<PAGE>
For Current Income
DELAWARE GROUP
Delchester Fund
1997
Semi-Annual
Report
professional management
service and guidance
goals
[Photo of house by a stream with waterfall]
DELAWARE
GROUP
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<PAGE>
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FEBRUARY 14, 1997
Dear Shareholder:
During the first half of fiscal 1997, high-yield bonds were the
most rewarding segment of the U.S. fixed-income market, providing both high
current income and a modest level of capital appreciation.
Delchester Fund provided a positive total return of +8.92% for Class
A shares (capital change plus reinvested dividends at net asset value) during
the six months ended January 31, 1997.
Last July, fiscal 1997 began in a less than favorable investment
climate. Both bond and stock prices faced a month-long decline amid investor
concerns about a possible rise in the rate of inflation, and its consequent
negative effects on corporate profits.
SINCE JULY, THE HIGH-YIELD BOND MARKET HAS OFFERED A SUBSTANTIAL INCOME
ADVANTAGE OVER TREASURIES AND A RELATIVELY LOW DEFAULT RATE.
Like a summer thunderstorm, the stock market's downturn proved brief.
But, clouds of worry about inflation and possible changes in Federal Reserve
Board policy hovered over the bond market for the balance of calendar 1996,
dampening both investor enthusiasm and returns. This was particularly true of
U.S. Treasuries, since these bonds are the most sensitive to changes in
inflation expectations.
By contrast, investors in higher risk, high-yield bonds were
sheltered from the storm. During the first half of fiscal 1997, the domestic
corporate high-yield market offered a more than 300 basis point (3%)
advantage in income over Treasuries and had a default rate of just 1.23%,
lower than a year earlier.
For nearly 27 years, Delaware has managed Delchester Fund through a
variety of interest rate environments, and we have learned that investing in
high-yield securities requires the ability to navigate in all kinds of
weather, and anticipate market changes.
Within the high-yield market are bonds of varying quality. In fiscal
1997, your Fund's management has focused on relatively
higher quality bonds than some high-yield mutual funds. This helped us
achieve short-term returns that were competitive with the average of our
peers.
2 1997 SEMI-ANNUAL REPORT
<PAGE>
As you'll see below, Delchester Fund also has a superior long-term
performance record. Given the potential credit risks associated with the
high-yield market, we consider our approach a prudent way to achieve
the Fund's objective of paying high current income consistent with
reasonable safety.
Inside, Paul A. Matlack and Gerald T. Nichols, the Fund's portfolio
managers, review the Fund's performance since July and explain why we believe
the high-yield market is well-positioned for the months ahead.
We appreciate the fact that you have chosen to make Delchester Fund a
part of your portfolio. Delaware Group values your continued confidence in
the Fund and we look forward to reporting our fiscal year-end results to you
this summer.
Sincerely,
Wayne A. Stork
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN
SIX MONTHS 10 YEARS +
ENDED JAN. 31, 1997 ENDED JAN. 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Delchester Fund A Class +8.92% +9.45%
- ----------------------------------------------------------------------------------------------------
Lipper High Current Yield Fund Average +9.14% +9.27%
- ----------------------------------------------------------------------------------------------------
</TABLE>
+AVERAGE ANNUAL TOTAL RETURN.
PERFORMANCE QUOTED ABOVE ASSUMES REINVESTMENT OF DISTRIBUTIONS. RESULTS OF
DELCHESTER AND THE LIPPER FUND AVERAGE DO NOT SHOW THE EFFECT OF SALES CHARGES.
PERFORMANCE FOR ALL FUND CLASSES CAN BE FOUND ON PAGE 8. THE LIPPER AVERAGE
CONSISTED OF 174 AND 43 FUNDS, RESPECTIVELY, FOR SIX MONTHS AND 10 YEARS
ENDED JAN. 31, 1997.
1997 SEMI-ANNUAL REPORT 3
<PAGE>
PORTFOLIO MANAGERS' REVIEW
The first half of fiscal 1997 was a very productive period for
Delchester Fund and the high-yield bond market despite the challenges
posed by volatile U.S. interest rates.
Overall, the high-yield bond market grew by $58 billion in
calendar 1996 to a record $385 billion in bonds, according to
CS First Boston. Meanwhile, investor demand for high-yield bonds has been
robust. In our opinion, this demand was fueled by investors' desire to
increase income, diversify their portfolios and mitigate the effect of a
possible rise in interest rates in 1997.
The overall credit quality of the high-yield market remains
relatively strong. In 1996, the default rate on high-yield bonds remained
substantially below 2% for the fourth consecutive year.
High-yield bonds have a substantial yield advantage relative to U.S.
Treasury securities with comparable maturities. This high interest rate has
historically compensated many high-yield bond owners for the lower credit
quality of issuers and for the fact that their principal and interest
payments are not guaranteed by the U.S. government.
During the past six months, strong investor demand and the
relatively high credit quality of high-yield bonds led to an increase in
prices, and thus modestly lower yields. Still, high-yield bonds offered, on
average, more yield than Treasuries as of January 31, an advantage we believe
can be maintained for the balance of fiscal 1997.
<TABLE>
<CAPTION>
HIGH-YIELD BOND YIELDS HAVE BEEN LESS VOLATILE THAN U.S. TREASURIES
- ----------------------------------------------------------------------------------------------------
January 1994 to January 1997
ANNUALIZED YIELD VOLATILITY+
HIGH LOW JAN. 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salomon Brothers High-Yield Index 11.3% 9.0% 9.6% 25.6%
Ten-Year U.S. Treasuries 7.8% 5.3% 6.5% 47.2%
- ----------------------------------------------------------------------------------------------------
</TABLE>
ABOVE YIELDS ARE NOT INTENDED TO REPRESENT THE YIELD OF ANY DELAWARE GROUP FUND.
UNLIKE TREASURIES, THE INTEREST AND PRINCIPAL OF HIGH-YIELD BONDS ARE NOT
GUARANTEED BY THE U.S. GOVERNMENT. +VOLATILITY IS MEASURED BY THE VARIANCE IN
CURRENT YIELD BETWEEN JANUARY 1994 AND JANUARY 1997.
4 1997 SEMI-ANNUAL REPORT
<PAGE>
INVESTMENT STRATEGY
For three decades, Delchester Fund's goal has remained constant - to provide
above-average income while maintaining a conservative approach to credit risk
management.
The Fund emphasizes income as the dominant component of return, and
stresses capital preservation over appreciation. We strive to achieve this by
investing primarily in bonds rated B and BB, the two highest quality tiers in
the high-yield market. In general, the Fund emphasizes bonds rated B during
periods of economic expansion and lower yielding, better quality bonds rated
BB during slower economic growth. We focus on bonds issued by American
corporations.
Relative quality is an important factor we consider when we select
bonds for your Fund's portfolio. We generally invest in older, seasoned and
larger bond issues. Also, we examine a company's financial statements and
generally meet with a bond issuer's senior management.
Our current portfolio positioning hinges on our belief that the nation's
output of goods and services (gross domestic product) will grow at a
non-inflationary annual rate of 2% to 2.5% in calendar 1997. We believe such a
growth rate would allow most companies issuing high-yield debt to meet their
obligations without triggering higher inflation or a substantial hike in
interest rates.
During the first half of fiscal 1997, we maintained a substantial
weighting in bonds rated B, as shown in the credit quality chart below. This
strategy has the potential to increase your Fund's investment income while
maintaining what we believe is a prudent risk profile.
PORTFOLIO HIGHLIGHTS AND QUALITY BREAKDOWN
A Focus on Bonds Rated B Can Increase Income Potential
B 71.40%
BB 9%
Cash 11.20%
Not Rated 4.60%
January 31,1997
JULY 31, 1996 JAN. 31, 1997
- -----------------------------------------------------------------
A Class Current 30-Day Yield* 9.47% 8.95%
Average Effective Duration 4.0 years 4.0 years
Average Effective Maturity 5.7 years 6.0 years
Number of Bond Issues 109 110
*MEASURED ACCORDING TO SECURITIES AND EXCHANGE COMMISSION
GUIDELINES; THIRTY-DAY SEC YIELD AS OF JANUARY 31, 1997, FOR B
AND C CLASS SHARES WAS 8.62%; INSTITUTIONAL 30-DAY SEC YIELD
WAS 9.41%.
- -----------------------------------------------------------------
1997 SEMI-ANNUAL REPORT 5
<PAGE>
Since July, we have increased our weighting of bonds issued by companies whose
fortunes we believe are not tied to the overall performance of the U.S. economy.
Given the fact that our nation's economy has had an uninterrupted period of
growth for five years, we believe it was prudent to reduce our exposure to
cyclical businesses.
Fund holdings were diversified across 24 different industries as of
January 31, 1997, with no one sector accounting for more than 10% of the fund's
net assets. As we have in the past, we generally avoided bonds of companies in
sectors where business prospects are unclear - emerging technologies, airlines,
retailers and gaming. In our opinion this helped your Fund's performance during
the first half of fiscal 1997.
During the first half, we were able to increase your Fund's income by
investing in Rule 144A bonds. These bonds are named for a Securities and
Exchange Commission rule that allows a security to trade among sophisticated
investors prior to registration. These bonds, which represented 23.6% of the
Fund's net assets as of January 31, offered an average of 100 basis points
additional yield. They had credit risk and liquidity attributes we believed
were similar to bonds that were not issued under the rule.
It appears more companies are willing to temporarily pay higher
interest rates to investors rather than risk losing a financing
opportunity because of the time and expense involved in registering
securities. Prices of Rule 144A bonds generally rise - and yields decline -
once companies register the securities. Rule 144A bonds accounted for 54% of
all new high-yield bonds issued in 1996, compared to 26% of the market
in 1993.
HIGH-YIELD BOND PERFORMANCE
AMID STOCK MARKET CORRECTIONS SINCE 1980
- ----------------------------------------------------------------------------
S&P 500 RETURN FROM
RETURN HIGH-YIELD BONDS
- ----------------------------------------------------------------------------
October 1987 -21.5% -3.8%
March 1980 -9.9% -2.1%
August 1990 -9.0% -4.8%
September 1986 -8.2% +0.8%
November 1987 -8.2% +3.8%
January 1990 -6.7% -3.5%
July 1996 -5.7% -1.9%
SOURCE: CHASE SECURITIES. THIS ILLUSTRATION IS NOT INTENDED TO REPRESENT THE
PERFORMANCE OF ANY DELAWARE GROUP FUND. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.
6 1997 SEMI-ANNUAL REPORT
<PAGE>
OUTLOOK
Assuming U.S. economic growth remains moderate for the balance of 1997 and
the Federal Reserve Board's current monetary policy effectively keeps
inflation caged, the high-yield market can continue to reward income-oriented
investors. We believe income will be the dominant component of total return from
all types of bonds this year.
An important, although unquantifiable catalyst for high-yield bond
demand in calendar 1996 was the increasing volatility of both the bond and stock
markets. Whether through intuition or hard analysis, investors are increasingly
embracing the notion that high-yield bonds can be a defensive investment under
certain market conditions.
BETWEEN 1980 AND 1996, THE HIGH-YIELD BOND MARKET, ON AVERAGE, PROVIDED A
POSITIVE RETURN DURING THE 68 MONTHS THE STANDARD & POOR'S 500 INDEX POSTED A
NEGATIVE RETURN.
The past doesn't always repeat itself, but it is worth noting that
between 1980 and 1996, the high-yield bond market, on average, provided a
positive return during the 68 months the Standard & Poor's 500 Index posted a
negative return, according to Chase Securities Inc. Thus, high-yield bonds have
the potential to both diversify and balance an investment portfolio that's
focused heavily on equities.
We believe a possible increase in stock market volatility in 1997 as
well as an uncertain outlook for U.S. Treasury prices bode well for high-yield
bonds. These two factors, in our opinion, may inspire continuing demand for
high-yield bonds and reinforce the relative attractiveness of the high-yield
market.
Paul A. Matlack
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
Gerald T. Nichols
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
February 14, 1997
1997 SEMI-ANNUAL REPORT 7
<PAGE>
FUND PERFORMANCE
DELCHESTER FUND: PROVIDING HIGH INCOME
SINCE THE HIGH-YIELD MARKET'S INFANCY
Dividends from a $10,000 Investment 1982 - 1997
Total Dividends $53,607
Jan-83 $1,498
Jan-84 $1,597
Jan-85 $2,075
Jan-86 $2,771
Jan-87 $2,777
Jan-88 $2,955
Jan-89 $3,213
Jan-90 $3,556
Jan-91 $3,797
Jan-92 $4,066
Jan-93 $4,510
Jan-94 $4,930
Jan-95 $5,274
Jan-96 $5,082
Jan-97 $5,507
Delchester Fund pioneered high-yield mutual fund investing in the early 1980s.
With continual reinvestment, a $10,000 investment 15 years ago in A Class shares
would have provided more than $5,500 in dividends during the 12 months ended
January 31, 1997.
*CHART ASSUMES $10,000 INVESTED ON JANUARY 31, 1982, WITH A 4.75% MAXIMUM
FRONT-END SALES CHARGE AND REINVESTMENT OF ALL DISTRIBUTIONS. PERFORMANCE FOR
OTHER DELCHESTER FUND CLASSES WILL VARY DUE TO DIFFERING CHARGES AND
EXPENSES.
<TABLE>
<CAPTION>
DELCHESTER FUND PERFORMANCE
Average Annual Total Return Through January 31, 1997
- ----------------------------------------------------------------------------------------
TEN YEARS FIVE YEARS ONE YEAR
<S> <C> <C> <C>
Class A (Est. 1970) +8.92% +9.27% +6.84%
- ----------------------------------------------------------------------------------------
LIFETIME ONE YEAR
Class B (Est. 1994)
Excluding sales charge +7.91% +11.29%
Including sales charge +7.00% +7.29%
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Class C (Est.1995)
Excluding sales charge +11.93% +11.29%
Including sales charge +11.93% +10.29%
- ----------------------------------------------------------------------------------------
</TABLE>
DELCHESTER FUND INVESTS PRIMARILY IN HIGH-YIELD SECURITIES, WHICH INVOLVE
GREATER RISKS THAN INVESTING IN HIGHER QUALITY FIXED-INCOME SECURITIES. RETURN
AND SHARE VALUE WILL FLUCTUATE SO THAT SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL COST. ALL RESULTS INCLUDE REINVESTMENT OF DISTRIBUTIONS
AND SALES CHARGES AS SHOWN BELOW. LIFETIME PERFORMANCE FOR B AND C SHARES
"EXCLUDING SALES CHARGE" ASSUMES THE INVESTMENT WAS NOT REDEEMED. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
CLASS A SHARES, INITIALLY OFFERED AUGUST 20, 1970, REFLECT THE EFFECT OF THE
4.75% MAXIMUM FRONT-END SALES CHARGE AND A 12B-1 FEE.
CLASS B SHARES, INITIALLY OFFERED MAY 2, 1994, DO NOT CARRY A FRONT-END SALES
CHARGE, BUT ARE SUBJECT TO A 1% ANNUAL DISTRIBUTION AND SERVICE FEE. THEY ARE
SUBJECT TO A DEFERRED SALES CHARGE OF UP TO 4% IF REDEEMED BEFORE THE END OF
THE SIXTH YEAR.
CLASS C SHARES, INITIALLY OFFERED NOVEMBER 29, 1995, HAVE A 1% ANNUAL
DISTRIBUTION AND SERVICE FEE. IF REDEEMED WITHIN 12 MONTHS, A 1% CONTINGENT
DEFERRED SALES CHARGE APPLIES.
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE LIFETIME, 10-YEAR, FIVE-YEAR, AND
ONE-YEAR PERIODS AND AGGREGATE SIX-MONTH RETURN FOR THE PERIOD ENDED JANUARY
31, 1997, FOR DELCHESTER FUND'S INSTITUTIONAL CLASS, WHICH IS AVAILABLE WITHOUT
SALES OR ASSET-BASED DISTRIBUTION CHARGES ONLY TO CERTAIN ELIGIBLE INSTITUTIONAL
ACCOUNTS, WERE +9.85%, +9.69% +10.59% AND +12.40% AND +9.06%. THE INSTITUTIONAL
CLASS WAS INITIALLY MADE AVAILABLE JUNE 1, 1992; PERFORMANCE PRIOR TO THAT DATE
WAS ADJUSTED TO ELIMINATE THE EFFECT OF THE SALES CHARGE.
8 1997 SEMI-ANNUAL REPORT
<PAGE>
FINANCIAL STATEMENTS
DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND
STATEMENT OF NET ASSETS/JANUARY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS - 84.82%
AEROSPACE & DEFENSE - 2.18%
Greenwich Air Services sr nts
10.50% 06/01/06. . . . . . . . . . . $ 8,190,000 $ 8,691,638
K & F Industries sr sub debs
10.375% 09/01/04. . . . . . . . . .. 5,700,000 6,013,500
**UNC sr sub nts 11.00% 06/01/06 12,750,000 13,738,125
-----------
28,443,263
AUTOMOBILES & AUTOMOTIVE PARTS - 5.77% -----------
Aetna Industries 11.88% 10/01/06 10,275,000 11,071,313
**CSK Auto Inc. Notes 11.00% 11/01/06 14,400,000 15,138,000
**Delco Remy International sr sub nts
10.625% 08/01/06. . . . . . . . . .. 10,750,000 11,448,750
Exide sr sub def debs
0.00% /12.25% 12/15/04. . . . . . .. 16,000,000 15,040,000
**Motors & Gears Notes 10.75% 11/15/06 14,500,000 14,898,750
Penda 10.75% 03/01/04. . . . . 5,000,000 5,012,500
Venture Holdings Trust 9.75% 04/01/04 3,000,000 2,767,500
-----------
75,376,813
-----------
BANKING, FINANCE & INSURANCE - 1.07%
**Acadia Partners sub nts 13.00% 10/01/97 13,500,000 14,006,250
-----------
14,006,250
-----------
BUILDING & MATERIALS - 1.23%
**Atrium 10.50% 11/15/06. . . . . . . . 7,700,000 7,959,875
NVR11.00% 04/15/03. . . . . . . . . . 7,635,000 8,083,556
-----------
16,043,431
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CABLE, MEDIA, & PUBLISHING - 7.47%
Adelphia Communications sr debs
11.875% 09/15/04. . . . . . . . . .. 4,800,000 4,824,000
Adelphia Communications sr unsec nts
12.50% 05/15/02. . . . . . . . . . . 17,200,000 17,673,000
Cablevision Systems sr sub nts
9.875% 05/15/06. . . . . . . . . . . 12,500,000 12,921,875
Fundy Cable 11.00% 11/15/05 4,000,000 4,260,000
Galaxy Telecommunication L.P. sr sub nts
12.375% 10/01/05. . . . . . . . . .. 7,500,000 8,015,625
Lamar Advertising 9.63% 12/01/06 9,500,000 9,785,000
Marcus Cable sr disc nts
0.00%/14.25% 12/15/05. . . . . ..... 19,200,000 14,040,000
Rogers Cablesystems sr sec nts
10.00% 12/01/07. . . . . . . . . . . 8,260,000 8,683,325
Sullivan Graphics sr sub nts
12.75% 08/01/05. . . . . . . . . . . 10,800,000 10,557,000
Universal Outdoor Notes 9.75% 10/15/06 6,700,000 6,901,000
-----------
97,660,825
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CHEMICALS - 7.04%
Astor 10.50% 10/15/06. . . . . . . .. 6,350,000 6,635,750
**BPC Holding sr nts 12.50% 06/15/06 6,200,000 6,610,750
Harris Chemical sr sub nts
10.75% 10/15/03. . . . . . . . . . . 9,500,000 10,010,625
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------
CORPORATE BONDS (CONTINUED)
CHEMICALS (CONTINUED)
ISP Holding Notes 9.00% 10/15/03 $ 8,000,000 $ 8,160,000
NL Industries sr sec nts 11.75% 10/15/03 7,435,000 7,853,219
NL Industries sr sec disc nts
0.00%/13.00% 10/15/05. . . . . . . . 15,400,000 13,513,500
Sterling Chemicals 11.75% 08/15/06 14,455,000 15,412,644
**Texas Petrochemical sr sub nts
11.125% 07/01/06. . . . . . . . . .. 9,750,000 10,469,063
UCC Investors Holding sub nts
0.00%/12.00% 05/01/05. . . . . . . . 15,000,000 13,312,500
-----------
91,978,051
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COMPUTERS & TECHNOLOGY - 3.42%
**Statia Terminals 11.75% 11/15/03 13,000,000 13,796,250
Unisys nts 11.75% 10/15/04 16,635,000 17,924,213
Unisys sr nts 12.00% 04/15/03 12,000,000 13,035,000
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44,755,463
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CONSUMER PRODUCTS - 5.00%
Calmar Spraying Systems sr sub nts
11.50% 08/15/05. . . . . . . . . . . .. 14,500,000 15,351,875
**Rayovac Notes 10.25% 11/01/96 7,395,000 7,644,581
Revlon Worldwide sr sec disc nts
0.00% /9.00% 03/15/98. . . . . 28,000,000 25,340,000
Samsonite sr sub nts 11.13% 07/15/05 6,400,000 7,048,000
Shop Vac 10.63% 09/01/03. . 9,400,000 9,975,750
-----------
65,360,206
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ELECTRONICS/ELECTRICAL EQUIPMENT - 2.72%
Electronic Retailing Systems
0.00%/13.25% 02/01/04. . . . . . . . .. 13,200,000 9,108,000
**IMO Industries sr sub nts
11.75% 05/01/06. . . . . . . . . . . .. 16,965,000 16,159,163
International Wire Group sr sub nts
11.75% 06/01/05. . . . . . . . . . . .. 9,500,000 10,224,375
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35,491,538
ENERGY/ENVIRONMENTAL SERVICES - 1.96% -----------
Allied Waste North America
10.25% 12/01/06. . . . . . . . . . . .. 9,250,000 9,874,375
Clark USA Notes 10.88% 12/01/05 10,170,000 10,411,538
Petro Stopping Centers 10.50% 02/01/07 5,275,000 5,393,688
------------
25,679,601
------------
FOOD, BEVERAGE & TOBACCO - 3.80%
CFP Holdings 11.63% 01/15/04 10,300,000 10,609,000
Core-Mark 11.38% 09/15/03. 13,500,000 13,921,875
International Home Foods Notes
10.38% 11/01/06. . . . . . . . . . . .. 9,350,000 9,770,750
TLC Beatrice International Holdings sr nts
11.50% 10/01/05. . . . . . . . . . . .. 14,500,000 15,424,375
------------
49,726,000
------------
</TABLE>
1997 SEMI-ANNUAL REPORT 9
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND (CONTINUED)
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTHCARE & PHARMACEUTICALS - 3.13%
**Dade International sr sub nts
11.125% 05/01/06. . . . . . . . . . . . $10,425,000 $ 11,324,156
Dynacare sr nts 10.75% 01/15/06 9,750,000 9,908,438
Imed 9.75% 12/01/06. . . . . . . .. . .. 6,500,000 6,638,125
Owens & Minor sr sub nts
10.875% 06/01/06. . . . . . . . . .. .. 12,000,000 13,020,000
-------------
40,890,719
-------------
INDUSTRIAL MACHINERY - 4.88%
Goss Graphics System Notes
12.00% 10/15/06. . . . . . . . . . .. . 10,700,000 11,221,625
**Hawk 10.25% 12/01/03. . . .. . . . . .. 10,500,000 10,723,125
Interlake sr nts 12.125% 03/01/02 10,600,000 11,130,000
Spinnaker Industries Notes
10.75% 10/15/06. . . . . . . . . . .. . 9,500,000 9,915,625
Jordan Industries sr sec nts
10.38% 08/01/03. . . . . . . . . . . .. 13,100,000 13,100,000
Terex 13.25% 05/15/02. . . . . . . . ... 7,000,000 7,752,500
-------------
63,842,875
-------------
LEISURE, LODGING & ENTERTAINMENT - 6.02%
**AMF Group sr disc nts
0.00%/12.25% 03/15/06. . . . . . . . 13,000,000 8,970,000
**AMF Group sr sub nts 10.88% 03/15/06 9,500,000 10,271,875
CINEMARK 9.63% 08/01/08. . . . . . .. 11,000,000 11,192,500
Coleman Holdings
0.00%/10.50% 05/27/98. . . . . . . . 22,750,000 20,020,000
**ElDorado Resorts LLC sr sub nts
10.50% 08/15/06. . . . . . . . . . . 9,050,000 9,626,938
Trump-Atlantic City mtg nts
11.25% 05/01/06. . . . . . . . . . . 19,200,000 18,600,000
-------------
78,681,313
-------------
METALS & MINING - 8.50%
Algoma Steel mtg nts 12.375% 07/15/05 14,600,000 16,169,500
Bayou Steel 10.25% 03/01/01 2,000,000 1,965,000
Commonwealth Aluminum
10.75% 10/01/06. . . . . . . . . . . 11,725,000 12,164,688
G.S.Technologies sr nts 12.00% 09/01/04 11,500,000 12,146,875
G.S.Technologies sr nts 12.25% 10/01/05 9,450,000 10,076,063
Maxxam Group 11.25% 08/01/03 9,400,000 9,623,250
Maxxam Group sr sec nts
12.00% 08/01/03. . . . . . . . . . . 12,250,000 12,678,750
NS Group units 13.50% 07/15/03 13,575,000 14,932,500
Renco Metals sr nts 11.50% 07/01/03 14,900,000 15,626,375
**Weirton Steel sr nts 11.375% 07/01/04 5,600,000 5,803,000
-------------
111,186,001
-------------
PACKAGING & CONTAINERS - 4.43%
Gaylord Container sr nts
11.50% 05/15/01. . . . . . . . . . . 8,025,000 8,536,594
Ivex Packaging sr sub nts
12.50% 12/15/02. . . . . . . . . . . 15,740,000 17,077,900
*Plastic Containers 10.00% 12/15/06 3,400,000 3,519,000
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------------------------------
CORPORATE BONDS (CONTINUED)
PACKAGING & CONTAINERS (CONTINUED)
Silgan Holdings sr disc debs
0.00%/13.25% 12/15/02. . . . . $ 6,568,000 $ 6,699,360
Stone Container sr nts 11.88% 12/01/98 4,750,000 5,046,875
Stone Container sr nts 11.50% 10/01/04 9,750,000 10,164,375
**Stone Container sr nts 11.88% 08/01/16 6,500,000 6,865,625
-------------
57,909,729
-------------
PAPER & FOREST PRODUCTS - 5.05%
**Florida Coast Paper LLC mtg nts
12.75% 06/01/03. . . . . . . . . . . 9,500,000 10,212,500
**Four M sr nts 12.00% 06/01/04 14,225,000 15,007,375
Pacific Lumber sr nts 10.50% 03/01/03 15,000,000 15,300,000
Repap Wisconsin sr nts 9.875% 05/01/06 10,000,000 9,800,000
Riverwood International unsec sr sub nts
10.875% 04/01/08. . . . . . . . . . 6,825,000 6,006,000
S.D. Warren sr sub nts 12.00% 12/15/04 8,825,000 9,685,438
-------------
66,011,313
-------------
RETAIL - 3.18%
Fleming sr nts 10.625% 12/15/01 18,445,000 19,136,688
Jitney-Jungle Stores sr nts
12.00% 03/01/06. . . . . . . . . . . 12,000,000 12,825,000
Ralph's Grocery sr sub nts
13.75% 06/15/05. . . . . . . . . . . 8,982,000 9,655,650
-------------
41,617,338
TELECOMMUNICATIONS - 2.82% -------------
**Intermedia Capital Partners sr nts
11.250% 08/01/06. . . . . . . . . . 14,500,000 15,388,125
Paging Network 10.13% 08/01/07 1,800,000 1,786,500
Teleport Communications sr nts
9.875% 07/01/06. . . . . . . . . . . 9,500,000 10,081,875
Teleport Communications sr disc nts
0.00%/7.125% 07/01/07. . . . . 13,900,000 9,573,625
-------------
36,830,125
-------------
TEXTILES & FURNITURE - 1.15%
**Clark-Schwebel sr nts 10.50% 04/15/06 10,975,000 11,647,219
Foamex L.P. sr sub debs
11.88% 10/01/04. . . . . . . . . . . 3,200,000 3,456,000
-------------
15,103,219
TRANSPORTATION & SHIPPING - 0.84%
Blue Bird Body 10.75% 11/15/06 3,000,000 3,172,500
Ryder Transportation Notes
10.00% 12/01/06. . . . . . . . . . . 7,500,000 7,809,375
-------------
10,981,875
-------------
UTILITIES - 0.82%
**Calpine sr nts 10.50% 05/15/06 10,000,000 10,675,000
-------------
10,675,000
-------------
MISCELLANEOUS - 2.34%
Coinmach sr nts 11.75% 11/15/05 14,500,000 15,714,375
**LDM Technologies 10.75% 01/15/07 2,425,000 2,515,938
**Pierce Leahy sr sub nts
11.125% 07/15/06. . . . . . . . . . 11,250,000 12,360,938
--------------
30,591,251
--------------
Total Corporate Bonds
(cost $1,062,328,087). . . . . 1,108,842,199
--------------
</TABLE>
10 1997 SEMI-ANNUAL REPORT
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC.
DELCHESTER FUND (CONTINUED)
STATEMENT OF NET ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS - 8.98%
U.S. Treasury Notes 8.50% 04/15/97 $62,464,000 $ 62,864,388
U.S. Treasury Notes 9.00% 05/15/98 52,500,000 54,606,820
--------------
Total U.S. Treasury Obligations
(cost $117,610,774). . . . . . . 117,471,208
--------------
PREFERRED STOCK - 3.05%
Cablevision Systems 11.125% 04/01/03 55,364 5,121,170
California Federal 9.125% 12/31/02 304,000 7,638,000
Chancellor Radio 12% 01/15/02 69,250 6,976,938
Pegasus Communication 12.75% 01/01/02 91,500 9,150,000
**Silgan Holdings pik 13.25% 07/15/06 5,672 6,062,097
*Supermarket General $3.52 pfd 200,000 4,800,000
Terex Corporation appreciation rights 55,200 165,600
-----------
Total Preferred Stock (cost $39,391,604) 39,913,805
-----------
CONVERTIBLE PREFERRED STOCK - 0.75%
Pantry Pride $14.875 cv pfd 97,500 9,762,188
----------
Total Convertible Preferred Stock
(cost $10,237,500). . . . . . . . 9,762,188
----------
TOTAL MARKET VALUE OF SECURITIES - 97.60%
(cost $1,229,567,965). . . . . 1,275,989,400
--------------
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES 2.40%. . 31,366,362
--------------
NET ASSETS APPLICABLE TO 158,312,746
DELCHESTER FUND A CLASS, 35,808,741
DELCHESTER FUND B CLASS, 1,832,481
DELCHESTER FUND C CLASS, AND 9,372,228
DELCHESTER FUND INSTITUTIONAL CLASS SHARES
($1 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $6.37 PER SHARE - 100.00% $1,307,355,762
==============
<PAGE>
MARKET
VALUE
---------
NET ASSETS APPLICABLE TO 158,312,746
DELCHESTER FUND A CLASS, 35,808,741
DELCHESTER FUND B CLASS, 1,832,481
DELCHESTER FUND C CLASS, AND 9,372,228
DELCHESTER FUND INSTITUTIONAL CLASS SHARES
($1 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $6.37 PER SHARE - 100.00% $1,307,355,762
==============
COMPONENTS OF NET ASSETS AT JANUARY 31, 1997:
Capital Stock, $1 par value, 500,000,000 shares authorized
to the Fund with 350,000,000 shares allocated to
Delchester Fund A Class, 50,000,000 shares allocated to
Delchester Fund B Class, 50,000,000 shares allocated to
Delchester Fund C Class and 50,000,000 shares allocated to
Delchester Fund Institutional Class $1,493,235,684
Accumulated undistributed:
Net investment loss. . . . . . . (17,134)
Net realized loss on investments (232,284,223)
Net unrealized appreciation of investments 46,421,435
---------------
Total net assets. . . . . . . . . . $1,307,355,762
===============
</TABLE>
- ---------------------
*Non-income producing security for the period ended January 31, 1997
**This security is exempt from registration under Rule 144A of the Securities
Act of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
Summary of Abbreviations:
cv - convertible
debs - debentures
def - deferred
disc - discount
fm - floating rate notes
jr - junior
mtg - mortgage
nts - notes
pfd - preferred
pik - pay-in-kind
sec - secured
sr - senior
sub - subordinated
unsec - unsecured
See accompanying notes
1997 SEMI-ANNUAL REPORT 11
<PAGE>
<TABLE>
<CAPTION>
DELAWARE GROUP INCOME FUND, INC.
DELCHESTER FUND
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997 STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C>
Interest. . . . . . . . . . . . . . . . . . $67,299,750
Dividends. . . . . . . . . . . . . . . . . 725,156 $ 68,024,906
------------
EXPENSES:
Management fees ($3,610,826) and
directors' fees ($13,655). 3,624,481
Distribution expenses. . . . . 2,321,580
Dividend disbursing and transfer
agent fees and expenses. . . 890,242
Accounting fees and Salaries 204,255
Reports and statements to shareholders 130,724
Registration fees. . . . . . . . . 57,578
Professional fees. . . . . . . . . 16,833
Taxes (other than taxes on income) 4,018
Other. . . . . . . . . . . . . . . . . . . . . 59,174 7,308,885
-----------
NET INVESTMENT INCOME. . . . . 60,716,021
NET REALIZED AND
UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 9,461,180
Net unrealized appreciation of
investments during the period 35,771,665
-----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS. . . . . . . 45,232,845
NET INCREASE IN NET ASSETS -------------
RESULTING FROM OPERATIONS. 105,948,866
=============
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
1/31/97 7/31/96
(Unaudited)
OPERATIONS: ------------------------------
<S> <C> <C>
Net investment income. $ 60,716,021 $ 120,921,861
Net realized gain from investment
transactions. . . . . . . . . . 9,461,180 1,187,422
Net unrealized appreciation (depreciation)
during the period. . . . 35,771,665 (28,027,547)
Net increase in net assets ----------- ------------
resulting from operations 105,948,866 94,081,736
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Delchester Fund A Class (48,604,876) (100,800,196)
Delchester Fund B Class (9,048,783) (13,336,513)
Delchester Fund C Class (363,585) (145,007)
Delchester Fund Institutional Class (3,023,238) (6,332,817)
----------- ------------
(61,040,482) (120,614,534)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Delchester Fund A Class 86,084,952 182,180,243
Delchester Fund B Class 54,902,153 88,879,473
Delchester Fund C Class 6,715,917 5,408,360
Delchester Fund Institutional Class 9,851,540 33,198,797
Net asset value of shares issued upon
reinvestment of dividends from net
investment income:
Delchester Fund A Class 23,333,764 49,169,956
Delchester Fund B Class 3,561,191 5,253,012
Delchester Fund C Class 239,910 106,355
Delchester Fund Institutional Class 2,545,142 5,385,495
----------- ------------
187,234,569 369,581,691
Cost of shares repurchased: ----------- ------------
Delchester Fund A Class (110,720,416) (256,308,765)
Delchester Fund B Class (13,826,802) (26,555,455)
Delchester Fund C Class (526,874) (514,240)
Delchester Fund Institutional Class (14,384,308) (39,364,486)
----------- ------------
(139,458,400) (322,742,946)
Increase in net assets derived from ----------- ------------
capital share transactions 47,776,169 46,838,745
----------- ------------
NET INCREASE IN NET ASSETS 92,684,553 20,305,947
----------- ------------
NET ASSETS:
Beginning of period. . . 1,214,671,209 1,194,365,262
------------- -------------
End of period. . . . . . . . . $1,307,355,762 $1,214,671,209
</TABLE>
See accompanying notes
12 1997 SEMI-ANNUAL REPORT
<PAGE>
DELAWARE GROUP INCOME FUND, INC.
DELCHESTER FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
(UNAUDITED)
Delaware Group Income Funds, Inc.- Delchester Fund (formally known as
Delaware Group Delchester High-Yield Bond Fund, Inc.)(the "Fund") is
registered as a diversified open-end investment company under the Investment
Company Act of 1940, as amended. The Fund is organized as a Maryland
corporation. The Fund offers four classes of shares.
The investment objective of the Fund is to seek as high a current income as
is consistent with providing reasonable safety.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund:
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of 4:00 p.m. E.S.T. on the valuation date. Securities
not traded or not listed on an exchange are valued at the mean of the last
quoted bid and asked prices. Long-term debt securities are valued by an
independent pricing service and are believed to reflect the fair value of
such securities. Money market instruments having less than 60 days to
maturity are valued at amortized cost, which approximates market value.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes is required in the
financial statements.
Repurchase Agreements - The Fund may invest in a pooled cash account along
with other members of the Delaware Group of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is
held by the Fund's custodian bank until the maturity of the repurchase
agreements. Each repurchase agreement is at least 100%
collateralized. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization of the collateral may be subject
to legal proceedings.
Class Accounting - Expenses directly attributable to a class are charged to
that class. Other common expenses are prorated between all classes of the
Fund.
Other - Expenses common to all funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale
of investment securities are those of the specific securities sold. Interest
income is recorded on an accrual basis. Original issue discounts are
accreted to interest income over the lives of the respective securities. The
Fund declares dividends daily from net investment income and pays such
dividends monthly.
Certain fund expenses are paid directly by brokers. The amount of these
expenses was less than 0.01% of the Fund's average net assets.
2. Investment Management and Distribution Agreements
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Fund, an annual fee which is calculated daily at the rate of 0.60% of the
first $500 million of average daily net assets of the Fund, 0.575% on the next
$250 million and 0.55% on the average daily net assets over $750 million, less
fees paid to the independent directors. At January 31, 1997, the Fund had a
liability for Investment Management fees and other expenses payable to DMC for
$87,904.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B Class and C Class. No distribution
expenses are paid by the Institutional Class. At January 31, 1997, the Fund
had a liability for distribution fees and other expenses payable to DDLP for
$53,305. For the six months ended January 31, 1997, the Fund paid DDLP $259,029
for commissions earned on sales of Delchester Fund A Class shares.
<PAGE>
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC to serve as dividend disbursing and transfer agent for the Fund.
Effective August 19, 1996, the Fund also engaged DSC to provide accounting
services for the Fund. Previously, Fund personnel provided this service and
the related costs were recorded in salaries and other expense categories in
the statement of operations. For the six months ended January 31, 1997, the
Fund expensed $890,242 for dividend disbursing and transfer agent services,
$204,255 for accounting services and had liabilities for such fees and other
expenses payable to DSC of $47,211.
Certain officers of DMC are officers, directors and/or employees of the Fund.
These officers, directors and employees are paid no compensation by the Fund.
3. Investments
During the period ended January 31, 1997, the Fund made purchases of
$605,151,174 and sales of $602,180,497 of investment securities other than
direct U.S. government securities and temporary cash investments.
At January 31, 1997, the aggregate cost of securities for federal income tax
purposes was $1,229,567,965.
At January 31, 1997, net unrealized appreciation for federal income tax
purposes aggregated $46,421,435 of which $50,862,061 related to unrealized
appreciation of securities and $4,440,626 related to unrealized depreciation
of securities.
The realized gain for federal income tax purposes was $9,461,180 for the six
months ended January 31, 1997. For federal income tax purposes, the Fund had
accumulated capital losses at July 31, 1996 of $238,687,000 which may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 1998-$58,204,000, 1999-$89,261,000,
2002-$3,628,000 and 2003-$87,594,000.
4. Capital Stock
Transactions in capital stock shares were as follows:
Six Months Year
Ended Ended
1/31/97 7/31/96
Shares sold: ---------- -----------
Delchester Fund A Class. 13,722,199 29,345,150
Delchester Fund B Class. 8,762,978 14,310,890
Delchester Fund C Class. 1,071,827 872,689
Delchester Fund Institutional Class 1,571,890 5,337,336
Shares issued upon reinvestment of dividends
from net investment income:
Delchester Fund A Class. 3,714,867 7,914,017
Delchester Fund B Class. 566,621 846,254
Delchester Fund C Class. 38,114 17,233
Delchester Fund Institutional Class 405,295 858,905
---------- ----------
29,853,791 59,502,474
---------- ----------
Shares repurchased:
Delchester Fund A Class. (17,641,107) (41,237,430)
Delchester Fund B Class. (2,209,595) (4,275,449)
Delchester Fund C Class. (83,648) (83,734)
Delchester Fund Institutional Class (2,291,238) (6,338,631)
---------- ----------
(22,225,588) (51,935,244)
---------- ----------
Net increase. . . . . . . . . . . . 7,628,203 7,567,230
========== ==========
1997 SEMI-ANNUAL REPORT 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Lines of Credit
The Fund has a committed line of credit for $20,000,000. No amount was
outstanding at January 31, 1997 or at any time during the period.
6. Concentration of Credit Risk
The Fund invests in high-yield fixed income securities which carry ratings of
BB or lower by Standard & Poors and/or Ba or lower by Moody's. Investments
in these higher yielding securities may be accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower-rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment grade securities.
The Fund may invest up to 10% of its total assets in illiquid securities
which include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The
relative illiquidity of some of these securities may adversely affect the
Fund's ability to dispose of such securities in a timely manner and at a fair
price when it is necessary to liquidate such securities. These securities
have been denoted in the Statement of Net Assets. Of the securities referred
to above, none of the securities have been determined to be illiquid.
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Delchester Fund A Class
--------------------------------------------------------
Six Months
Ended Year Ended July 31,
1/31/97(1) 1996 1995 1994 1993 1992
<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. . . . . . . . . . . . 0.306 0.628 0.668 0.744 0.774 0.781
Net realized and unrealized gain (loss) from
security transactions 0.231 (0.141) (0.167) (0.618) 0.165 0.640
------ ------ ------ ------ ----- -----
Total from investment operations. . . . . . 0.537 0.487 0.501 0.126 0.939 1.421
------ ------ ------ ------ ----- -----
Less distributions:
Dividends from net investment income. . (0.307) (0.627) (0.671) (0.746) (0.769) (0.781)
Distributions from net realized gain on
security transactions none none none none none none
------ ------ ------ ------ ----- -----
Total distributions. . .. . . . . . . . . (0.307) (0.627) (0.671) (0.746) (0.769) (0.781)
------ ------ ------ ------ ----- -----
Net asset value, end of period. . . . . . . . $6.370 $6.140 $6.280 $6.450 $7.070 $6.900
====== ====== ====== ====== ===== =====
Total return(2). . . . . . . . . . . . . . . .. 8.92% 8.10% 8.46% 1.60% 14.46% 23.94%
Ratios/supplemental data:
Net assets, end of period (000 omitted) $1,008,011 $973,939 $1,020,763 $983,569 $955,113 $760,290
Ratio of expenses to average net assets 1.03% 1.02% 1.09% 1.05% 1.04% 1.08%
Ratio of net investment income to average
net assets 9.68% 10.11% 10.77% 10.48% 11.17% 11.58%
Portfolio turnover. . . . . . . . . . . 103% 108% 92% 92% 72% 101%
</TABLE>
(1) Ratios have been annualized but total return has not been annualized.
(2) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase.
14 1997 SEMI-ANNUAL REPORT
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Delchester Fund
Delchester Fund B Class C Class
--------------------------------------------------- ------------------------
Six
Months(6) 5/2/94(2) Six Months(6) 11/29/95(5)
Ended Year Ended July 31, to Ended to
1/31/97 1996 1995 7/31/94(4) 1/31/97 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. . . . . . . . . . . . 0.282 0.581 0.624 0.120 0.282 0.385
Net realized and unrealized gain (loss) from
security transactions 0.231 (0.141) (0.170) (0.280) 0.230 (0.069)
------ ------ ------ ------ ----- -----
Total from investment operations. . . . . . . . 0.513 0.440 0.454 (0.160) 0.513 0.316
Less distributions: ------ ------ ------ ------ ----- -----
Dividends from net investment income. . (0.283) (0.580) (0.624) (0.120) (0.283) (0.386)
Distributions from net realized gain on security
transactions none none none none none none
------ ------ ------ ------ ----- -----
Total distributions. . . . . . . . . . . . . . (0.283) (0.580) (0.624) (0.120) (0.283) (0.386)
------ ------ ------ ------ ----- -----
Net asset value, end of period. . . . . . . . . . $6.370 $6.140 $6.280 $6.450 $6.370 $6.140
====== ====== ====== ====== ====== ======
Total return. . . . .. . . . . . . . . . . . . . 8.52% 7.30%(3) 7.64%(3) (4) 8.51% 5.20%(3)
Ratios/supplemental data:
Net assets, end of period (000 omitted) $228,002 $176,266 $111,860 $21,776 $11,668 $4,953
Ratio of expenses to average net assets 1.79% 1.77% 1.82% 1.83% 1.79% 1.77%
Ratio of net investment income to average net
assets 8.94% 9.36% 10.14% 9.70% 8.94% 9.36%
Portfolio turnover. . . . . . . . . . . . . . 103% 108% 92% 92% 103% 108%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Delchester Fund
Delchester Fund Institutional Class
---------------------------------------------------------
Six Months
Ended Year Ended July 31,
1/31/97(6) 1996 1995 1994 1993 1992(1)
<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. . . . . . . . . 0.314 0.644 0.685 0.758 0.787 0.798
Net realized and unrealized gain (loss)
from security transactions 0.231 (0.142) (0.169) (0.617) 0.165 0.640
------ ------ ------ ------ ----- -----
Total from investment operations. . . . . . 0.545 0.502 0.516 0.141 0.952 1.438
Less distributions: ------ ------ ------ ------ ----- -----
Dividends from net investment income. . (0.315) (0.642) (0.686) (0.761) (0.782) (0.798)
Distributions from net realized gain on
security transactions none none none none none none
------ ------ ------ ------ ----- -----
Total distributions. . . . . . . . . . . (3.315) (0.642) (0.686) (0.761) (0.782) (0.798)
------ ------ ------ ------ ----- -----
Net asset value, end of period. . . . . . . $6.370 $6.140 $6.280 $6.450 $7.070 $6.900
====== ====== ====== ====== ====== ======
Total return. . . . . . . . . . . . . . . 9.06% 8.37% 8.72% 1.82% 14.67% 24.28%
Ratios/supplemental data:
Net assets, end of period (000 omitted) $59,675 $59,513 $61,742 $71,122 $35,909 $18,746
Ratio of expenses to average net assets 0.79% 0.77% 0.82% 0.83% 0.86% 0.86%
Ratio of net investment income to average
net assets 9.94% 10.36% 11.14% 10.70% 11.35% 12.17%
Portfolio turnover. . . . . . . . . . . . 103% 108% 92% 92% 72% 101%
</TABLE>
1 The per share data of Delchester I class and Delchester Fund Institutional
Class has been combined for 1992. For the ten months ended May 31, 1992, the
Delchester I class operating expenses and net investment income per share
were $0.047 and $0.666, respectively. For the two months ended July 31,
1992, the Delchester Fund Institutional Class' operating expenses and net
investment income per share were $0.009 and $0.132, respectively. All net
investment income was distributed to share holders.
2 Date of initial public offering. Ratios have been annualized.
3 Does not include the contingent deferred sales charge which varies from 1%-4
% for B Class and 1% for C Class, depending upon the holding period.
4 Total return has been omitted as management believes that such information
for this relatively short period is not meaningful.
5 Date of initial public offering. Ratios have been annualized and total
return has not been annualized.
6 Ratios have been annualized and total return has not been annualized.
1997 SEMI-ANNUAL REPORT 15
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF DELCHESTER FUND SHAREHOLDERS,
BUT IT MAY BE USED WITH PROSPECTIVE INVESTORS WHEN PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS FOR DELCHESTER FUND, WHICH SETS FORTH DETAILS ABOUT CHARGES,
EXPENSES, INVESTMENT OBJECTIVES AND OPERATING POLICIES OF THE FUND. YOU SHOULD
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. SUMMARY INVESTMENT RESULTS ARE
DOCUMENTED IN THE FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION. THE
FIGURES IN THIS REPORT REPRESENT PAST RESULTS WHICH ARE NOT A GUARANTEE OF
FUTURE RESULTS. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING AND
TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES
1.800.659.2265
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, and involve investment risk, including the possible loss of
principal. Shares of the Fund are not bank or credit union deposits.
Copy Rights Delaware Distributors, L.P.
Printed in the USA on
recycled paper
[Photo of Globe]
DELC-SA [1/97] PP3/97
B-173
DELAWARE
GROUP
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Philadelphia * London
