan was
established. See WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS
C SHARES and WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES
under REDEMPTION AND EXCHANGE in the PROSPECTUSES for the Fund Classes.
Shareholders should consult their financial advisers to determine whether a
Systematic Withdrawal Plan would be suitable for them.

An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan payments is
other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Funds reserve the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the
Transfer Agent at any time by giving written notice.

The Systematic Withdrawal Plan is not available for the Institutional
Classes or currently any of the Fund Classes of High-Yield Opportunities Fund.

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<PAGE>

DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS

Each Fund declare a dividend to shareholders of each Class of the
respective Fund's shares from net investment income on a daily basis. Dividends
are declared each day the respective Fund is open and paid monthly. Net
investment income earned on days when the respective Fund is not open will be
declared as a dividend on the next business day. Purchases of shares of the
respective Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the respective Fund is given prior notice of Federal Funds
wire and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Investors desiring to guarantee wire payments
must have an acceptable financial condition and credit history in the sole
discretion of the respective Fund. Income Funds, Inc. reserves the right to
terminate this option at any time. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.

Each Class of shares of a Fund will share proportionately in the investment
income and expenses of that Fund, except that, absent any applicable fee waiver,
Class A Shares, Class B Shares and Class C Shares alone will incur distribution
fees under their respective 12b-1 Plans.

Dividends are automatically reinvested in additional shares of the same
Class of the respective Fund at net asset value, unless, in the case of
shareholders of the Fund Classes, an election to receive dividends in cash has
been made. Payment by check of cash dividends will ordinarily be mailed within
three business days after the payable date. Dividend payments of $1.00 or less
will be automatically reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends increase to
greater than $1.00, the shareholder would have to file a new election in order
to begin receiving dividends in cash again. If a shareholder redeems an entire
account, all dividends accrued to the time of the withdrawal will be paid by
separate check at the end of that particular monthly dividend period, consistent
with the payment and mailing schedule described above. Any check in payment of
dividends or other distributions which cannot be delivered by the United States
Post Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Fund may deduct
from a shareholder's account the costs of the Fund's effort to locate a
shareholder if a shareholder's mail is returned by the United States Post Office
or the Fund is otherwise unable to locate the shareholder or verify the
shareholder's mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for their
location services.

Any distributions from net realized securities profits will be made twice a
year. The first payment would be made during the first quarter of the next
fiscal year. The second payment would be made near the end of the calendar year
to comply with certain requirements of the Code. Such distributions will be
reinvested in shares, unless the shareholders of the Fund Classes elect to
receive them in cash. The Funds will mail a quarterly statement showing the
dividends paid and all the transactions made during the period.

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<PAGE>

TAXES

It is each Fund's policy to pay out substantially all net investment income
and net realized gains to relieve each Fund of federal income tax liability on
that portion of its income paid to shareholders under Subchapter M of the Code.
Delchester Fund has met these requirements in previous years, and Delchester
Fund and Strategic Income Fund intend to meet the requirements this year. High-
Yield Opportunities Fund intends to meet these requirements when it commences
operations. The Funds also intend to meet the calendar year distribution
requirements imposed by the Code to avoid the imposition of a 4% excise tax.

The Funds have no fixed policy with regard to distributions of realized
securities profits when such realized securities profits may be offset by
capital losses carried forward. Presently, however, the Funds intend to offset
realized securities profits to the extent of the capital losses carried forward.
Delchester Fund had an accumulated capital loss carryforward of approximately
$191,345,000 at July 31, 1997 which for federal income tax purposes may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 1998--$10,862,000, 1999--$89,261,000, 2002--
$3,628,000 and 2003--$87,594,000.

Distributions of net investment income and short-term realized securities
profits are taxable as ordinary income to shareholders. Since the major portion
of Delchester Fund's and High-Yield Opportunities Fund's investment income is
derived from interest rather than dividends, no portion of such distributions
will be eligible for the dividends-received deduction available to corporations.
It is expected that either none or a nominal portion of Strategic Income Fund's
dividends will be eligible for the dividends-received deduction. Distributions
of long-term capital gains, if any, are taxable as long-term capital gains, for
federal income tax purposes, regardless of the length of time an investor has
held such shares, and these gains are currently taxed at long-term capital gain
rates. The tax status of dividends and distributions paid to shareholders will
not be affected by whether they are paid in cash or in additional shares. Long-
term capital gains distributions are not eligible for the dividends-received
exclusion. Advice as to the tax status of each year's dividends and
distributions, when paid, will be mailed annually. Shares of the Funds are
exempt from Pennsylvania county personal property taxes.

Net long-term gain from the sale of securities when realized and
distributed (actually or constructively) is taxable as capital gain. If the net
asset value of shares were reduced below a shareholder's cost by distribution of
gain realized on sale of securities, such distribution would be a return of
investment though taxable as stated above. Delchester Fund's portfolio
securities had an unrealized net appreciation for tax purposes of $50,288,920 as
of July 31, 1997.

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<PAGE>

INVESTMENT MANAGEMENT AGREEMENTS

The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Funds, subject to the
supervision and direction of Income Funds, Inc.'s Board of Directors.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1997, the Manager and its affiliates in
the Delaware Group, including the Sub-Adviser, were managing in the aggregate
more than $39 billion in assets in various institutional or separately managed
(approximately $23,844,101,000) and investment company (approximately
$15,869,009,000) accounts.

The Investment Management Agreement for Delchester Fund is dated April 3,
1995 and was approved by shareholders on March 29, 1995. The Investment
Management Agreement for Strategic Income Fund is dated September 30, 1996 and
was approved by the initial shareholder on September 30, 1996. The Investment
Management Agreement for High-Yield Opportunities Fund is dated December 27,
1996 and was approved by the initial shareholder on December 27, 1996. Each
Agreement has an initial term of two years and may be renewed each year only so
long as such renewal and continuance are specifically approved at least annually
by the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund to which the Agreement relates, and only if the terms and
the renewal thereof have been approved by the vote of a majority of the
directors of Income Funds, Inc. who are not parties thereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Each Agreement is terminable without penalty on 60
days' notice by the directors of Income Funds, Inc. or by the Manager. Each
Agreement will terminate automatically in the event of its assignment.

The annual compensation paid by Delchester Fund for investment management
services is equal to 0.60% on the first $500 million of the Fund's average daily
net assets, 0.575% of the next $250 million and 0.55% of the average daily net
assets in excess of $750 million, less Delchester Fund's proportionate share of
all directors' fees paid to the unaffiliated directors of Income Funds, Inc. On
July 31, 1997, the total net assets of Delchester Fund were $1,366,985,570. The
Manager makes all investment decisions which are implemented by Delchester Fund.
The Manager pays the salaries of all directors, officers and employees who are
affiliated with both the Manager and Income Funds, Inc. Investment management
fees paid by Delchester Fund during the past three fiscal years were $6,469,140
for 1995, $6,921,586 for 1996 and $7,362,089 for 1997.

The annual compensation paid by Strategic Income Fund for investment
management services is equal to 0.65% on the first $500 million of the Fund's
average daily net assets, 0.625% of the next $500 million and 0.60% of the
average daily net assets in excess of $1 billion. On July 31, 1997, the
total net assets of Strategic Income Fund were $21,371,068. The Manager pays
the salaries of all directors, officers and employees who are affiliated with
both the Manager and Income Funds, Inc. Investment management fees incurred
by Strategic Income Fund for the period October 1, 1996 (date of initial
public offering) through July 31, 1997 were $73,164 and because $73,164 was
waived in connection with the voluntary waiver of fees, no fees were paid to
the Manager.

Subject to the overall supervision of the Manager, the Sub-Adviser manages
the international sector of Strategic Income Fund's portfolio and furnishes the
Manager with investment recommendations, asset allocation advice, research and
other investment services with respect to foreign securities. For the services
provided to the Manager, the Manager pays the Sub-Adviser a fee equal to one-
third of the investment management fees paid to the Manager under the terms of
the Investment Management Agreement.

The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by Strategic Income Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the total operating
expenses of each Class do not exceed 0.75% (exclusive of taxes, interest,
brokerage commissions, extraordinary

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expenses and 12b-1 expenses) during the commencement of the public offering of
the Fund through December 31, 1997.

The annual compensation paid by High-Yield Opportunities Fund for
investment management services is equal to 0.65% on the first $500 million of
the Fund's average daily net assets, 0.625% of the next $500 million and 0.60%
of the average daily net assets in excess of $1 billion. On July 31, 1997, the
total net assets of High-Yield Opportunities Fund were $9,319,622. The Manager
makes all investment decisions which are implemented by High-Yield Opportunities
Fund. The Manager pays the salaries of all directors, officers and employees
who are affiliated with both the Manager and Income Funds, Inc. Investment
management fees incurred by High-Yield Opportunities Fund for the period January
2, 1997 (date of initial public offering) through July 31, 1997 were $30,869 and
$6,031 was paid and $24,838 was waived in connection with the voluntary waiver
of fees by the Manager.

The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by High-Yield Opportunities Fund and to pay
certain expenses of the Fund to the extent necessary to ensure that the total
operating expenses of each Class do not exceed 0.75% (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and 12b-1 expenses)
during the commencement of the public offering of the Fund through December 31,
1997.

Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreements,
the Funds are responsible for all of their own expenses. Among others, these
include a Fund's proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing
agent fees and costs; custodian expenses; federal and state securities
registration fees; proxy costs; and the costs of preparing prospectuses and
reports sent to shareholders. The ratios for Class A Shares, Class B Shares
and Class C Shares reflect the impact of their respective 12b-1 Plans.

The ratios of expenses to average daily net assets for the fiscal year
ended July 31, 1997 for each Class of Delchester Fund and the period ended July
31, 1997 for each Class of Strategic Income Fund and Class A and Institutional
Class of High-Yield Opportunities Fund were as follows:
<TABLE>
<CAPTION>

Institutional
Class A Shares Class B Shares Class C Shares Class
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Delchester Fund 1.04% 1.79% 1.79% 0.79%
Strategic Income Fund (1) 1.00% 1.75% 1.75% 0.75%
High-Yield Opportunities Fund (2) 0.75% N/A N/A 0.75%
</TABLE>

(1) Date of initial public offering was October 1, 1996.
(2) Date of initial public offering was January 2, 1997.

DISTRIBUTION AND SERVICE

The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of each Fund's shares
under a Distribution Agreement dated as of April 3, 1995, as amended on November
29, 1995 for Delchester Fund, under a separate Distribution Agreement dated as
of September 30, 1996 for Strategic Income Fund and under a separate
Distribution Agreement dated as of December 27, 1996 for High-Yield
Opportunities Fund. The Distributor is an affiliate of the Manager and bears
all of the costs of promotion and distribution, except for payments by each Fund
on behalf of its Class A Shares, Class B Shares and Class C Shares under the
12b-1 Plan for each such class. The

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<PAGE>

Distributor has elected voluntarily to waive payments under the 12b-1 Plans for
Class A Shares, Class B Shares and Class C Shares of High-Yield Opportunities
Fund during the commencement of the public offering of the Fund through December
31, 1997.

Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as
the national distributor of Delchester Fund's shares. On that date, Delaware
Distributors, L.P., a newly formed limited partnership, succeeded to the
business of DDI. All officers and employees of DDI became officers and
employees of Delaware Distributors, L.P. DDI is the corporate general partner
of Delaware Distributors, L.P. and both DDI and Delaware Distributors, L.P. are
indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.

The Transfer Agent, Delaware Service Company, Inc., another affiliate of
the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as the
Funds' shareholder servicing, dividend disbursing and transfer agent pursuant to
an Amended and Restated Shareholders Services Agreement dated as of December 27,
1996. The Transfer Agent also provides accounting services to the Funds
pursuant to the terms of a separate Fund Accounting Agreement. The Transfer
Agent is also an indirect, wholly owned subsidiary of Delaware Management
Holdings, Inc.

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<PAGE>

OFFICERS AND DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors.

Certain officers and directors of Income Funds, Inc. hold identical
positions in each of the other funds in the Delaware Group. On August 31, 1997,
Income Funds, Inc.'s officers and directors owned less than 1% of the
outstanding shares of Class A Shares, Class B Shares, Class C Shares and
Institutional Class shares of Delchester Fund, Class A Shares, Class B Shares,
Class C Shares and Institutional Class shares of Strategic Income Fund, and
Institutional Class shares of High-Yield Opportunities Fund. As of the same
date, Income Funds, Inc.'s officers and directors owned 99.02% of the
outstanding shares of Class A Shares of High-Yield Opportunities Fund.

As of August 31, 1997, management believes the following accounts held 5%
or more of the outstanding shares of a Class of shares of Delchester Fund:

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Delchester Fund Merrill Lynch, Pierce, Fenner & Smith
Class B Mutual Fund Operations
Attention Fund Administration
4800 Deer Lake Dr East 3rd Floor
Jacksonville, FL 32246 4,017,231 9.43%

Delchester Fund Merrill Lynch, Pierce, Fenner & Smith
C Class Mutual Fund Operations
Attention Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246 597,969 18.30%

Delchester Fund Nationwide Life Insurance Co.
Institutional c/o IPO Portfolio Accounting
Class P.O. Box 182029
Columbus, OH 43218 2,064,656 31.89%

Bear Stearns
FBO Raymond G. Perelman
Charitable Remainder Unitrust
One Metrotech Center North
Brooklyn, NY 11201 1,670,675 25.80%

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<PAGE>

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Delchester Fund Delaware Management Company
Institutional Employee Profit Sharing Trust
Class c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 776,558 11.99%

Ogden Financial Services Inc.
Attention George Warren
3411 Silverside Road
103 Springer Building
Wilmington, DE 19810 632,864 9.77%

As of August 31, 1997, management believes the following accounts held 5%
or more of the outstanding shares of a Class of shares of Strategic Income Fund:

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Strategic Income Merrill Lynch, Inc.
Fund B Class Mutual Fund Operations
P.O. Box 41621
Jacksonville, FL 32203 103,233 7.28%

Strategic Income Merrill Lynch, Inc.
Fund C Class Mutual Funds Operations
P.O. Box 41621
Jacksonville, FL 32203 172,631 46.65%

Advest, Inc.
90 State House Square
Hartford, CT 06103 20,388 5.51%

Strategic Income Chicago Trust Company
Fund FBO Lincoln National Corporation
Institutional Employees Retirement Trust
Class 1000 N. Water Street TR 14
Milwaukee, WI 53202 583,648 96.93%

As of August 31, 1997, management believes the following accounts held 5%
or more of the outstanding shares of a Class of shares of High-Yield
Opportunities Fund:

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------

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<PAGE>

High-Yield Wayne A. Stork
Opportunities 5727 Twin Silo Road
Fund A Class Doylestown, PA 18901 924,100 91.36%

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------

DMTC Custodian for
Richard G. Unruh
164 Rose Lane
Haverford, PA 19041 75,625 7.47%

High-Yield Chicago Trust Company
Opportunities Fund FBO Lincoln National Corp
Institutional Class Employee Retirement Plan
c/o Marshall & Ilsley Trust Company
P.O. Box 2977
Milwaukee, WI 53201 561,517 99.99%

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<PAGE>

DMH Corp., Delaware Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware Management
Trust Company, Delaware International Holdings Ltd., Founders Holdings, Inc.,
Delaware International Advisers Ltd., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc. are direct or indirect, wholly
owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). On April 3,
1995, a merger between DMH and a wholly owned subsidiary of Lincoln National
Corporation ("Lincoln National") was completed. In connection with the merger,
a new Investment Management Agreement between Delchester Fund and the Manager
was executed following shareholder approval. DMH and the Manager are now
indirect, wholly owned subsidiaries, and subject to the ultimate control, of
Lincoln National. Lincoln National, with headquarters in Fort Wayne, Indiana,
is a diversified organization with operations in many aspects of the financial
services industry, including insurance and investment management.

Certain officers and directors of Income Funds, Inc. hold identical
positions in each of the other funds in the Delaware Group. Directors and
principal officers of Income Funds, Inc. are noted below along with their ages
and their business experience for the past five years. Unless otherwise noted,
the address of each officer and director is One Commerce Square, Philadelphia,
PA 19103.

*WAYNE A. STORK (60)
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER, DIRECTOR AND/OR TRUSTEE
of Income Funds, Inc., 32 other investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.

CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF INVESTMENT OFFICER AND
DIRECTOR of Delaware Management Company, Inc.

CHAIRMAN AND DIRECTOR of Delaware Distributors, Inc. and Delaware Capital
Management, Inc.

CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTOR of Delaware International
Advisers Ltd.

DIRECTOR of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.

During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.

- -------------------
* Director affiliated with Income Funds, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.

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<PAGE>

RICHARD G. UNRUH, JR. (57)
EXECUTIVE VICE PRESIDENT of Income Funds, Inc., each of the other 32
investment companies in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc.
EXECUTIVE VICE PRESIDENT AND DIRECTOR of Delaware Management Company, Inc.
DIRECTOR of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.

PAUL E. SUCKOW (50)
EXECUTIVE VICE PRESIDENT/CHIEF INVESTMENT OFFICER, FIXED INCOME of Income
Funds, Inc., each of the other 32 investment companies in the Delaware
Group, Delaware Management Company, Inc. and Delaware Management
Holdings, Inc.
EXECUTIVE VICE PRESIDENT AND DIRECTOR of Founders Holdings, Inc.
EXECUTIVE VICE PRESIDENT of Delaware Capital Management, Inc.
DIRECTOR of Founders CBO Corporation.
DIRECTOR of HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for Oppenheimer
Management Corporation, New York, NY from 1985 to 1992. Prior to that,
Mr. Suckow was a fixed-income portfolio manager for the Delaware Group.

WALTER P. BABICH (69)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
BOARD CHAIRMAN, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.

ANTHONY D. KNERR (58)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
FOUNDER AND MANAGING DIRECTOR, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to 1989, he was
also a lecturer in English at the University. In addition, Mr. Knerr
was Chairman of The Publishing Group, Inc., New York, from 1988 to 1990.
Mr. Knerr founded The Publishing Group, Inc. in 1988.

ANN R. LEVEN (56)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
TREASURER, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975 to 1992, she
was Adjunct Professor of Columbia Business School.

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<PAGE>

W. THACHER LONGSTRETH (76)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
PHILADELPHIA CITY COUNCILMAN.

THOMAS F. MADISON (61)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
PRESIDENT AND CHIEF EXECUTIVE OFFICER, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402.
Mr. Madison has also been Chairman of the Board of Communications Holdings,
Inc. since 1996. From February to September 1994, Mr. Madison served
as Vice Chairman--Office of the CEO of The Minnesota Mutual Life
Insurance Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.

* JEFFREY J. NICK (44)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and 32 other investment
companies in the Delaware Group.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR of Lincoln National
Investment Companies, Inc. From 1992 to 1996, Mr. Nick was Managing
Director of Lincoln National UK plc and from 1989 to 1992, he was
Senior Vice President responsible for corporate planning and
development for Lincoln National Corporation.

CHARLES E. PECK (71)
DIRECTOR AND/OR TRUSTEE of Income Funds, Inc. and each of the other 32
investment companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
SECRETARY/TREASURER, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer
of The Ryland Group, Inc., Columbia, MD.

DAVID K. DOWNES (57)
EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER/CHIEF FINANCIAL OFFICER of
Income Funds, Inc., each of the other 32 investment companies in the
Delaware Group, Delaware Management Holdings, Inc, Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware
Distributors, L.P.
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER, CHIEF FINANCIAL OFFICER
AND DIRECTOR of Delaware Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Founders Holdings, Inc. and Delaware International
Holdings Ltd.
PRESIDENT/CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER AND DIRECTOR of
Delaware Service Company, Inc.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTOR of Delaware Management Trust
Company and Delaware Investment & Retirement Services, Inc.
DIRECTOR of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer of Equitable
Capital Management Corporation, New York, from December 1985 through August
1992, Executive Vice President from December 1985 through March 1992, and
Vice Chairman from March 1992 through August 1992.

______________________
* Director affiliated with Income Funds, Inc. investment manager and
considered an "interested person" as defined in the 1940 Act.

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GEORGE M. CHAMBERLAIN, JR. (50)
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL of Income Funds,
Inc., each of the other 32 investment companies in the Delaware Group,
Delaware Distributors, L.P. and Delaware Management Holdings, Inc.
SENIOR VICE PRESIDENT, SECRETARY, GENERAL COUNSEL AND DIRECTOR of DMH
Corp., Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings, Inc., Delaware
Investment & Retirement Services, Inc. and Delaware Capital Management,
Inc.
EXECUTIVE VICE PRESIDENT, SECRETARY, GENERAL COUNSEL AND DIRECTOR of
Delaware Management Trust Company.
SECRETARY AND DIRECTOR of Delaware International Holdings Ltd.
DIRECTOR of Delaware International Advisers Ltd.
ATTORNEY.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware organization.

PAUL A. MATLACK (37)
VICE PRESIDENT/SENIOR PORTFOLIO MANAGER of Income Funds, Inc., of 11 other
investment companies in the Delaware Group and of Delaware Management
Company, Inc.
PRESIDENT AND DIRECTOR of Founders CBO Corporation.
VICE PRESIDENT of Founders Holdings, Inc.
During the past five years, Mr. Matlack has served in various capacities at
different times within the Delaware organization.

GERALD T. NICHOLS (38)
VICE PRESIDENT/SENIOR PORTFOLIO MANAGER of Income Funds, Inc., of 11 other
investment companies in the Delaware Group and of Delaware Management
Company, Inc.
VICE PRESIDENT of Founders Holdings, Inc.
ASSISTANT SECRETARY, TREASURER AND DIRECTOR of Founders CBO Corporation.
During the past five years, Mr. Nichols has served in various capacities
at different times within the Delaware organization.

BABAK ZENOUZI (33)
VICE PRESIDENT/PORTFOLIO MANAGER of Income Funds, Inc. and 10 other
investment companies in the Delaware Group.
VICE PRESIDENT/ASSISTANT PORTFOLIO MANAGER of Delaware Investment Advisers.
During the past five years, Mr. Zenouzi has served in various capacities
at different times within the Delaware organization.

PAUL GRILLO (38)
VICE PRESIDENT/PORTFOLIO MANAGER of Income Funds, Inc. and of 11 other
investment companies in the Delaware Group.
During the past five years, Mr. Grillo has served in various capacities at
different times within the Delaware organization.

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JOSEPH H. HASTINGS (47)
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER of Income Funds, Inc., each of
the other 32 investment companies in the Delaware Group and Founders
Holdings, Inc.
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER AND TREASURER of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Company,
Inc., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital Management, Inc.and
Delaware International Holdings Ltd.
CHIEF FINANCIAL OFFICER/TREASURER of Delaware Investment & Retirement
Services, Inc.
EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER/TREASURER of Delaware
Management Trust Company.
SENIOR VICE PRESIDENT/ASSISTANT TREASURER of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Hastings has served in various capacities
at different times within the Delaware organization.

MICHAEL P. BISHOF (35)
SENIOR VICE PRESIDENT/TREASURER of Income Funds, Inc., each of the other 32
investment companies in the Delaware Group, Delaware Distributors,
Inc.and Founders Holdings, Inc.
SENIOR VICE PRESIDENT/INVESTMENT ACCOUNTING of Delaware Management Company,
Inc. and Delaware Service Company, Inc.
SENIOR VICE PRESIDENT AND TREASURER/MANAGER OF INVESTMENT ACCOUNTING of
Delaware Distributors, L.P.
SENIOR VICE PRESIDENT AND MANAGER OF INVESTMENT ACCOUNTING of Delaware
International Holdings Ltd.
ASSISTANT TREASURER of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a Vice
President for CS First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for Equitable Capital
Management Corporation, New York, NY from 1987 to 1993.

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The following is a compensation table listing for each director entitled to
receive compensation, the aggregate compensation received from Income Funds,
Inc. and the total compensation received from all Delaware Group funds for the
fiscal year ended July 31, 1997 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of July 31, 1997.

PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED ESTIMATED FROM ALL 33
AS PART ANNUAL DELAWARE
AGGREGATE OF INCOME BENEFITS GROUP
COMPENSATION FROM FUNDS, INC. UPON INVESTMENT
NAME INCOME FUNDS, INC. EXPENSES RETIREMENT* COMPANIES

W. Thacher Longstreth $4,412 None $38,000 $53,598
Ann R. Leven $4,942 None $38,000 $58,557
Walter P. Babich $4,835 None $38,000 $57,557
Anthony D. Knerr $4,835 None $38,000 $57,557
Charles E. Peck $4,313 None $38,000 $50,412
Thomas F. Madison** $1,032 None $38,000 $15,123

* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of his or
her retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund in the Delaware Group for a period equal to the lesser of
the number of years that such person served as a director or the remainder
of such person's life. The amount of such payments will be equal, on an
annual basis, to the amount of the annual retainer that is paid to
directors of each fund at the time of such person's retirement. If an
eligible director retired as of July 31, 1997, he or she would be entitled
to annual payments totaling $38,000, in the aggregate, from all of the
funds in the Delaware Group, based on the number of funds in the Delaware
Group as of that date.

** Thomas F. Madison joined Income Funds, Inc.'s Board of Directors on April
30, 1997.

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EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of the Classes and for
shareholders of classes of other funds in the Delaware Group are set forth in
the relevant prospectuses for such classes. The following supplements that
information. The Funds may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.

All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.

An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.

In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.

TELEPHONE EXCHANGE PRIVILEGE

Shareholders owning shares for which certificates have not been issued or
their investment dealers of record may exchange shares by telephone for shares
in other mutual funds in the Delaware Group. This service is automatically
provided unless the relevant Fund receives written notice from the shareholder
to the contrary.

Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 or, in the case of shareholders of
the Institutional Classes, their Client Services Representative at 800-828-5052,
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See DETERMINING
OFFERING PRICE AND NET ASSET VALUE. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.

The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Funds reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.

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As described in the Funds' PROSPECTUSES, neither the Funds nor the Transfer
Agent is responsible for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine.

RIGHT TO REFUSE TIMING ACCOUNTS

With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), each Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group funds from Timing Firms. Each Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.

RESTRICTIONS ON TIMED EXCHANGES

Timing Accounts operating under existing timing agreements may only execute
exchanges between the following eight Delaware Group funds: (1) Decatur Income
Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Group
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Group funds not listed above may not be reinvested
back into that Timing Account. Each Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
timing pattern (as described above).

Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with
a "market timing" strategy may be disruptive to a Fund and therefore may be
refused.

Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.

* * *

Following is a summary of the investment objectives of the other Delaware
Group funds:

DELAWARE FUND seeks long-term growth by a balance of capital appreciation,
income and preservation of capital. It uses a dividend-oriented valuation
strategy to select securities issued by established companies that are believed
to demonstrate potential for income and capital growth. DEVON FUND seeks
current income and capital appreciation by investing primarily in income-
producing common stocks, with a focus on common stocks the Manager believes have
the potential for above average dividend increases over time.

TREND FUND seeks long-term growth by investing in common stocks issued by
emerging growth companies exhibiting strong capital appreciation potential.

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SMALL CAP VALUE FUND seeks capital appreciation by investing primarily in
common stocks whose market values appear low relative to their underlying value
or future potential.

DELCAP FUND seeks long-term capital growth by investing in common stocks
and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.

DECATUR INCOME FUND seeks the highest possible current income by investing
primarily in common stocks that provide the potential for income and capital
appreciation without undue risk to principal. DECATUR TOTAL RETURN FUND seeks
long-term growth by investing primarily in securities that provide the potential
for income and capital appreciation without undue risk to principal. Blue Chip
Fund seeks to achieve long-term capital appreciation. Current income is a
secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Quantum Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.

U.S. GOVERNMENT FUND seeks high current income by investing primarily in
long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

LIMITED-TERM GOVERNMENT FUND seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. GOVERNMENT MONEY FUND seeks
maximum current income with preservation of principal and maintenance of
liquidity by investing only in short-term securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities, and repurchase agreements collateralized by such securities,
while maintaining a stable net asset value.

DELAWARE CASH RESERVE seeks the highest level of income consistent with the
preservation of capital and liquidity through investments in short-term money
market instruments, while maintaining a stable net asset value.

TAX-FREE USA FUND seeks high current income exempt from federal income tax
by investing in municipal bonds of geographically-diverse issuers. TAX-FREE
INSURED FUND invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. TAX-FREE USA INTERMEDIATE FUND seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.

TAX-FREE MONEY FUND seeks high current income, exempt from federal income
tax, by investing in short-term municipal obligations, while maintaining a
stable net asset value.

TAX-FREE PENNSYLVANIA FUND seeks a high level of current interest income
exempt from federal and, to the extent possible, certain Pennsylvania state and
local taxes, consistent with the preservation of capital. Tax-Free New Jersey
Fund seeks a high level of current interest income exempt from federal income
tax and New Jersey state and local taxes, consistent with preservation of
capital. Tax-Free Ohio Fund seeks a high level of current interest income
exempt from federal income tax and Ohio state and local taxes, consistent with
preservation of capital.

INTERNATIONAL EQUITY FUND seeks to achieve long-term growth without undue
risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. GLOBAL BOND FUND
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. GLOBAL ASSETS FUND seeks to achieve

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long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. EMERGING MARKETS FUND
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.

U.S. GROWTH FUND seeks to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields, strong balance sheets and
high expected earnings growth rates relative to their industry. OVERSEAS EQUITY
FUND seeks to maximize total return (capital appreciation and income),
principally through investments in an internationally diversified portfolio of
equity securities. NEW PACIFIC FUND seeks long-term capital appreciation by
investing primarily in companies which are domiciled in or have their principal
business activities in the Pacific Basin.

DELAWARE GROUP PREMIUM FUND, INC. offers 15 funds available exclusively as
funding vehicles for certain insurance company separate accounts. DECATUR
TOTAL RETURN SERIES seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. DELCHESTER SERIES seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. CAPITAL RESERVES SERIES seeks a
high stable level of current income while minimizing fluctuations in principal
by investing in a diversified portfolio of short- and intermediate-term
securities. CASH RESERVE SERIES seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. DELCAP SERIES seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. DELAWARE SERIES seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. INTERNATIONAL
EQUITY SERIES seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. VALUE SERIES seeks capital
appreciation by investing in small-to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
TREND SERIES seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other growth-
oriented companies. These securities will have been judged to be responsive to
changes in the market place and to have fundamental characteristics to support
growth. Income is not an objective. GLOBAL BOND SERIES seeks to achieve
current income consistent with the preservation of principal by investing
primarily in global fixed-income securities that may also provide the potential
for capital appreciation. STRATEGIC INCOME SERIES seeks high current income
and total return by using a multi-sector investment approach, investing
primarily in three sectors of the fixed-income securities markets: high-yield,
higher risk securities; investment grade fixed-income securities; and foreign
government and other foreign fixed-income securities. DEVON SERIES seeks
current income and capital appreciation by investing primarily in income-
producing common stocks, with a focus on common stocks that the investment
manager believes have the potential for above-average dividend increases over
time. EMERGING MARKETS SERIES seeks to achieve long-term capital appreciation
by investing primarily in equity securities of issuers located or operating in
emerging countries. Convertible Securities Series seeks a high level of total
return on its assets through a combination of capital appreciation and current
income by investing primarily in convertible securities. QUANTUM SERIES seeks
to achieve long-term capital appreciation by investing primarily in equity
securities of medium to large-sized companies expected to grow over time that
meet the Series' "Social Criteria" strategy.

DELAWARE-VOYAGEUR US GOVERNMENT SECURITIES FUND seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other

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obligations issued or unconditionally guaranteed by the full faith and credit of
the U.S. Treasury, and repurchase agreements fully secured by such obligations.

DELAWARE-VOYAGEUR TAX-FREE ARIZONA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.

DELAWARE-VOYAGEUR TAX-FREE MINNESOTA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.

DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE FLORIDA INSURED FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax. DELAWARE-
VOYAGEUR TAX-FREE FLORIDA FUND seeks to provide a high level of current income
exempt from federal income tax, consistent with the preservation of capital.
The Fund will seek to select investments that will enable its shares to be
exempt from the Florida intangible personal property tax. DELAWARE-VOYAGEUR
TAX-FREE KANSAS FUND seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE MISSOURI INSURED FUND seeks to provide a high level of current
income exempt from federal income tax and the Missouri personal income tax,
consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE NEW
MEXICO FUND seeks to provide a high level of current income exempt from federal
income tax and the New Mexico personal income tax, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE OREGON INSURED FUND seeks
to provide a high level of current income exempt from federal income tax and the
Oregon personal income tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE UTAH FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. DELAWARE-VOYAGEUR TAX-FREE WASHINGTON INSURED FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.

DELAWARE-VOYAGEUR TAX-FREE FLORIDA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

DELAWARE-VOYAGEUR TAX-FREE ARIZONA FUND seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
CALIFORNIA FUND seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE IOWA FUND seeks to provide
a high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE IDAHO FUND seeks to provide a high level of current income
exempt from federal income tax and the Idaho personal income tax, consistent
with the preservation of capital. DELAWARE-VOYAGEUR MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND seeks to provide a high level of current income exempt from
federal income tax and the Minnesota personal

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income tax primarily through investment in medium and lower grade municipal
obligations. NATIONAL HIGH YIELD MUNICIPAL FUND seeks to provide a high level
of income exempt from federal income tax, primarily through investment in medium
and lower grade municipal obligations. DELAWARE-VOYAGEUR TAX-FREE NEW YORK FUND
seeks to provide a high level of current income exempt from federal income tax
and the personal income tax of the state of New York and the city of New York,
consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
WISCONSIN FUND seeks to provide a high level of current income exempt from
federal income tax and the Wisconsin personal income tax, consistent with the
preservation of capital.

DELAWARE-VOYAGEUR TAX-FREE COLORADO FUND seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.

AGGRESSIVE GROWTH FUND seeks long-term capital appreciation, which the Fund
attempts to achieve by investing primarily in equity securities believed to have
the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
GROWTH STOCK FUND has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. TAX-EFFICIENT EQUITY FUND seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term after-
tax total return through managing its portfolio in a manner that will defer the
realization of accrued capital gains and minimize dividend income.

DELAWARE-VOYAGEUR TAX-FREE MINNESOTA FUND seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
NORTH DAKOTA FUND seeks to provide a high level of current income exempt from
federal income tax and the North Dakota personal income tax, consistent with the
preservation of capital.

For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.

Each of the summaries above is qualified in its entirety by the information
contained in each fund's prospectus(es).

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GENERAL INFORMATION

The Manager is the investment manager of the Funds. The Manager and the
Sub-Adviser also provide investment management services to certain of the other
funds in the Delaware Group. The Manager, through a separate division, also
manages private investment accounts. While investment decisions of the Funds
are made independently from those of the other funds and accounts, investment
decisions for such other funds and accounts may be made at the same time as
investment decisions for the Funds.

The Manager, or the Sub-Adviser also manages the investment options for
Delaware Medallion-SM- III Variable Annuity. Medallion is issued by Allmerica
Financial Life Insurance and Annuity Company (First Allmerica Financial Life
Insurance Company in New York and Hawaii). Delaware Medallion offers 15
different investment series ranging from domestic equity funds, international
equity and bond funds and domestic fixed income funds. Each investment series
available through Medallion utilizes an investment strategy and discipline the
same as or similar to one of the Delaware Group mutual funds available outside
the annuity. See DELAWARE GROUP PREMIUM FUND, INC., above.

Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, the Sub-Adviser or their affiliates, are permitted
to engage in personal securities transactions subject to the exceptions set
forth in Rule 17j-1 and the following general restrictions and procedures:
(1) certain blackout periods apply to personal securities transactions of
those persons; (2) transactions must receive advance clearance and must be
completed on the same day as the clearance is received; (3) certain persons
are prohibited from investing in initial public offerings of securities and
other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day
holding period has elapsed; and (5) the Compliance Officer must be informed
periodically of all securities transactions and duplicate copies of brokerage
confirmations and account statements must be supplied to the Compliance
Officer.

The Distributor acts as national distributor for each Fund
and for the other mutual funds in the Delaware Group. As previously
described, prior to January 3, 1995, DDI served as the national distributor
for Delchester Fund. The Distributor ("DDLP") (for all periods after January
3, 1995) and, in its capacity as such for Delchester Fund, DDI, prior to
January 3, 1995, received net commissions from each Fund on behalf of Class A
Shares, after reallowances to dealers, as follows:

DELCHESTER FUND A CLASS

TOTAL
AMOUNT OF AMOUNTS NET
UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSION TO DEALERS TO DISTRIBUTOR
----------------- ------------ ---------- --------------

July 31, 1997 $2,938,512 $2,431,253 $507,259
July 31, 1996 3,186,228 2,659,208 527,020
July 31, 1995 5,089,170 4,248,856 840,314

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STRATEGIC INCOME FUND A CLASS

TOTAL
AMOUNT OF AMOUNTS NET
UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSION TO DEALERS TO DISTRIBUTOR

July 31, 1997 (1) $281,015 $266,705 $14,310

(1) Date of initial public offering was October 1, 1996.

HIGH-YIELD OPPORTUNITIES FUND A CLASS

TOTAL
AMOUNT OF AMOUNTS NET
UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSION TO DEALERS TO DISTRIBUTOR

July 31, 1997 (1) $-0- $-0- $-0-

(1) Date of initial public offering was January 2, 1997.

The Distributor and, in its capacity as such, DDI received in the aggregate
Limited CDSC payments with respect to Delchester Fund A Class as follows:

FISCAL YEAR ENDED LIMITED CDSC PAYMENTS

July 31, 1997 $ 563
July 31, 1996 2,090
July 31, 1995 966

The Distributor and, in its capacity as such, DDI received in the aggregate
CDSC payments with respect to Delchester Fund B Class as follows:

FISCAL YEAR ENDED CDSC PAYMENTS

July 31, 1997 $596,397
July 31, 1996 407,317
July 31, 1995 184,351

The Distributor received CDSC payments with respect to Delchester Fund C
Class as follows:

FISCAL YEAR ENDED CDSC PAYMENTS

July 31, 1997 $9,434
July 31, 1996 (1) 502

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<PAGE>

(1) Date of initial public offering was November 29, 1995.

The Distributor received Limited CDSC payments with respect to Strategic
Income Fund A Class as follows:

FISCAL YEAR ENDED LIMITED CDSC PAYMENTS

July 31, 1997 (1) $-0-

(1) Date of initial public offering was October 1, 1996.

The Distributor received CDSC payments with respect to Strategic Income
Fund B Class as follows:

FISCAL YEAR ENDED CDSC PAYMENTS

July 31, 1997 (1) $2,376

(1) Date of initial public offering was October 1, 1996.

The Distributor received CDSC payments with respect to Strategic Income
Fund C Class as follows:

FISCAL YEAR ENDED CDSC PAYMENTS

July 31, 1997 (1) $384

(1) Date of initial public offering was October 1, 1996.

The Distributor received Limited CDSC payments with respect to High-Yield
Opportunities Fund A Class as follows:

FISCAL YEAR ENDED LIMITED CDSC PAYMENTS

July 31, 1997 (1) $-0-

(1) Date of initial public offering was January 2, 1997.

Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.

The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for Income Funds, Inc. and for
the other mutual funds in the Delaware Group. The Transfer Agent is paid a fee
by the Funds for providing these services consisting of an annual per account
charge, in each case, of $11.00 plus, in each case, transaction charges for
particular services according to a schedule. Compensation is fixed each year
and approved by the Board of Directors, including a majority of the
disinterested directors. The Transfer Agent also provides accounting services
to the Funds. Those services include performing all functions related to
calculating each Fund's net asset value and providing all financial reporting
services, regulatory compliance testing and other related accounting services.
For its services, the Transfer Agent is paid a fee based on total assets of all
funds in the Delaware Group for which it provides such accounting services.
Such fee is equal to 0.25% multiplied by the total amount of assets in the
complex for which the Transfer Agent furnishes accounting services, where such
aggregate complex assets

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<PAGE>

are $10 billion or less, and 0.20% of assets if such aggregate complex assets
exceed $10 billion. The fees are charged to each fund, including the Funds, on
an aggregate pro-rata basis. The asset-based fee payable to the Transfer Agent
is subject to a minimum fee calculated by determining the total number of
investment portfolios and associated classes.

The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Income Funds, Inc.'s
advisory relationships with the Manager or their distribution relationships with
the Distributor, the Manager and its affiliates could cause Income Funds, Inc.
to delete the words "Delaware Group" from Income Funds, Inc.'s name.

The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of Delchester Fund's and High-Yield Opportunities Fund's
securities and cash. Bankers Trust Company ("Bankers"), One Bankers Trust
Plaza, New York, NY 10006, is custodian of Strategic Income Fund's securities
and cash. As custodian for a Fund, Chase or, as relevant, Bankers maintains a
separate account or accounts for the Fund; receives, holds and releases
portfolio securities on account of the Fund; receives and disburses money on
behalf of the Fund; and collects and receives income and other payments and
distributions on account of the Fund's portfolio securities.

The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for Income
Funds, Inc. by Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania.

CAPITALIZATION

Income Funds, Inc. has a present authorized capitalization of one billion
shares of capital stock with a $1.00 par value per share. Five hundred million
shares have been allocated to the Delchester Fund series of shares, two hundred
million shares have been allocated to the Strategic Income Fund series of
shares, and two hundred million shares have been allocated to the High-Yield
Opportunities Fund series. Each Fund offers four classes of shares, each
representing a proportionate interest in the assets of that Fund, and each
having the same voting and other rights and preferences as the other classes,
except that shares of a Fund's Institutional Class may not vote on matters
affecting the Fund's Distribution Plans under Rule 12b-1. Similarly, as a
general matter, shareholders of Class A Shares, Class B Shares and Class C
Shares of a Fund may vote only on matters affecting the 12b-1 Plan that relates
to the class of shares that they hold. However, Class B Shares of a Fund may
vote on any proposal to increase materially the fees to be paid by the Fund
under the Rule 12b-1 Plans relating to its Class A Shares. General expenses of
a Fund will be allocated on a pro-rata basis to the classes according to asset
size, except that expenses of the Rule 12b-1 Plans of each Fund's Class A, Class
B and Class C Shares will be allocated solely to those classes. The Board of
Directors of Income Funds, Inc. has allocated three hundred fifty million shares
to Delchester Fund A Class, and fifty million shares each to Delchester Fund B
Class, Delchester Fund C Class and Delchester Fund Institutional Class; one
hundred million shares to Strategic Income Fund A Class, twenty-five million
shares each to Strategic Income Fund B Class and Strategic Income Fund C Class
and fifty million shares to Strategic Income Fund Institutional Class; and one
hundred million shares to High-Yield Opportunities Fund A Class, twenty-five
million shares each to High-Yield Opportunities Fund B Class and High-Yield
Opportunities Fund C Class and fifty million shares to High-Yield Opportunities
Fund Institutional Class.

All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.

Until May 31, 1992, Delchester Fund offered shares of two retail classes,
Delchester I class and Delchester II class (now, Class A Shares of Delchester
Fund). Delchester I class shares were offered with a higher sales charge than
that applicable to Delchester II class, but without the imposition of a Rule
12b-1 fee. Effective June 1, 1992,

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<PAGE>

following shareholder approval of a Plan of Recapitalization on May 8, 1992,
shareholders of Delchester I class had their shares converted into shares of
Delchester II class and became subject to that class' Rule 12b-1 charges.
Effective at the same time, following approval by shareholders, the name of
Delchester II class was changed to Delchester Fund class. Effective May 2,
1994, Delchester Fund class became known as Delchester Fund A Class and
Delchester Fund (Institutional) class became known as Delchester Fund
Institutional Class.

Until September 30, 1996, Income Funds, Inc. operated as Delaware Group
Delchester High-Yield Bond Fund, Inc., and offered one series of shares, the
Delchester Fund series. Beginning September 30, 1996, Income Funds, Inc. began
offering Strategic Income Fund series and beginning December 27, 1996 began
offering the High-Yield Opportunities Fund series.

NONCUMULATIVE VOTING

INCOME FUNDS, INC.'S SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS
THAT THE HOLDERS OF MORE THAN 50% OF THE SHARES OF INCOME FUNDS, INC. VOTING FOR
THE ELECTION OF DIRECTORS CAN ELECT ALL THE DIRECTORS IF THEY CHOOSE TO DO SO,
AND, IN SUCH EVENT, THE HOLDERS OF THE REMAINING SHARES WILL NOT BE ABLE TO
ELECT ANY DIRECTORS.

THIS PART B DOES NOT INCLUDE ALL OF THE INFORMATION CONTAINED IN THE
REGISTRATION STATEMENT WHICH IS ON FILE WITH THE SEC.

-88-
<PAGE>

APPENDIX A--IRA INFORMATION

An individual can contribute up to $2,000 to his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayers adjusted
gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or
his or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 deduction is still available if the taxpayer's adjusted
gross income is below $25,000 ($40,000 for taxpayers filing joint returns). A
partial deduction is allowed for married couples with incomes between $40,000
and $50,000, and for single individuals with incomes between $25,000 and
$35,000. No deductions are available for contributions to IRAs by taxpayers
whose adjusted gross income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an employer-sponsored retirement
plan. Taxpayers who were not allowed deductions on IRA contributions still can
make nondeductible IRA contributions of as much as $2,000 for each working
spouse ($2,250 for one-income couples for years prior to 1997), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for
determining the deductibility of contributions made by married individuals
filing separate returns.

As illustrated in the following tables, maintaining an IRA remains a
valuable opportunity.

For many, an IRA will continue to offer both an up-front tax break with
its tax deduction each year and the real benefit that comes with tax-deferred
compounding. For others, losing the tax deduction will impact their taxable
income status each year. Over the long term, however, being able to defer taxes
on earnings still provides an impressive investment opportunity--a way to have
money grow faster due to tax-deferred compounding.

-89-
<PAGE>

Even if your IRA contribution is no longer deductible, the benefits of
saving on a tax-deferred basis can be substantial. The following tables
illustrate the benefits of tax-deferred versus taxable compounding. Each
reflects a constant 10% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into account any sales
charges or fees. Of course, earnings accumulated in your IRA will be subject to
tax upon withdrawal. If you choose a mutual fund with a fluctuating net asset
value, like the Funds, your bottom line at retirement could be lower--it could
also be much higher.

$2,000 INVESTED ANNUALLY ASSUMING A 10% ANNUALIZED RETURN

15% Tax Bracket Single -- $0 - $24,650
Joint -- $0 - $41,200

HOW MUCH
CUMULATIVE HOW MUCH YOU HAVE
END OF INVESTMENT YOU HAVE WITH FULL
YEAR AMOUNT WITHOUT IRA IRA DEDUCTION
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704

[Without IRA--investment of $1,700 ($2,000 less 15%) earning 8.5% (10% less
15%)]

28% Tax Bracket Single -- $24,651 - $59,750
Joint -- $41,201 - $99,600

HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION

1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704

[Without IRA--investment of $1,440 ($2,000 less 28%) earning 7.2% (10% less
28%)]

-90-
<PAGE>

[With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning 10%]

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<PAGE>

31% Tax Bracket Single -- $59,751 - $124,650
Joint -- $99,601 - $151,750

HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION

1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704

[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.9% (10% less
31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning 10%]

36% Tax Bracket* Single -- $124,651 - $271,050
Joint -- $151,751 - $271,050

HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION

1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704

[Without IRA--investment of $1,280 ($2,000 less 36%) earning 6.4% (10% less
36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning 10%]

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<PAGE>

39.6% Tax Bracket* Single -- over $271,050
Joint -- over $271,050

HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION

1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704

[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 6.04% (10% less
39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%) earning 10%]

____________________

* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax
rate. In addition, a 10% surtax (not applicable to capital gains) applies
to certain high-income taxpayers. It is computed by applying a 39.6% rate
to taxable income in excess of $271,050. The above tables do not reflect
the personal exemption phaseout nor the limitations of itemized deductions
that may apply.

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<PAGE>

$2,000 SINGLE INVESTMENT AT A RETURN OF 10%
COMPOUNDED MONTHLY

TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ----- ------ ---- --- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,653 $ 3,787 $ 3,980 $ 4,100 $ 4,665 $ 5,414
15 4,938 5,210 5,614 5,870 7,125 8,908
20 6,673 7,169 7,918 8,405 10,882 14,656
30 12,190 13,572 15,756 17,231 25,385 39,675
40 22,267 25,696 31,351 35,323 59,214 107,401

<CAPTION>
$2,000 INVESTED ANNUALLY AT A RETURN OF 10%
COMPOUNDED MONTHLY

TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAXABLE-- TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ----- ------ ---- --- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
10 $ 28,276 $ 28,891 $ 29,773 $ 30,317 $ 32,819 $ 36,018
15 50,241 51,913 54,348 55,875 63,110 72,877
20 79,928 83,590 89,014 92,468 109,373 72,877
30 174,276 187,150 206,891 219,878 287,948 397,466
40 347,756 383,214 441,441 481,071 704,501 1,111,974
</TABLE>

____________________________________

* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.

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<PAGE>

THE VALUE OF STARTING YOUR IRA EARLY

The following illustrates how much more you would have contributing $2,000
each January--the earliest opportunity--compared to contributing on April 15th
of the following year--the latest, for each tax year.

After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295

Compounded returns for the longest period of time is the key. The above
illustration assumes a 10% rate of return and the reinvestment of all proceeds.
AND IT PAYS TO SHOP AROUND. If you get just 2% more per year, it can make
a big difference when you retire. A constant 8% versus 10% return, compounded
monthly, illustrates the point. This chart is based on a yearly investment of
$2,000 on January 1. After 30 years the difference can mean as much as 50%
more!

8% 10%
-- ---

10 years $ 31,828 $ 36,018
30 years 259,288 397,466

The statistical exhibits above are for illustration purposes only and do
not reflect the actual Fund performance either in the past or in the future.

-95-
<PAGE>

FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for Income Funds, Inc.
and, in its capacity as such, audits the annual financial statements of each of
the Funds. The Funds' STATEMENTS OF NET ASSETS, STATEMENTS OF ASSETS AND
LIABILITIES, STATEMENTS OF OPERATIONS, STATEMENTS OF CHANGES IN NET ASSETS and
NOTES TO FINANCIAL STATEMENTS, as well as the report of Ernst & Young LLP,
independent auditors, for the fiscal year ended July 31, 1997 are included in
each Fund's ANNUAL REPORT to shareholders. The financial statements, the notes
relating thereto and the report of Ernst & Young LLP listed above are
incorporated by reference from the ANNUAL REPORTS into this PART B.

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<PAGE>

PART C

OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

Part A - Financial Highlights

*Part B - Statement of Net Assets
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Report of Independent Auditors

* The financial statements and Report of Independent Auditors
listed above for Delchester Fund, Strategic Income Fund and
High-Yield Opportunities Fund are incorporated by reference into
Part B from the Registrant's Annual Reports for the fiscal year
ended July 31, 1997.

(b) Exhibits:

(1) ARTICLES OF INCORPORATION.

(a) Articles of Incorporation, as amended and
supplemented through November 22, 1995, incorporated
into this filing by reference to Post-Effective
Amendment No. 52 filed November 22, 1995.

(b) Executed Articles Supplementary (November 28, 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.

(c) Executed Articles of Amendment (September 24, 1996)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(d) Executed Articles Supplementary (September 24, 1996)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

<PAGE>

PART C - Other Information
(Continued)

(e) Executed Articles Supplementary (December 27, 1996)
incorporated into this filing by reference to
Post-Effective Amendment No. 56 filed March 3, 1997.

(2) BY-LAWS. By-Laws, as amended to date, incorporated into
this filing by reference to Post-Effective Amendment No.
52 filed November 22, 1995.

(3) VOTING TRUST AGREEMENT. Inapplicable.

(4) COPIES OF ALL INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS.

(a) ARTICLES OF INCORPORATION, ARTICLES OF AMENDMENT AND
ARTICLES SUPPLEMENTARY.

(i) Article Second of Articles Supplementary
(June 1, 1992 and April 29, 1995), Article
Fifth of Articles of Incorporation (March
4, 1983) and Article Tenth of Articles of
Amendment (May 2, 1985) incorporated into
this filing by reference to Post-Effective
Amendment No. 52 filed November 22, 1995.

(ii) Article Third of Articles Supplementary
(November 28, 1995) incorporated into
this filing by reference to Post-Effective
Amendment No. 53 filed July 17, 1996.

(iii) Article Fourth of Articles Supplementary
(September, 24, 1996) incorporated into
this filing by reference to Post-Effective
Amendment No. 55 filed October 17, 1996.

(iv) Article Fourth of Articles Supplementary
(December 27, 1996) incorporated into
this filing by reference to Post-Effective
Amendment No. 56 filed March 3, 1997.

(b) BY-LAWS. Article II, Article III, as amended, and
Article XIII, which was subsequently redesignated as
Article XIV, incorporated into this filing by
reference to Post-Effective Amendment No. 52 filed
November 22, 1995.

<PAGE>

PART C - Other Information
(Continued)

(5) INVESTMENT MANAGEMENT AGREEMENTS.

(a) Executed Investment Management Agreement (April 3,
1995) between Delaware Management Company, Inc. and
the Registrant on behalf of Delchester Fund
incorporated into this filing by reference to
Post-Effective Amendment No. 52 filed November 22,
1995.

(b) Executed Investment Management Agreement (September
30, 1996) between Delaware Management Company, Inc.
and the Registrant on behalf of Strategic Income
Fund incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(c) Executed Sub-Advisory Agreement (September 30, 1996)
between Delaware Management Company, Inc. and
Delaware International Advisers Ltd. with respect to
Strategic Income Fund incorporated into this filing
by reference to Post-Effective Amendment No. 55
filed October 17, 1996.

(d) Form of Investment Management Agreement (1996)
between Delaware Management Company, Inc. and the
Registrant on behalf of High-Yield Opportunities
Fund incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(6) (a) DISTRIBUTION AGREEMENTS.

(i) Executed Distribution Agreement (April 3,
1995) between Delaware Distributors, L.P.
and the Registrant on behalf of Delchester
Fund incorporated into this filing by
reference to Post-Effective Amendment No.
53 filed July 17, 1996.

(ii) Executed Amendment No. 1 to Distribution
Agreement (November 29, 1995) between
Delaware Distributors, L.P. and the
Registrant on behalf of Delchester Fund
incorporated into this filing by reference
to Post-Effective Amendment No. 53 filed
July 17, 1996.

<PAGE>

PART C - Other Information
(Continued)

(iii) Executed Distribution Agreement (September
30, 1996) between Delaware Distributors,
L.P. and the Registrant on behalf of
Strategic Income Fund incorporated into
this filing by reference to Post-Effective
Amendment No. 55 filed October 17, 1996.

(iv) Form of Distribution Agreement (1996)
between Delaware Distributors, L.P. and
the Registrant on behalf of High-Yield
Opportunities Fund (Module) incorporated
into this filing by reference to
Post-Effective Amendment No. 55 filed
October 17, 1996.

(b) ADMINISTRATION AND SERVICE AGREEMENT. Form of
Administration and Service Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 52 filed
November 22, 1995.

(c) DEALER'S AGREEMENT. Dealer's Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 52 filed
November 22, 1995.

(d) Mutual Fund Agreement for the Delaware Group of
Funds (as amended November 1995) incorporated into
this filing by reference to Post-Effective Amendment
No. 53 filed July 17, 1996.

(7) BONUS, PROFIT SHARING, PENSION CONTRACTS.

(a) Amended and Restated Profit Sharing Plan (November
17, 1994) incorporated into this filing by reference
to Post-Effective Amendment No. 52 filed November
22, 1995.

(b) Amendment to Profit Sharing Plan (December 21, 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 53 filed July 17, 1996.

(8) CUSTODIAN AGREEMENTS.

(a) Executed Custodian Agreement (May 1, 1996) between
The Chase Manhattan Bank and the Registrant on
behalf of Delchester Fund incorporated into this
filing by reference to Post-Effective Amendment No.
53 filed July 17, 1996.

<PAGE>

PART C - Other Information
(Continued)

(b) Form of Securities Lending Agreement (1996) between
The Chase Manhattan Bank and the Registrant on
behalf of Delchester Fund incorporated into this
filing by reference to Post-Effective Amendment No.
53 filed July 17, 1996.

(c) Form of Custodian Agreement (1996) between Bankers
Trust Company and the Registrant on behalf of
Strategic Income Fund incorporated into this filing
by reference to Post-Effective Amendment No. 53
filed July 17, 1996.

(d) Form of Securities Lending Agreement (1996) between
Bankers Trust Company and the Registrant on behalf
of Strategic Income Fund incorporated into this
filing by reference to Post-Effective Amendment No.
53 filed July 17, 1996.

(e) Form of Custodian Agreement (1996) between The Chase
Manhattan Bank and the Registrant on behalf of
High-Yield Opportunities Fund incorporated into this
filing by reference to Post-Effective Amendment No.
55 filed October 17, 1996.

(f) Form of Securities Lending Agreement (1996) between
The Chase Manhattan Bank and the Registrant on
behalf of High-Yield Opportunities Fund incorporated
into this filing by reference to Post-Effective
Amendment No. 55 filed October 17, 1996.

(9) OTHER MATERIAL CONTRACTS.

(a) Executed Amended and Restated Shareholders Services
Agreement (December 27, 1996) between Delaware
Service Company, Inc. and the Registrant on behalf
of Delchester Fund, Strategic Income Fund and
High-Yield Opportunities Fund incorporated into this
filing by reference to Post-Effective Amendment No.
56 filed March 3, 1997.

(b) Executed Delaware Group of Funds Fund Accounting
Agreement between Delaware Service Company, Inc. and
the Registrant (August 19, 1996) incorporated into
this filing by reference to Post-Effective Amendment
No. 54 filed September 27, 1996.

(i) Executed Amendment No. 4A (April 14, 1997)
to Schedule A to Delaware Group of Funds
Fund Accounting Agreement attached as
Exhibit.

<PAGE>

PART C - Other Information
(Continued)

(ii) Executed Amendment No. 6 (July 21, 1997)
to Schedule A to Delaware Group of Funds
Fund Accounting Agreement attached as
Exhibit.

(10) OPINION OF COUNSEL. Filed with letter relating to Rule
24f-2 on September 29, 1997.

(11) CONSENT OF AUDITORS. Attached as Exhibit.

(12-13) Inapplicable.

(14) MODEL PLANS. Incorporated into this filing by reference
to Post-Effective Amendment No. 49 filed September 28,
1993 and Post-Effective Amendment No. 52 filed November
22, 1995.

(15) PLANS UNDER RULE 12b-1.

(a) Plan under Rule 12b-1 for Delchester Fund A Class
(November 29, 1995) incorporated into this filing
by reference to Post-Effective Amendment No. 53
filed July 17, 1996.

(b) Plan under Rule 12b-1 for Delchester Fund B Class
(November 29, 1995) incorporated into this filing
by reference to Post-Effective Amendment No. 53
filed July 17, 1996.

(c) Plan under Rule 12b-1 for Delchester Fund C Class
(November 29, 1995) incorporated into this filing
by reference to Post-Effective Amendment No. 53
filed July 17, 1996.

(d) Plan under Rule 12b-1 for Strategic Income Fund A
Class (September 30, 1996) incorporated into this
filing by reference to Post-Effective Amendment No.
55 filed October 17, 1996.

(e) Plan under Rule 12b-1 for Strategic Income Fund B
Class (September 30, 1996) incorporated into this
filing by reference to Post-Effective Amendment No.
55 filed October 17, 1996.

(f) Plan under Rule 12b-1 for Strategic Income Fund C
Class
(September 30, 1996) incorporated into this filing
by reference to Post-Effective Amendment No. 55
filed October 17, 1996.

** Relates only to A, B and C Classes of Delchester Fund, Strategic
Income Fund and High-Yield Opportunities Fund.

<PAGE>

PART C - Other Information
(Continued)

(g) Plan under Rule 12b-1 for High-Yield Opportunities
Fund A Class (December 27, 1996) (Module)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(h) Plan under Rule 12b-1 for High-Yield Opportunities
Fund B Class (December 27, 1996) (Module)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(i) Plan under Rule 12b-1 for High-Yield Opportunities
Fund C Class (December 27, 1996) (Module)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(16) SCHEDULES OF COMPUTATION FOR EACH PERFORMANCE QUOTATION.

(a) Incorporated into this filing by reference to
Post-Effective Amendment No. 52 filed November 22,
1995, Post-Effective Amendment No. 54 filed
September 27, 1996, Post-Effective Amendment No. 56
filed March 3, 1997 and Post-Effective Amendment No.
57 filed June 30, 1997.

(b) Schedules of Computation for each Performance
Quotation for periods not previously electronically
filed attached as Exhibit.

(17) FINANCIAL DATA SCHEDULES. Attached as Exhibit.

***(18) PLAN UNDER RULE 18f-3.

(a) Plan under Rule 18f-3 (November 29, 1995) (Module)
incorporated into this filing by reference to
Post-Effective Amendment No. 55 filed October 17,
1996.

(b) Amended Appendix A (July 17, 1997) to Plan under
Rule 18f-3 attached as Exhibit.

*** Relates only to Strategic Income Fund.

<PAGE>

PART C - Other Information
(Continued)

(19) Other: DIRECTORS' POWER OF ATTORNEY.

(a) Incorporated into this filing by reference to
Post-Effective Amendment No. 52 filed November 22,
1995 and Post-Effective Amendment No. 57 filed June
30, 1997.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.

Item 26. NUMBER OF HOLDERS OF SECURITIES.

(1) (2)

Number of
Title of Class Record Holders
-------------- --------------

Delaware Group Income Funds, Inc.'s
Delchester Fund series:

Delchester Fund A Class
Common Stock Par Value 44,112 Accounts as of
$1.00 Per Share August 31, 1997

Delchester Fund B Class
Common Stock Par Value 10,058 Accounts as of
$1.00 Per Share August 31, 1997

Delchester Fund C Class
Common Stock Par Value 747 Accounts as of
$1.00 Per Share August 31, 1997

Delchester Fund Institutional Class
Common Stock Par Value 35 Accounts as of
$1.00 Per Share August 31, 1997

Delaware Group Income Funds, Inc.'s
Strategic Income Fund series:

Strategic Income Fund A Class
Common Stock Par Value 531 Accounts as of
$1.00 Per Share August 31, 1997

<PAGE>

PART C - Other Information
(Continued)

(1) (2)

Number of
Title of Class Record Holders
-------------- --------------

Strategic Income Fund B Class
Common Stock Par Value 441 Accounts as of
$1.00 Per Share August 31, 1997

Strategic Income Fund C Class
Common Stock Par Value 74 Accounts as of
$1.00 Per Share August 31, 1997

Strategic Income Fund Institutional Class
Common Stock Par Value 9 Accounts as of
$1.00 Per Share August 31, 1997

Delaware Group Income Funds, Inc.'s
High-Yield Opportunities Fund series:

High-Yield Opportunities Fund A Class
Common Stock Par Value 10 Accounts as of
$1.00 Per Share August 31, 1997

High-Yield Opportunities Fund B Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share August 31, 1997

High-Yield Opportunities Fund C Class
Common Stock Par Value 0 Accounts as of
$1.00 Per Share August 31, 1997

High-Yield Opportunities Fund
Institutional Class
Common Stock Par Value 4 Accounts as of
$1.00 Per Share August 31, 1997

Item 27. INDEMNIFICATION. Incorporated into this filing by reference
to Post-Effective Amendment No. 30 filed July 28, 1983 and
Article VII of the By-Laws, as amended, incorporated into this
filing by reference to Post-Effective Amendment No. 52 filed
November 22, 1995.

<PAGE>

PART C - Other Information
(Continued)

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Delaware Management Company, Inc. (the "Manager") serves as
investment manager to the Registrant and also serves as investment
manager or sub-adviser to certain of the other funds in the Delaware
Group (Delaware Group Equity Funds I, Inc., Delaware Group Equity Funds
II, Inc., Delaware Group Equity Funds III, Inc., Delaware Group Equity
Funds IV, Inc., Delaware Group Equity Funds V, Inc., Delaware Group
Government Fund, Inc., Delaware Group Limited-Term Government Funds,
Inc., Delaware Group Cash Reserve, Inc., Delaware Group Tax-Free Fund,
Inc., Delaware Group State Tax-Free Income Trust, Delaware Group
Tax-Free Money Fund, Inc., Delaware Group Premium Fund, Inc., Delaware
Group Global & International Funds, Inc., Delaware Pooled Trust, Inc.,
Delaware Group Adviser Funds, Inc., Delaware Group Dividend and Income
Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc.,
Voyageur Tax-Free Funds, Inc., Voyageur Intermediate Tax-Free Funds,
Inc., Voyageur Insured Funds, Inc., Voyageur Funds, Inc., Voyageur
Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds,
Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc.,
Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured
Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income
Fund, Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota
Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund III, Inc.)
and provides investment advisory services to institutional accounts,
primarily retirement plans and endowment funds. In addition, certain
directors of the Manager also serve as directors/trustees of the other
Delaware Group funds, and certain officers are also officers of these
other funds. A company owned by the Manager's parent company acts as
principal underwriter to the mutual funds in the Delaware Group (see
Item 29 below) and another such company acts as the shareholder
services, dividend disbursing, accounting servicing and transfer agent
for all of the mutual funds in the Delaware Group.

<PAGE>

PART C - Other Information
(Continued)

The following persons serving as directors or officers of the
Manager have held the following positions during the past two years:

Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------

Wayne A. Stork Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer and
Director of Delaware Management Company, Inc.;
Chairman of the Board, President, Chief
Executive Officer and Director of the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.;
Chairman of the Board and Director of Delaware
Distributors, Inc. and Delaware Capital
Management, Inc.; Director of Delaware Service
Company, Inc. and Delaware Investment &
Retirement Services, Inc.; and Chairman, Chief
Executive Officer and Director of Delaware
International Advisers Ltd.

Richard G. Unruh, Jr. Executive Vice President and Director of
Delaware Management Company, Inc.; Executive
Vice President of the Registrant, each of the
other funds in the Delaware Group, Delaware
Management Holdings, Inc. and Delaware Capital
Management, Inc; and Director of Delaware
International Advisers Ltd.

Board of Directors, Chairman of Finance
Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Chairman of Finance
Committee, AAA Mid Atlantic, Inc. since 1989,
2040 Market Street, Philadelphia, PA; Board of
Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA

Paul E. Suckow Executive Vice President/Chief Investment
Officer, Fixed Income of Delaware Management
Company, Inc., the Registrant, each of the
other funds in the Delaware Group and Delaware
Management Holdings, Inc.; Executive Vice
President and Director of Founders Holdings,
Inc.; Executive Vice President of Delaware
Capital Management, Inc.; and Director of
Founders CBO Corporation

Director, HYPPCO Finance Company Ltd.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

David K. Downes Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director
of Delaware Management Company, Inc., DMH Corp,
Delaware Distributors, Inc., Founders Holdings,
Inc. and Delaware International Holdings Ltd.;
Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the
Registrant and each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., Founders CBO Corporation, Delaware
Capital Management, Inc. and Delaware
Distributors, L.P.; President, Chief Executive
Officer, Chief Financial Officer and Director
of Delaware Service Company, Inc.; Chairman,
Chief Executive Officer and Director of
Delaware Investment & Retirement Services,
Inc.; Chairman and Director of Delaware
Management Trust Company; and Director of
Delaware International Advisers Ltd.

Chief Executive Officer and Director of
Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA

George M. Senior Vice President, General Counsel,
Chamberlain, Jr. Secretary and Director of Delaware Management
Company, Inc., DMH Corp., Delaware
Distributors, Inc., Delaware Service Company,
Inc., Founders Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Senior Vice
President, Secretary and General Counsel of the
Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, L.P. and
Delaware Management Holdings, Inc.; Executive
Vice President, Secretary, General Counsel and
Director of Delaware Management Trust Company;
Secretary and Director of Delaware
International Holdings Ltd.; and Director of
Delaware International Advisers Ltd.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Richard J. Flannery Senior Vice President/Corporate and
International Affairs of the Registrant, each
of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Distributors,
L.P., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.; Senior Vice
President/ Corporate and International Affairs
and Director of Founders Holdings, Inc. and
Delaware International Holdings Ltd.; Senior
Vice President of Founders CBO Corporation; and
Director of Delaware International Advisers
Ltd.

Director, HYPPCO Finance Company Ltd.

Limited Partner of Stonewall Links, L.P. since
1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall
Links, Inc. since 1991, Bulltown Rd., Elverton,
PA

Michael P. Bishof Senior Vice President and Treasurer of the
Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, Inc. and
Founders Holdings, Inc.; Senior Vice
President/Investment Accounting of Delaware
Management Company, Inc. and Delaware Service
Company, Inc.; Senior Vice President and
Treasurer/ Manager, Investment Accounting of
Delaware Distributors, L.P.; Assistant
Treasurer of Founders CBO Corporation; and
Senior Vice President and Manager of Investment
Accounting of Delaware International Holdings
Ltd.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Company,
Inc., Delaware Distributors, Inc., Delaware
Capital Management, Inc., Delaware
Distributors, L.P., Delaware Service Company,
Inc. and Delaware International Holdings Ltd.;
Senior Vice President/Corporate Controller of
the Registrant, each of the other funds in the
Delaware Group and Founders Holdings, Inc.;
Executive Vice President, Chief Financial
Officer and Treasurer of Delaware Management
Trust Company; Chief Financial Officer and
Treasurer of Delaware Investment & Retirement
Services, Inc.; and Senior Vice
President/Assistant Treasurer of Founders CBO
Corporation

Michael T. Taggart Senior Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc.

Douglas L. Anderson Senior Vice President/Operations of Delaware
Management Company, Inc., Delaware Investment
and Retirement Services, Inc. and Delaware
Service Company, Inc.; Senior Vice President/
Operations and Director of Delaware Management
Trust Company

James L. Shields Senior Vice President/Chief Information Officer
of Delaware Management Company, Inc., Delaware
Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.

Eric E. Miller Vice President, Assistant Secretary and Deputy
General Counsel of the Registrant and each of
the other funds in the Delaware Group, Delaware
Management Company, Inc., Delaware Management
Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings,
Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Richelle S. Maestro Vice President and Assistant Secretary of
Delaware Management Company, Inc., the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., DMH Corp., Delaware Management Trust
Company, Delaware Capital Management, Inc.,
Delaware Investment & Retirement Services, Inc.
and Founders Holdings, Inc.; Secretary of
Founders CBO Corporation; and Assistant
Secretary of Delaware International Holdings
Ltd.

Partner of Tri-R Associates since 1989, 10001
Sandmeyer Lane, Philadelphia, PA

Richard Salus(1) Vice President/Assistant Controller of Delaware
Management Company, Inc. and Delaware
Management Trust Company

Bruce A. Ulmer Vice President/Director of LNC Internal Audit
of Delaware Management Company, Inc., the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware Management Trust
Company and Delaware Investment & Retirement
Services, Inc.

Steven T. Lampe(2) Vice President/Taxation of Delaware Management
Company, Inc., the Registrant, each of the
other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings,
Inc., Founders CBO Corporation, Delaware
Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.

Christopher Adams(3) Vice President/Strategic Planning of Delaware
Management Company, Inc. and Delaware Service
Company, Inc.

Susan L. Hanson Vice President/Strategic Planning of Delaware
Management Company, Inc. and Delaware Service
Company, Inc.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Dennis J. Mara(4) Vice President/Acquisitions of Delaware
Management Company, Inc.

Scott Metzger Vice President/Business Development of Delaware
Management Company, Inc. and Delaware Service
Company, Inc.

Lisa O. Brinkley Vice President/Compliance of Delaware
Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group, DMH
Corp., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company,
Inc., Delaware Management Trust Company,
Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.

Rosemary E. Milner Vice President/Legal Registrations of Delaware
Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group,
Delaware Distributors, L.P. and Delaware
Distributors, Inc.

Gerald T. Nichols Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds, the
fixed income funds and the closed-end funds in
the Delaware Group; Vice President of Founders
Holdings, Inc.; and Treasurer, Assistant
Secretary and Director of Founders CBO
Corporation

Paul A. Matlack Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the
Registrant, each of the tax-exempt funds, the
fixed income funds and the closed-end funds in
the Delaware Group; Vice President of Founders
Holdings, Inc.; and President and Director of
Founders CBO Corporation.

Gary A. Reed Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in
the Delaware Group and Delaware Capital
Management, Inc.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Patrick P. Coyne Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in
the Delaware Group and Delaware Capital
Management, Inc.

Roger A. Early Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc. and each of
the tax-exempt funds and the fixed income funds
in the Delaware Group

Mitchell L. Conery(5) Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc. and each of
the tax-exempt and fixed income funds in the
Delaware Group

Paul Grillo Vice President/Portfolio Manager of Delaware
Management Company, Inc., the Registrant
and each of the tax-exempt and fixed income
funds in the Delaware Group

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

(1) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(2) TAX MANAGER, Price Waterhouse LLP prior to October 1995.
(3) SENIOR ASSOCIATE, FAS, Coopers & Lybrand LLP prior to October 1995.
(4) CORPORATE CONTROLLER, IIS prior to July 1997 and DIRECTOR,
FINANCIAL PLANNING, Decision One prior to March 1996.
(5) INVESTMENT OFFICER, Travelers Insurance prior to January 1997.

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Delaware International Advisers Ltd. ("Delaware International")
serves as sub-investment adviser to Strategic Income Fund of the
Registrant and also serves as investment manager or sub-investment
adviser to certain of the other funds in the Delaware Group (Delaware
Group Global Dividend and Income Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group
Premium Fund, Inc. and Delaware Group Adviser Funds, Inc.) and other
institutional accounts.

Information regarding the officers and directors of Delaware
International and the positions they have held with the Registrant
during the past two fiscal years is provided below.

Positions and Offices with Delaware
Name and Principal International Advisers Ltd. and its Affiliates
Business Address and Other Positions and Offices Held
- ------------------ ----------------------------------------------

*Wayne A. Stork Chairman, Chief Executive Officer and Director
of Delaware International Advisers Ltd.;
Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer and
Director of Delaware Management Company, Inc.;
Chairman of the Board, President, Chief
Executive Officer and Director of the
Registrant, each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.;
Chairman of the Board and Director of Delaware
Distributors, Inc. and Delaware Capital
Management, Inc.; Director of Delaware Service
Company, Inc. and Delaware Investment &
Retirement Services, Inc

**G. Roger H. Kitson Vice Chairman and Director of Delaware
International Advisers Ltd.

**Ian G. Sims Chief Investment Officer/Global Fixed Income
and Director of Delaware International Advisers
Ltd.

**David G. Tilles Managing Director, Chief Investment Officer and
Director of Delaware International Advisers
Ltd.

**John Emberson Secretary, Compliance Officer, Finance Director
and Director of Delaware International Advisers
Ltd.

**Nigel G. May Director/Head of Pacific Basin Group and
Director of Delaware International Advisers
Ltd.

* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
** Business address of each is Third Floor, 80 Cheapside, London,
England EC2V 6EE.

<PAGE>

PART C - Other Information
(Continued)

**Elizabeth A. Desmond Director/Head of European Group and Director of
Delaware International Advisers Ltd.

*David K. Downes Director of Delaware International Advisers
Ltd.; Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Director
of Delaware Management Company, Inc., DMH Corp,
Delaware Distributors, Inc., Founders Holdings,
Inc. and Delaware International Holdings Ltd.;
Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the
Registrant and each of the other funds in the
Delaware Group, Delaware Management Holdings,
Inc., Founders CBO Corporation, Delaware
Capital Management, Inc. and Delaware
Distributors, L.P.; President, Chief Executive
Officer, Chief Financial Officer and Director
of Delaware Service Company, Inc.; and
Chairman, Chief Executive Officer and Director
of Delaware Investment & Retirement Services,
Inc.; and Chairman and Director of Delaware
Management Trust Company.

Chief Executive Officer and Director of
Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA

*Richard G. Unruh, Jr. Director of Delaware International Advisers
Ltd.; Executive Vice President and Director of
Delaware Management Company, Inc.; Executive
Vice President of the Registrant, each of the
other funds in the Delaware Group, Delaware
Management Holdings, Inc and Delaware Capital
Management, Inc

Board of Directors, Chairman of Finance
Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA;
Board of Directors, Chairman of Finance
Committee, Mid Atlantic, Inc. since 1989, 2040
Market Street, Philadelphia, PA; Board of
Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA

* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
** Business address of each is Third Floor, 80 Cheapside, London,
England EC2V 6EE.

<PAGE>

PART C - Other Information
(Continued)

*Richard J. Flannery Director of Delaware International Advisers
Ltd.; Senior Vice President/Corporate and
International Affairs of the Registrant, each
of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Distributors,
L.P., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware
Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.; Senior Vice
President/ Corporate and International Affairs
and Director of Founders Holdings, Inc. and
Delaware International Holdings Ltd.; Senior
Vice President of Founders CBO Corporation.

Director of HYPPCO Finance Company, Ltd.

Limited Partner of Stonewall Links, L.P. since
1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall
Links, Inc. since 1991, Bulltown Rd., Elverton,
PA

*John C. E. Campbell Director of Delaware International Advisers
Ltd.

*George M. Director of Delaware International
Chamberlain, Jr Advisers Ltd.; Senior Vice President,
General Counsel, Secretary and Director of
Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Senior Vice
President, Secretary and General Counsel
of the Registrant, each of the other funds
in the Delaware Group, Delaware
Distributors, L.P. and Delaware Management
Holdings, Inc.; Executive Vice President,
Secretary, General Counsel and Director of
Delaware Management Trust Company;
Secretary and Director of Delaware
International Holdings Ltd.

*George E. Deming Director of Delaware International
Advisers Ltd.

* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
** Business address of each is Third Floor, 80 Cheapside, London,
England EC2V 6EE.

<PAGE>

PART C - Other Information
(Continued)

**Timothy W. Sanderson Senior Portfolio Manager, Deputy Compliance
Officer, Director Equity Research and Director
of Delaware International Advisers Ltd.

**Clive A. Gillmore Senior Portfolio Manager, Director U.S. Mutual
Fund Liaison and Director of Delaware
International Advisers Ltd.

**Hamish O. Parker Senior Portfolio Manager, Director U.S.
Marketing Liaison and Director of Delaware
International Advisers Ltd.

**Gavin A. Hall Senior Portfolio Manager of Delaware
International Advisers Ltd.

**Robert Akester Senior Portfolio Manager of Delaware
International Advisers Ltd.

**Hywel Morgan Senior Portfolio Manager of Delaware
International Advisers Ltd.

* Business address of each is 1818 Market Street, Philadelphia, PA
19103.
** Business address of each is Third Floor, 80 Cheapside, London,
England EC2V 1NQ.

<PAGE>

PART C - Other Information
(Continued)

Item 29. PRINCIPAL UNDERWRITERS.

(a) Delaware Distributors, L.P. serves as principal
underwriter for all the mutual funds
in the Delaware Group.

(b) Information with respect to each director, officer or
partner of principal underwriter:

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Delaware Distributors, Inc. General Partner None

Delaware Management
Company, Inc. Limited Partner Investment Manager

Delaware Capital
Management, Inc. Limited Partner None

Bruce D. Barton President and Chief Executive None
Officer

David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer

George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel

Terrence P. Cunningham Senior Vice President/ Financial None
Institutions

Thomas E. Sawyer Senior Vice President/ None
National Sales Director

Dana B. Hall Senior Vice President/ None
Key Accounts

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division

William F. Hostler Senior Vice President/ None
Marketing Services

J. Chris Meyer Senior Vice President/ None
Director Product Management

Stephen H. Slack Senior Vice President/Wholesaler None

William M. Kimbrough Senior Vice President/Wholesaler None

Daniel J. Brooks Senior Vice President/Wholesaler None

Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and
International Affairs

Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager

Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager - Wire/
Regional Channel

Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer

Eric E. Miller Vice President/Assistant Secretary/ Vice President/
Deputy General Counsel Assistant Secretary/
Deputy General Counsel

Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary

Steven T. Lampe Vice President/Taxation Vice President/Taxation

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Joseph H. Hastings Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller

Lisa O. Brinkley Vice President/Compliance Vice President/
Compliance

Rosemary E. Milner Vice President/Legal Registrations Vice President/Legal
Registrations

Daniel H. Carlson Vice President/Strategic Marketing None

Diane M. Anderson Vice President/Plan Record Keeping None
and Administration

Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory

Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory

Denise F. Guerriere Vice President/Client Services None

Gordon E. Searles Vice President/Client Services None

Julia R. Vander Els Vice President/Participant Services None

Jerome J. Alrutz Vice President/Retail Sales None

Joanne A. Mettenheimer Vice President/New Business None
Development

Scott Metzger Vice President/Business Development Vice President/Business
Development

Stephen C. Hall Vice President/Institutional Sales None

Gregory J. McMillan Vice President/ National Accounts None

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Christopher H. Price Vice President/Manager, None
Insurance

Stephen J. DeAngelis Vice President/Product None
Development

Zina DeVassal Vice President/Financial Institutions None

Andrew W. Whitaker Vice President/Financial Institutions None

Jesse Emery Vice President/ Marketing None
Communications

Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales

Susan T. Friestedt Vice President/Client Service None

Dinah J. Huntoon Vice President/Product None
Manager Equity

Soohee Lee Vice President/Fixed Income None
Product Management

Michael J. Woods Vice President/ UIT Product None
Management

Ellen M. Krott Vice President/Marketing None

Dale L. Kurtz Vice President/Marketing Support None

Holly W. Reimel Vice President/Manager, Key Accounts None

David P. Anderson Vice President/Wholesaler None

Lee D. Beck Vice President/Wholesaler None

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Gabriella Bercze Vice President/Wholesaler None

Terrence L. Bussard Vice President/Wholesaler None

William S. Carroll Vice President/Wholesaler None

William L. Castetter Vice President/Wholesaler None

Thomas J. Chadie Vice President/Wholesaler None

Thomas C. Gallagher Vice President/Wholesaler None

Douglas R. Glennon Vice President/Wholesaler None

Ronald A. Haimowitz Vice President/Wholesaler None

Christopher L. Johnston Vice President/Wholesaler None

Michael P. Jordan Vice President/Wholesaler None

Jeffrey A. Keinert Vice President/Wholesaler None

Thomas P. Kennett Vice President/ Wholesaler None

Debbie A. Marler Vice President/Wholesaler None

Nathan W. Medin Vice President/Wholesaler None

Roger J. Miller Vice President/Wholesaler None

Patrick L. Murphy Vice President/Wholesaler None

Stephen C. Nell Vice President/Wholesaler None

Julia A. Nye Vice President/Wholesaler None

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
Joseph T. Owczarek Vice President/Wholesaler None

Mary Ellen Pernice-Fadden Vice President/Wholesaler None

Mark A. Pletts Vice President/Wholesaler None

Philip G. Rickards Vice President/Wholesaler None

Laura E. Roman Vice President/Wholesaler None

Linda Schulz Vice President/Wholesaler None

Edward B. Sheridan Vice President/Wholesaler None

Robert E. Stansbury Vice President/Wholesaler None

Julia A. Stanton Vice President/Wholesaler None

Larry D. Stone Vice President/Wholesaler None

Edward J. Wagner Vice President/Wholesaler None

Wayne W. Wagner Vice President/Wholesaler None

John A. Wells Vice President/Marketing Technology None

Scott Whitehouse Vice President/Wholesaler None

</TABLE>

*Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts and records are maintained in Philadelphia at
1818 Market Street, Philadelphia, PA 19103 or One Commerce
Square, Philadelphia, PA 19103 and in London at Third Floor,
80 Cheapside, London, England EC2V 6EE.

Item 31. MANAGEMENT SERVICES. None.

Item 32. UNDERTAKINGS.

(a) Not applicable.

(b) Not applicable.

(c) The Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's annual report to shareholders, upon request
and without charge.

(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in
writing to do so by the record holders of not less than
10% of the outstanding shares.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Philadelphia,
Commonwealth of Pennsylvania on this 27th day of September, 1997.

DELAWARE GROUP INCOME FUNDS, INC.

By /s/ WAYNE A. STORK
------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:

SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- ------------------

<S> <C> <C>
Chairman of the Board, President,
/s/ Wayne A. Stork Chief Executive Officer and Director September 27, 1997
- -------------------------------
Wayne A. Stork

Executive Vice President/Chief Operating
/s/ David K. Downes Officer/Chief Financial Officer
- ------------------------------- (Principal Financial Officer and Principal September 27, 1997
David K. Downes Accounting Officer)

/s/ Walter P. Babich * Director September 27, 1997
- -------------------------------
Walter P. Babich
/s/ Anthony D. Knerr * Director September 27, 1997
- -------------------------------
Anthony D. Knerr
/s/ Ann R. Leven * Director September 27, 1997
- -------------------------------
Ann R. Leven

/s/ W. Thacher Longstreth * Director September 27, 1997
- -------------------------------
W. Thacher Longstreth

/s/ Thomas F. Madison * Director September 27, 1997
- -------------------------------
Thomas F. Madison

/s/ Jeffrey J. Nick * Director September 27, 1997
- -------------------------------
Jeffrey J. Nick

/s/ Charles E. Peck * Director September 27, 1997
- -------------------------------
Charles E. Peck

</TABLE>

*By /s/ Wayne A. Stork
------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Exhibits

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

<PAGE>

INDEX TO EXHIBITS

Exhibit No. Exhibit
- ----------- -------

EX-99.B9BI Executed Amendment No. 4A (April 14, 1997) to
Schedule A to Delaware Group of Funds Fund
Accounting Agreement

EX-99.B9BII Executed Amendment No. 6 (July 21, 1997) to Schedule
A to Delaware Group of Funds Fund Accounting
Agreement

EX-99.B11 Consent of Independent Auditors

EX-99.B16B Schedules of Computation for each Performance
Quotation for periods not previously electronically
filed

EX-27 Financial Data Schedules

EX-99.B18B Amended Appendix A (revised July 17, 1997) to Plan
under Rule 18f-3

<PAGE>

AMENDMENT NO. 4A
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT

Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund

Delaware Group Cash Reserve, Inc.

Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund

Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)

Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund

Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)

Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)

- -------------------------
*Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.

<PAGE>

Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund

Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)

Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund

Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio

Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Decatur Total Return Series
Delaware Series
Delchester Series
DelCap Series
Global Bond Series (New)
International Equity Series
Trend Series
Value Series

2
<PAGE>

Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund

Delaware Group Tax-Free Money Fund, Inc.

Delaware Group Trend Fund, Inc.

DMC Tax-Free Income Trust - Pennsylvania (doing business as Tax-Free
Pennsylvania Fund)

Dated as of: APRIL 14, 1997

3
<PAGE>

DELAWARE SERVICE COMPANY, INC.

By: /s/ David K. Downes
-----------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer

By: /s/ Wayne A. Stork
-----------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer

DELAWARE POOLED TRUST, INC.

By: /s/ Wayne A. Stork
-----------------------
Wayne A. Stork
President and
Chief Executive Officer

<PAGE>

AMENDMENT NO. 6
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT

Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund

Delaware Group Cash Reserve, Inc.

Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund

Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)

Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund

Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)

Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)

<PAGE>

Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)

Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)

Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund

Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio

Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)

2
<PAGE>

Trend Series
Value Series

Delaware Group State Tax-Free Income Trust
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Tax-Free Pennsylvania Fund

Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund

Delaware Group Tax-Free Money Fund, Inc.

Delaware Group Trend Fund, Inc.

Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)

Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)

Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)

Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)

3
<PAGE>

Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)

Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)

Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)

Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)

Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)

Dated as of July 21, 1997

4
<PAGE>

DELAWARE SERVICE COMPANY, INC.

By: /s/ David K. Downes
-------------------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer

DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.

By: /s/ Wayne A. Stork
-------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer

<PAGE>

Consent of Ernst & Young LLP, Independent Auditors

We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement
of Additional Information and to the incorporation by reference in this
Post-Effective Amendment Number 58 to the Registration Statement (Form N-1A)
(No. 2-37707) of Delaware Group Income Funds, Inc. of our reports dated
September 5, 1997, included in the 1997 Annual Reports to shareholders of the
Delchester Fund, Strategic Income Fund, and High-Yield Opportunities Fund.

Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 25, 1997 ---------------------
Ernst & Young LLP

<PAGE>

[LOGO]

Report of Independent Auditors

To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - Delchester Fund

We have audited the accompanying statement of net assets of Delaware Group
Income Funds, Inc. - Delchester Fund (the "Fund") as of July 31, 1997 and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. 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 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
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 Income Funds, Inc. - Delchester Fund at July 31, 1997, 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 periods indicated therein, in conformity with generally accepted
accounting principles.

Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 5, 1997 ---------------------
Ernst & Young LLP
<PAGE>

[LOGO]

Report of Independent Auditors

To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - Strategic Income Fund

We have audited the accompanying statement of net assets and statement of
assets and liabilities of Delaware Group Income Funds, Inc. - Strategic
Income 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 October 1, 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. - Strategic Income Fund at July 31, 1997,
the results of its operations, changes in its net assets, and financial
highlights for the period from October 1, 1996 (commencement of operations)
to July 31, 1997, in conformity with generally accepted accounting principles.

Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 5, 1997 ---------------------
Ernst & Young LLP
<PAGE>

[LOGO]

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 January 2, 1997 (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 January 2, 1997 (commencement of operations)
to July 31, 1997, in conformity with generally accepted accounting principles.

Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 5, 1997 ---------------------
Ernst & Young LLP

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $6.14
Initial Shares 162.866

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 162.866 $0.550 14.693 177.559
- --------------------------------------------------------------------------------

Ending Shares 177.559
Ending NAV x $6.57
---------
Investment Return $1,166.56

Total Return Performance
- ------------------------
Investment Return $1,166.56
Less Initial Investment $1,000.00
---------
$166.56 / $1,000.00 x 100

Total Return: 16.66%

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $6.14
Initial Shares 162.866

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

Ending Shares 177.559
Ending NAV x $6.57
---------
$1,166.56
Less CDSC $10.00
---------
Investment Return $1,156.56

Total Return Performance
- ------------------------
Investment Return $1,156.56
Less Initial Investment $1,000.00
---------
$156.56 / $1,000.00 x 100

Total Return: 15.66%

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $6.25
Initial Shares 160.000

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 160.000 $0.408 10.511 170.511
- --------------------------------------------------------------------------------

Ending Shares 170.511
Ending NAV x $6.57
---------
Investment Return $1,120.26

Total Return Performance
- ------------------------
Investment Return $1,120.26
Less Initial Investment $1,000.00
---------
$120.26 / $1,000.00 x 100

Total Return: 12.03%

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $6.25
Initial Shares 160.000

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

Ending Shares 170.511
Ending NAV x $6.57
---------
$1,120.26
Less CDSC $10.00
---------
Investment Return $1,110.26

Total Return Performance
- ------------------------
Investment Return $1,110.26
Less Initial Investment $1,000.00
---------
$110.26 / $1,000.00 x 100

Total Return: 11.03%

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITHOUT CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------

n
P(1 + T) = ERV

ONE
YEAR
----------
1
$1000(1 + T) = $1,166.56

T = 16.66%

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND- CLASS C
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITH CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------

n
P(1 + T) = ERV

ONE
YEAR
----------
1
$1000(1 + T) = $1,156.56

T = 15.66%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.159 $0.115 3.717 184.876
- --------------------------------------------------------------------------------

Ending Shares 184.876
Ending NAV x $5.70
---------
Investment Return $1,053.79

Total Return Performance
- ------------------------
Investment Return $1,053.79
Less Initial Investment $1,000.00
---------
$53.79 / $1,000.00 x 100

Total Return: 5.38%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.571 $0.229 7.404 185.975
- --------------------------------------------------------------------------------

Ending Shares 185.975
Ending NAV x $5.70
---------
Investment Return $1,060.06

Total Return Performance
- ------------------------
Investment Return $1,060.06
Less Initial Investment $1,000.00
---------
$60.06 / $1,000.00 x 100

Total Return: 6.01%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.57
Initial Shares 179.533

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 179.533 $0.344 11.310 190.843
- --------------------------------------------------------------------------------

Ending Shares 190.843
Ending NAV x $5.70
---------
Investment Return $1,087.81

Total Return Performance
- ------------------------
Investment Return $1,087.81
Less Initial Investment $1,000.00
---------
$87.81 / $1,000.00 x 100

Total Return: 8.78%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.818 $0.354 11.801 193.619
- --------------------------------------------------------------------------------

Ending Shares 193.619
Ending NAV x $5.70
---------
Investment Return $1,103.63

Total Return Performance
- ------------------------
Investment Return $1,103.63
Less Initial Investment $1,000.00
---------
$103.63 / $1,000.00 x 100

Total Return: 10.36%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.159 $0.111 3.577 184.736
- --------------------------------------------------------------------------------

Ending Shares 184.736
Ending NAV x $5.70
---------
Investment Return $1,053.00

Total Return Performance
- ------------------------
Investment Return $1,053.00
Less Initial Investment $1,000.00
---------
$53.00 / $1,000.00 x 100

Total Return: 5.30%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.80
Initial Shares 172.414

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 172.414 $0.111 3.405 175.819
- --------------------------------------------------------------------------------

Ending Shares 175.819
Ending NAV x $5.70
---------
$1,002.17
Less CDSC $0.00
---------
Investment Return $1,002.17

Total Return Performance
- ------------------------
Investment Return $1,002.17
Less Initial Investment $1,000.00
---------
$2.17 / $1,000.00 x 100

Total Return: 0.22%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.571 $0.220 7.123 185.694
- --------------------------------------------------------------------------------

Ending Shares 185.694
Ending NAV x $5.70
---------
Investment Return $1,058.46

Total Return Performance
- ------------------------
Investment Return $1,058.46
Less Initial Investment $1,000.00
---------
$58.46 / $1,000.00 x 100

Total Return: 5.85%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.88
Initial Shares 170.068

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 170.068 $0.220 6.784 176.852
- --------------------------------------------------------------------------------

Ending Shares 176.852
Ending NAV x $5.70
---------
$1,008.06
Less CDSC $0.00
---------
Investment Return $1,008.06

Total Return Performance
- ------------------------
Investment Return $1,008.06
Less Initial Investment $1,000.00
---------
$8.06 / $1,000.00 x 100

Total Return: 0.81%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.56
Initial Shares 179.856

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 179.856 $0.331 10.898 190.754
- --------------------------------------------------------------------------------

Ending Shares 190.754
Ending NAV x $5.70
---------
Investment Return $1,087.30

Total Return Performance
- ------------------------
Investment Return $1,087.30
Less Initial Investment $1,000.00
---------
$87.30 / $1,000.00 x 100

Total Return: 8.73%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.84
Initial Shares 171.233

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 171.233 $0.331 10.376 181.609
- --------------------------------------------------------------------------------

Ending Shares 181.609
Ending NAV x $5.70
---------
$1,035.17
Less CDSC $0.00
---------
Investment Return $1,035.17

Total Return Performance
- ------------------------
Investment Return $1,035.17
Less Initial Investment $1,000.00
---------
$35.17 / $1,000.00 x 100

Total Return: 3.52%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.818 $0.341 11.351 193.169
- --------------------------------------------------------------------------------

Ending Shares 193.169
Ending NAV x $5.70
---------
Investment Return $1,101.06

Total Return Performance
- ------------------------
Investment Return $1,101.06
Less Initial Investment $1,000.00
---------
$101.06 / $1,000.00 x 100

Total Return: 10.11%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.77
Initial Shares 173.310

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 173.310 $0.341 10.820 184.130
- --------------------------------------------------------------------------------

Ending Shares 184.130
Ending NAV x $5.70
---------
$1,049.54
Less CDSC $0.00
---------
Investment Return $1,049.54

Total Return Performance
- ------------------------
Investment Return $1,049.54
Less Initial Investment $1,000.00
---------
$49.54 / $1,000.00 x 100

Total Return: 4.95%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
THREE MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 181.159 $0.101 3.263 184.422

Ending Shares 184.422
Ending NAV x $5.70
---------
Investment Return $1,051.21

Total Return Performance
- ------------------------
Investment Return $1,051.21
Less Initial Investment $1,000.00
---------
$51.21 / $1,000.00 x 100

Total Return: 5.12%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
THREE MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 181.159 $0.101 3.263 184.422

Ending Shares 184.422
Ending NAV x $5.70
---------
$1,051.21
Less CDSC $40.00
---------
Investment Return $1,011.21

Total Return Performance
- ------------------------
Investment Return $1,011.21
Less Initial Investment $1,000.00
---------
$11.21 / $1,000.00 x 100

Total Return: 1.12%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
SIX MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 178.571 $0.201 6.494 185.065

Ending Shares 185.065
Ending NAV x $5.70
---------
Investment Return $1,054.87

Total Return Performance
- ------------------------
Investment Return $1,054.87
Less Initial Investment $1,000.00
---------
$54.87 / $1,000.00 x 100

Total Return: 5.49%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
SIX MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 178.571 $0.201 6.494 185.065

Ending Shares 185.065
Ending NAV x $5.70
---------
$1,054.87
Less CDSC $40.00
---------
Investment Return $1,014.87

Total Return Performance
- ------------------------
Investment Return $1,014.87
Less Initial Investment $1,000.00
---------
$14.87 / $1,000.00 x 100

Total Return: 1.49%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
NINE MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.56
Initial Shares 179.856

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 179.856 $0.302 9.927 189.783

Ending Shares 189.783
Ending NAV x $5.70
---------
Investment Return $1,081.76

Total Return Performance
- ------------------------
Investment Return $1,081.76
Less Initial Investment $1,000.00
---------
$81.76 / $1,000.00 x 100

Total Return: 8.18%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
NINE MONTHS ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.56
Initial Shares 179.856

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 179.856 $0.302 9.927 189.783

Ending Shares 189.783
Ending NAV x $5.70
---------
$1,081.76
Less CDSC $40.00
---------
Investment Return $1,041.76

Total Return Performance
- ------------------------
Investment Return $1,041.76
Less Initial Investment $1,000.00
---------
$41.76 / $1,000.00 x 100

Total Return: 4.18%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
PERIOD ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 181.818 $0.311 10.339 192.157

Ending Shares 192.157
Ending NAV x $5.70
---------
Investment Return $1,095.29

Total Return Performance
- ------------------------
Investment Return $1,095.29
Less Initial Investment $1,000.00
---------
$95.29 / $1,000.00 x 100

Total Return: 9.53%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
PERIOD ENDED 7/31/97

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 181.818 $0.311 10.339 192.157

Ending Shares 192.157
Ending NAV x $5.70
---------
$1,095.29
Less CDSC $40.00
---------
Investment Return $1,055.29

Total Return Performance
- ------------------------
Investment Return $1,055.29
Less Initial Investment $1,000.00
---------
$55.29 / $1,000.00 x 100

Total Return: 5.53%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.159 $0.101 3.263 184.422
- --------------------------------------------------------------------------------

Ending Shares 184.422
Ending NAV x $5.70
---------
Investment Return $1,051.21

Total Return Performance
- ------------------------
Investment Return $1,051.21
Less Initial Investment $1,000.00
---------
$51.21 / $1,000.00 x 100

Total Return: 5.12%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 181.159

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.159 $0.101 3.263 184.422
- --------------------------------------------------------------------------------

Ending Shares 184.422
Ending NAV x $5.70
---------
$1,051.21
Less CDSC $10.00
---------
Investment Return $1,041.21

Total Return Performance
- ------------------------
Investment Return $1,041.21
Less Initial Investment $1,000.00
---------
$41.21 / $1,000.00 x 100

Total Return: 4.12%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.571 $0.201 6.494 185.065
- --------------------------------------------------------------------------------

Ending Shares 185.065
Ending NAV x $5.70
---------
Investment Return $1,054.87

Total Return Performance
- ------------------------
Investment Return $1,054.87
Less Initial Investment $1,000.00
---------
$54.87 / $1,000.00 x 100

Total Return: 5.49%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.60
Initial Shares 178.571

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.571 $0.201 6.494 185.065
- --------------------------------------------------------------------------------

Ending Shares 185.065
Ending NAV x $5.70
---------
$1,054.87
Less CDSC $10.00
---------
Investment Return $1,044.87

Total Return Performance
- ------------------------
Investment Return $1,044.87
Less Initial Investment $1,000.00
---------
$44.87 / $1,000.00 x 100

Total Return: 4.49%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.56
Initial Shares 179.856

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 179.856 $0.302 9.927 189.783
- --------------------------------------------------------------------------------

Ending Shares 189.783
Ending NAV x $5.70
---------
Investment Return $1,081.76

Total Return Performance
- ------------------------
Investment Return $1,081.76
Less Initial Investment $1,000.00
---------
$81.76 / $1,000.00 x 100

Total Return: 8.18%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
NINE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.56
Initial Shares 179.856

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 179.856 $0.302 9.927 189.783
- --------------------------------------------------------------------------------

Ending Shares 189.783
Ending NAV x $5.70
---------
$1,081.76
Less CDSC $10.00
---------
Investment Return $1,071.76

Total Return Performance
- ------------------------
Investment Return $1,071.76
Less Initial Investment $1,000.00
---------
$71.76 / $1,000.00 x 100

Total Return: 7.18%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
PERIOD ENDED 7/31/97

- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.818 $0.311 10.339 192.157
- --------------------------------------------------------------------------------

Ending Shares 192.157
Ending NAV x $5.70
---------
Investment Return $1,095.29

Total Return Performance
- ------------------------
Investment Return $1,095.29
Less Initial Investment $1,000.00
---------
$95.29 / $1,000.00 x 100

Total Return: 9.53%

<PAGE>

DELAWARE GROUP STRATEGIC INCOME FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

Ending Shares 192.157
Ending NAV x $5.70
---------
$1,095.29
Less CDSC $10.00
---------
Investment Return $1,085.29

Total Return Performance
- ------------------------
Investment Return $1,085.29
Less Initial Investment $1,000.00
---------
$85.29 / $1,000.00 x 100

Total Return: 8.53%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.64
Initial Shares 177.305

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 177.305 $0.129 3.935 181.240
- --------------------------------------------------------------------------------

Ending Shares 181.240
Ending NAV x $5.70
---------
Investment Return $1,072.94

Total Return Performance
- ------------------------
Investment Return $1,072.94
Less Initial Investment $1,000.00
---------
$72.94 / $1,000.00 x 100

Total Return: 7.29%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.92
Initial Shares 168.919

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 168.919 $0.129 3.749 172.668
- --------------------------------------------------------------------------------

Ending Shares 172.668
Ending NAV x $5.92
---------
$1,022.19
Less CDSC $0.00
---------
Investment Return $1,022.19

Total Return Performance
- ------------------------
Investment Return $1,022.19
Less Initial Investment $1,000.00
---------
$22.19 / $1,000.00 x 100

Total Return: 2.22%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.61
Initial Shares 178.253

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.253 $0.169 5.249 183.502
- --------------------------------------------------------------------------------

Ending Shares 183.502
Ending NAV x $5.92
---------
Investment Return $1,086.33

Total Return Performance
- ------------------------
Investment Return $1,086.33
Less Initial Investment $1,000.00
---------
$86.33 / $1,000.00 x 100

Total Return: 8.63%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.89
Initial Shares 169.786

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 169.786 $0.169 4.993 174.779
- --------------------------------------------------------------------------------

Ending Shares 174.779
Ending NAV x $5.92
---------
$1,034.69
Less CDSC $0.00
---------
Investment Return $1,034.69

Total Return Performance
- ------------------------
Investment Return $1,034.69
Less Initial Investment $1,000.00
---------
$34.69 / $1,000.00 x 100

Total Return: 3.47%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT NAV)
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 181.818 $0.169 5.354 187.172
- --------------------------------------------------------------------------------

Ending Shares 187.172
Ending NAV x $5.92
---------
Investment Return $1,108.06

Total Return Performance
- ------------------------
Investment Return $1,108.06
Less Initial Investment $1,000.00
---------
$108.06 / $1,000.00 x 100

Total Return: 10.81%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- CLASS A
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (AT OFFER)
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.77
Initial Shares 173.310

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 173.310 $0.169 5.104 178.414
- --------------------------------------------------------------------------------

Ending Shares 178.414
Ending NAV x $5.92
---------
$1,056.21
Less CDSC $0.00
---------
Investment Return $1,056.21

Total Return Performance
- ------------------------
Investment Return $1,056.21
Less Initial Investment $1,000.00
---------
$56.21 / $1,000.00 x 100

Total Return: 5.62%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
THREE MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.52
Initial Shares 177.305

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 177.305 $0.115 3.935 181.240
- --------------------------------------------------------------------------------

Ending Shares 181.240
Ending NAV x $5.92
---------
Investment Return $1,072.94

Total Return Performance
- ------------------------
Investment Return $1,072.94
Less Initial Investment $1,000.00
---------
$72.94 / $1,000.00 x 100

Total Return: 7.29%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
SIX MONTHS ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.61
Initial Shares 178.253

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

- --------------------------------------------------------------------------------
1997 178.253 $0.169 5.249 183.502
- --------------------------------------------------------------------------------

Ending Shares 183.502
Ending NAV x $5.92
---------
Investment Return $1,086.33

Total Return Performance
- ------------------------
Investment Return $1,086.33
Less Initial Investment $1,000.00
---------
$86.33 / $1,000.00 x 100

Total Return: 8.63%

<PAGE>

DELAWARE GROUP HIGH YIELD OPPORTUNITIES FUND- INSTITUTIONAL CLASS
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN
PERIOD ENDED 7/31/97
- --------------------------------------------------------------------------------

Initial Investment $1,000.00
Beginning NAV $5.50
Initial Shares 181.818

Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares

1997 181.818 $0.354 5.354 187.172

Ending Shares 187.172
Ending NAV x $5.92
---------
Investment Return $1,108.06

Total Return Performance
- ------------------------
Investment Return $1,108.06
Less Initial Investment $1,000.00
---------
$108.06 / $1,000.00 x 100

Total Return: 10.81%

<PAGE>

APPENDIX A

(AS REVISED JULY 17, 1997)

LIST OF FUNDS AND THEIR CLASSES

1. Delaware Group Equity Funds I, Inc.

Delaware Fund

Delaware Fund A Class
Delaware Fund B Class
Delaware Fund C Class
Delaware Fund Institutional Class

Devon Fund

Devon Fund A Class
Devon Fund B Class
Devon Fund C Class
Devon Fund Institutional Class

2. Delaware Group Equity Funds II, Inc.

Decatur Income Fund

Decatur Income Fund A Class
Decatur Income Fund B Class
Decatur Income Fund C Class
Decatur Income Fund Institutional Class

Decatur Total Return Fund

Decatur Total Return Fund A Class
Decatur Total Return Fund B Class
Decatur Total Return Fund C Class
Decatur Total Return Fund Institutional Class

<PAGE>

3. Delaware Group Equity Funds III, Inc.

Trend Fund A Class
Trend Fund B Class
Trend Fund C Class
Trend Fund Institutional Class

4. Delaware Group Equity Funds IV, Inc.

DelCap Fund

DelCap Fund A Class
DelCap Fund B Class
DelCap Fund C Class
DelCap Fund Institutional Class

Capital Appreciation Fund (Added November 29, 1996)

Capital Appreciation Fund A Class
Capital Appreciation Fund B Class
Capital Appreciation Fund C Class
Capital Appreciation Fund Institutional Class

5. Delaware Group Equity Funds V, Inc.

Small Cap Value Fund

Small Cap Value Fund A Class
Small Cap Value Fund B Class
Small Cap Value Fund C Class
Small Cap Value Fund Institutional Class

Retirement Income Fund (Added November 29, 1996)

Retirement Income Fund A Class
Retirement Income Fund B Class
Retirement Income Fund C Class
Retirement Income Fund Institutional Class

<PAGE>

6. Delaware Group Global & International Funds, Inc.

International Equity Fund

International Equity Fund A Class
International Equity Fund B Class
International Equity Fund C Class
International Equity Fund Institutional Class

Global Bond Fund

Global Bond Fund A Class
Global Bond Fund B Class
Global Bond Fund C Class
Global Bond Fund Institutional Class

Global Assets Fund

Global Assets Fund A Class
Global Assets Fund B Class
Global Assets Fund C Class
Global Assets Fund Institutional Class

Emerging Markets Fund (Added July 21, 1997)

Emerging Markets Fund A Class
Emerging Markets Fund B Class
Emerging Markets Fund C Class
Emerging Markets Fund Institutional Class

International Small Cap Fund (Added July 21, 1997)

International Small Cap Fund A Class
International Small Cap Fund B Class
International Small Cap Fund C Class
International Small Cap Fund Institutional Class

Global Equity Fund (Added July 21, 1997)

Global Equity Fund A Class
Global Equity Fund B Class
Global Equity Fund C Class
Global Equity Fund Institutional Class

<PAGE>

7. Delaware Group Income Funds, Inc.

Strategic Income Fund (Added September 30, 1996)

Strategic Income Fund A Class
Strategic Income Fund B Class
Strategic Income Fund C Class
Strategic Income Fund Institutional Class

8. Voyageur Mutual Funds III, Inc.

Tax-Efficient Equity Fund (Series E) (Added July 1, 1997)*

Tax-Efficient Equity Fund A Class
Tax-Efficient Equity Fund B Class
Tax-Efficient Equity Fund C Class
Tax-Efficient Equity Fund Institutional Class

* The Institutional Class was added on August 28, 1997.

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 011
<NAME> DELCHESTER FUND A CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 1,296,129,586
<INVESTMENTS-AT-VALUE> 1,346,530,608
<RECEIVABLES> 61,326,173
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,802,773
<TOTAL-ASSETS> 1,411,659,554
<PAYABLE-FOR-SECURITIES> 37,111,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,562,186
<TOTAL-LIABILITIES> 44,673,984
<SENIOR-EQUITY> 207,974,041
<PAID-IN-CAPITAL-COMMON> 1,159,011,529
<SHARES-COMMON-STOCK> 156,754,713
<SHARES-COMMON-PRIOR> 158,516,786
<ACCUMULATED-NII-CURRENT> 441,112
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,457,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,401,022
<NET-ASSETS> 1,030,327,774
<DIVIDEND-INCOME> 2,282,372
<INTEREST-INCOME> 132,542,204
<OTHER-INCOME> 0
<EXPENSES-NET> 15,041,131
<NET-INVESTMENT-INCOME> 119,783,445
<REALIZED-GAINS-CURRENT> 47,638,271
<APPREC-INCREASE-CURRENT> 39,751,252
<NET-CHANGE-FROM-OPS> 207,172,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 94,104,779
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,886,498
<NUMBER-OF-SHARES-REDEEMED> 38,750,393
<SHARES-REINVESTED> 7,101,822
<NET-CHANGE-IN-ASSETS> 64,791,053
<ACCUMULATED-NII-PRIOR> 307,327
<ACCUMULATED-GAINS-PRIOR> (241,745,403)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,362,089
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,041,131
<AVERAGE-NET-ASSETS> 996,714,087
<PER-SHARE-NAV-BEGIN> 6.140
<PER-SHARE-NII> 0.598
<PER-SHARE-GAIN-APPREC> 0.430
<PER-SHARE-DIVIDEND> 0.598
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.570
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 012
<NAME> DELCHESTER FUND B CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 1,296,129,586
<INVESTMENTS-AT-VALUE> 1,346,530,608
<RECEIVABLES> 61,326,173
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,802,773
<TOTAL-ASSETS> 1,411,659,554
<PAYABLE-FOR-SECURITIES> 37,111,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,562,186
<TOTAL-LIABILITIES> 44,673,984
<SENIOR-EQUITY> 207,974,041
<PAID-IN-CAPITAL-COMMON> 1,159,011,529
<SHARES-COMMON-STOCK> 41,610,262
<SHARES-COMMON-PRIOR> 28,688,738
<ACCUMULATED-NII-CURRENT> 441,112
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,457,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,401,022
<NET-ASSETS> 273,498,690
<DIVIDEND-INCOME> 2,282,372
<INTEREST-INCOME> 132,542,204
<OTHER-INCOME> 0
<EXPENSES-NET> 15,041,131
<NET-INVESTMENT-INCOME> 119,783,445
<REALIZED-GAINS-CURRENT> 47,638,271
<APPREC-INCREASE-CURRENT> 39,751,252
<NET-CHANGE-FROM-OPS> 207,172,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,288,798
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,171,332
<NUMBER-OF-SHARES-REDEEMED> 6,448,410
<SHARES-REINVESTED> 1,198,602
<NET-CHANGE-IN-ASSETS> 64,791,053
<ACCUMULATED-NII-PRIOR> 307,327
<ACCUMULATED-GAINS-PRIOR> (241,745,403)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,362,089
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,041,131
<AVERAGE-NET-ASSETS> 224,068,670
<PER-SHARE-NAV-BEGIN> 6.140
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> 0.430
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.570
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 013
<NAME> DELCHESTER FUND C CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 1,296,129,586
<INVESTMENTS-AT-VALUE> 1,346,530,608
<RECEIVABLES> 61,326,173
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,802,773
<TOTAL-ASSETS> 1,411,659,554
<PAYABLE-FOR-SECURITIES> 37,111,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,562,186
<TOTAL-LIABILITIES> 44,673,984
<SENIOR-EQUITY> 207,974,041
<PAID-IN-CAPITAL-COMMON> 1,159,011,529
<SHARES-COMMON-STOCK> 2,904,954
<SHARES-COMMON-PRIOR> 806,188
<ACCUMULATED-NII-CURRENT> 441,112
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,457,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,401,022
<NET-ASSETS> 19,093,874
<DIVIDEND-INCOME> 2,282,372
<INTEREST-INCOME> 132,542,204
<OTHER-INCOME> 0
<EXPENSES-NET> 15,041,131
<NET-INVESTMENT-INCOME> 119,783,445
<REALIZED-GAINS-CURRENT> 47,638,271
<APPREC-INCREASE-CURRENT> 39,751,252
<NET-CHANGE-FROM-OPS> 207,172,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 967,413
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,401,059
<NUMBER-OF-SHARES-REDEEMED> 398,589
<SHARES-REINVESTED> 96,296
<NET-CHANGE-IN-ASSETS> 64,791,053
<ACCUMULATED-NII-PRIOR> 307,327
<ACCUMULATED-GAINS-PRIOR> (241,745,403)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,362,089
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,041,131
<AVERAGE-NET-ASSETS> 11,375,584
<PER-SHARE-NAV-BEGIN> 6.140
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> 0.430
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.570
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 014
<NAME> DELCHESTER FUND INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 1,296,129,586
<INVESTMENTS-AT-VALUE> 1,346,530,608
<RECEIVABLES> 61,326,173
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,802,773
<TOTAL-ASSETS> 1,411,659,554
<PAYABLE-FOR-SECURITIES> 37,111,798
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,562,186
<TOTAL-LIABILITIES> 44,673,984
<SENIOR-EQUITY> 207,974,041
<PAID-IN-CAPITAL-COMMON> 1,159,011,529
<SHARES-COMMON-STOCK> 6,704,112
<SHARES-COMMON-PRIOR> 9,686,281
<ACCUMULATED-NII-CURRENT> 441,112
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,457,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,401,022
<NET-ASSETS> 44,065,245
<DIVIDEND-INCOME> 2,282,372
<INTEREST-INCOME> 132,542,204
<OTHER-INCOME> 0
<EXPENSES-NET> 15,041,131
<NET-INVESTMENT-INCOME> 119,783,445
<REALIZED-GAINS-CURRENT> 47,638,271
<APPREC-INCREASE-CURRENT> 39,751,252
<NET-CHANGE-FROM-OPS> 207,172,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,288,670
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,110,657
<NUMBER-OF-SHARES-REDEEMED> 712,863
<SHARES-REINVESTED> 7,805,689
<NET-CHANGE-IN-ASSETS> 64,791,053
<ACCUMULATED-NII-PRIOR> 307,327
<ACCUMULATED-GAINS-PRIOR> (241,745,403)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,362,089
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,041,131
<AVERAGE-NET-ASSETS> 54,370,601
<PER-SHARE-NAV-BEGIN> 6.140
<PER-SHARE-NII> 0.614
<PER-SHARE-GAIN-APPREC> 0.429
<PER-SHARE-DIVIDEND> 0.613
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.570
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 031
<NAME> HIGH YIELD OPPORTUNITIES FUND A CLASS

<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 9,222,156
<INVESTMENTS-AT-VALUE> 9,436,621
<RECEIVABLES> 782,981
<ASSETS-OTHER> 781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,220,383
<PAYABLE-FOR-SECURITIES> 864,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,201
<TOTAL-LIABILITIES> 900,761
<SENIOR-EQUITY> 1,572,959
<PAID-IN-CAPITAL-COMMON> 7,160,384
<SHARES-COMMON-STOCK> 1,011,441
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 140,200
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 231,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 214,465
<NET-ASSETS> 5,989,775
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437,907
<OTHER-INCOME> 0
<EXPENSES-NET> 35,266
<NET-INVESTMENT-INCOME> 402,641
<REALIZED-GAINS-CURRENT> 231,614
<APPREC-INCREASE-CURRENT> 214,465
<NET-CHANGE-FROM-OPS> 848,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 168,753
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 982,509
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 28,932
<NET-CHANGE-IN-ASSETS> 9,319,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,745
<AVERAGE-NET-ASSETS> 4,988,579
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.290
<PER-SHARE-GAIN-APPREC> .299
<PER-SHARE-DIVIDEND> .169
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.92
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 032
<NAME> HIGH YIELD OPPORTUNITIES FUND B CLASS

<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 9,222,156
<INVESTMENTS-AT-VALUE> 9,436,621
<RECEIVABLES> 782,981
<ASSETS-OTHER> 781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,220,383
<PAYABLE-FOR-SECURITIES> 864,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,201
<TOTAL-LIABILITIES> 900,761
<SENIOR-EQUITY> 1,572,959
<PAID-IN-CAPITAL-COMMON> 7,160,384
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 140,200
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 231,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 214,465
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437,907
<OTHER-INCOME> 0
<EXPENSES-NET> 35,266
<NET-INVESTMENT-INCOME> 402,641
<REALIZED-GAINS-CURRENT> 231,614
<APPREC-INCREASE-CURRENT> 214,465
<NET-CHANGE-FROM-OPS> 848,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,319,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,745
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS,INC.
<SERIES>
<NUMBER> 033
<NAME> HIGH YIELD OPPORTUNITIES FUND C CLASS

<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 9,222,156
<INVESTMENTS-AT-VALUE> 9,436,621
<RECEIVABLES> 782,981
<ASSETS-OTHER> 781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,220,383
<PAYABLE-FOR-SECURITIES> 864,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,201
<TOTAL-LIABILITIES> 900,761
<SENIOR-EQUITY> 1,572,959
<PAID-IN-CAPITAL-COMMON> 7,160,384
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 140,200
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 231,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 214,465
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437,907
<OTHER-INCOME> 0
<EXPENSES-NET> 35,266
<NET-INVESTMENT-INCOME> 402,641
<REALIZED-GAINS-CURRENT> 231,614
<APPREC-INCREASE-CURRENT> 214,465
<NET-CHANGE-FROM-OPS> 848,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,319,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,745
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 034
<NAME> HIGH YIELD OPPORTUNITIES FUND INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 9,222,156
<INVESTMENTS-AT-VALUE> 9,436,621
<RECEIVABLES> 782,981
<ASSETS-OTHER> 781
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,220,383
<PAYABLE-FOR-SECURITIES> 864,560
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,201
<TOTAL-LIABILITIES> 900,761
<SENIOR-EQUITY> 1,572,959
<PAID-IN-CAPITAL-COMMON> 7,160,384
<SHARES-COMMON-STOCK> 561,518
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 140,200
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 231,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 214,465
<NET-ASSETS> 3,329,847
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437,907
<OTHER-INCOME> 0
<EXPENSES-NET> 35,266
<NET-INVESTMENT-INCOME> 402,641
<REALIZED-GAINS-CURRENT> 231,614
<APPREC-INCREASE-CURRENT> 214,465
<NET-CHANGE-FROM-OPS> 848,720
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 93,688
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 545,455
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 16,063
<NET-CHANGE-IN-ASSETS> 9,319,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 68,745
<AVERAGE-NET-ASSETS> 3,139,087
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.290
<PER-SHARE-GAIN-APPREC> .299
<PER-SHARE-DIVIDEND> .169
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.920
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 021
<NAME> STRATEGIC INCOME FUND A CLASS

<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 20,259,463
<INVESTMENTS-AT-VALUE> 20,393,943
<RECEIVABLES> 1,823,892
<ASSETS-OTHER> 296,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,513,992
<PAYABLE-FOR-SECURITIES> 903,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,243
<TOTAL-LIABILITIES> 1,142,924
<SENIOR-EQUITY> 37,485
<PAID-IN-CAPITAL-COMMON> 20,894,476
<SHARES-COMMON-STOCK> 1,603,689
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 307,281
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 131,826
<NET-ASSETS> 9,144,206
<DIVIDEND-INCOME> 3,229
<INTEREST-INCOME> 984,923
<OTHER-INCOME> 0
<EXPENSES-NET> 135,328
<NET-INVESTMENT-INCOME> 852,824
<REALIZED-GAINS-CURRENT> 309,154
<APPREC-INCREASE-CURRENT> 131,826
<NET-CHANGE-FROM-OPS> 1,293,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 372,603
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,786,116
<NUMBER-OF-SHARES-REDEEMED> 227,046
<SHARES-REINVESTED> 44,619
<NET-CHANGE-IN-ASSETS> 21,371,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,464
<AVERAGE-NET-ASSETS> 5,671,520
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.337
<PER-SHARE-GAIN-APPREC> 0.204
<PER-SHARE-DIVIDEND> 0.341
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.700
<EXPENSE-RATIO> 1.000
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 022
<NAME> STRATEGIC INCOME FUND B CLASS

<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 20,259,463
<INVESTMENTS-AT-VALUE> 20,393,943
<RECEIVABLES> 1,823,892
<ASSETS-OTHER> 296,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,513,992
<PAYABLE-FOR-SECURITIES> 903,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,243
<TOTAL-LIABILITIES> 1,142,924
<SENIOR-EQUITY> 37,485
<PAID-IN-CAPITAL-COMMON> 20,894,476
<SHARES-COMMON-STOCK> 1,206,422
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 307,281
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 131,826
<NET-ASSETS> 6,878,213
<DIVIDEND-INCOME> 3,229
<INTEREST-INCOME> 984,923
<OTHER-INCOME> 0
<EXPENSES-NET> 135,328
<NET-INVESTMENT-INCOME> 852,824
<REALIZED-GAINS-CURRENT> 309,154
<APPREC-INCREASE-CURRENT> 131,826
<NET-CHANGE-FROM-OPS> 1,293,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 225,684
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,266,123
<NUMBER-OF-SHARES-REDEEMED> 82,777
<SHARES-REINVESTED> 23,076
<NET-CHANGE-IN-ASSETS> 21,371,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,464
<AVERAGE-NET-ASSETS> 3,782,163
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.307
<PER-SHARE-GAIN-APPREC> 0.204
<PER-SHARE-DIVIDEND> 0.311
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.700
<EXPENSE-RATIO> 1.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 023
<NAME> STRATEGIC INCOME FUND C CLASS

<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 20,259,463
<INVESTMENTS-AT-VALUE> 20,393,943
<RECEIVABLES> 1,823,892
<ASSETS-OTHER> 296,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,513,992
<PAYABLE-FOR-SECURITIES> 903,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,243
<TOTAL-LIABILITIES> 1,142,924
<SENIOR-EQUITY> 37,485
<PAID-IN-CAPITAL-COMMON> 20,894,476
<SHARES-COMMON-STOCK> 340,844
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 307,281
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 131,826
<NET-ASSETS> 1,944,051
<DIVIDEND-INCOME> 3,229
<INTEREST-INCOME> 984,923
<OTHER-INCOME> 0
<EXPENSES-NET> 135,328
<NET-INVESTMENT-INCOME> 852,824
<REALIZED-GAINS-CURRENT> 309,154
<APPREC-INCREASE-CURRENT> 131,826
<NET-CHANGE-FROM-OPS> 1,293,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55,686
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 361,988
<NUMBER-OF-SHARES-REDEEMED> 25,383
<SHARES-REINVESTED> 4,239
<NET-CHANGE-IN-ASSETS> 21,371,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,464
<AVERAGE-NET-ASSETS> 964,907
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.313
<PER-SHARE-GAIN-APPREC> 0.198
<PER-SHARE-DIVIDEND> 0.311
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.700
<EXPENSE-RATIO> 1.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000027825
<NAME> DELAWARE GROUP INCOME FUNDS, INC.
<SERIES>
<NUMBER> 024
<NAME> STRATEGIC INCOME FUND INSTITUTIONAL CLASS

<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 20,259,463
<INVESTMENTS-AT-VALUE> 20,393,943
<RECEIVABLES> 1,823,892
<ASSETS-OTHER> 296,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,513,992
<PAYABLE-FOR-SECURITIES> 903,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,243
<TOTAL-LIABILITIES> 1,142,924
<SENIOR-EQUITY> 37,485
<PAID-IN-CAPITAL-COMMON> 20,894,476
<SHARES-COMMON-STOCK> 597,594
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 307,281
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 131,826
<NET-ASSETS> 3,404,598
<DIVIDEND-INCOME> 3,229
<INTEREST-INCOME> 984,923
<OTHER-INCOME> 0
<EXPENSES-NET> 135,328
<NET-INVESTMENT-INCOME> 852,824
<REALIZED-GAINS-CURRENT> 309,154
<APPREC-INCREASE-CURRENT> 131,826
<NET-CHANGE-FROM-OPS> 1,293,804
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 200,724
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 565,743
<NUMBER-OF-SHARES-REDEEMED> 2,764
<SHARES-REINVESTED> 34,615
<NET-CHANGE-IN-ASSETS> 21,371,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 262,464
<AVERAGE-NET-ASSETS> 3,169,867
<PER-SHARE-NAV-BEGIN> 5.500
<PER-SHARE-NII> 0.367
<PER-SHARE-GAIN-APPREC> 0.187
<PER-SHARE-DIVIDEND> 0.354
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.700
<EXPENSE-RATIO> 0.750
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>