<PAGE>
For Current Income
Strategic Income Fund
(Photo of illustration from
Current Income Brochure)
service and guidance
professional management
goals
1998
Semi-Annual
Report
(Logo here)
<PAGE>
professional
professional management
management
MORE THAN 69 YEARS
of investment experience has taught us that disciplined strategies and
prudent risk management are a sound approach to any market environment.
(various photos demonstrating service and guidance, professional
management and goals)
goals
goals
WHATEVER YOUR GOALS, the years
ahead will be shaped by choices
you make today. Delaware offers
many options that can be an
appropriate part of a sound
investment plan.
service and
guidance
service and guidance
DELAWARE BELIEVES THAT THE GUIDANCE of a
professional financial adviser is vital to your
long-term success. We are committed to
providing you and your adviser with the highest
quality information and service.
<PAGE>
for current
income
1
February 18, 1998
Dear Shareholder:
THE VIGOROUS PERFORMANCE OF THE U.S. economy, relative to the rest of the world,
presented a double-edged sword for Strategic Income Fund during the first half
of the 1998 fiscal year.
We benefited from a strong North American bond market. However, the
U.S. dollar rose in value relative to many European currencies. This reduced
the potential returns from your Fund's overseas bonds.
Strategic Income Fund provided a total return of +4.54% for the six
months ended January 31, 1998 (for Class A shares at net asset value with
distributions reinvested). This outpaced the average of our peers as shown
below. The Fund's returns were slightly less than its benchmark - the Lehman
Brothers Aggregate Bond Index - which is composed entirely of domestic bonds.
Robust U.S. economic growth during the first half of fiscal 1998
helped create an exceptional environment for high-yield, higher risk bonds.
Your Fund benefited by having the largest share of its net assets allocated
to this sector. Default rates by corporate issuers fell to historic lows
while both the supply and investor demand for high-yield bonds increased.
At the start of the 1998 fiscal year, we were concerned about a
possible increase in interest rates. Unemployment was at its lowest level in
over a generation, suggesting that employers' costs would increase -
triggering higher inflation. Remarkably, consumer and producer price
increases were milder than many economists anticipated.
ROBUST U.S. ECONOMIC GROWTH DURING THE FIRST HALF OF FISCAL 1998 HELPED
CREATE AN EXCEPTIONAL ENVIRONMENT FOR HIGH-YIELD, HIGHER RISK BONDS. YOUR FUND
BENEFITED BY HAVING THE LARGEST SHARE OF ITS NET ASSETS ALLOCATED TO THIS
SECTOR.
Since this past July, the Fund has been underweighted in bonds issued
by Pacific Rim governments and corporations, and this helped us outperform
most other comparable mutual funds. The prices of many bonds issued by Asian
countries and businesses have suffered in recent months from the combined
effects of currency devaluation and a regional credit crunch.
CUMULATIVE RETURN
- -------------------------------------------------------------------------------
Six Months Ended
January 31, 1998
- -------------------------------------------------------------------------------
Strategic Income Fund A Class +4.54%
Lipper Multi-Sector Fund Average (96 Funds) +3.29%
Lehman Brothers Aggregate Bond Index +4.90%
- -------------------------------------------------------------------------------
All performance shown above is calculated at net asset value and assumes
reinvestment of all distributions. Past performance does not guarantee future
results. Complete Fund performance for all classes can be found on page 9.
<PAGE>
for current
income
2
When selecting foreign bonds for the Fund's portfolio we rely on
inflation-adjusted income potential as a key measure of value and place a
great importance on quality - investing in foreign bonds rated "A" or better
by Standard and Poor's.
The Consumer Price Index (CPI) rose just 1.7% for the 1997 calendar
year, the smallest increase since 1986. We believe developments in Asia could
slow the U.S. economy enough to further cool inflationary pressures in the
year ahead.
Our sentiments seemed to be shared by the Federal Reserve Board. The
nation's monetary watchdog left the federal funds rate (the interest rate
that banks charge each other for overnight loans) unchanged at 5.50% at its
February 6, 1998 meeting.
SINCE THIS PAST JULY, THE FUND HAS BEEN UNDERWEIGHTED IN BONDS ISSUED BY
PACIFIC RIM GOVERNMENTS AND CORPORATIONS, AND THIS HELPED US OUTPERFORM MOST
OTHER COMPERABLE MUTUAL FUNDS.
Between July and January, the difference in yield between long and
short-term investment grade bonds in the U.S. narrowed, reducing the added
income potential normally associated with extending the maturity of a bond
portfolio. We have focused on securities in the intermediate range of five to
10 years, which we believe offer investors a more attractive risk/reward
ratio than longer term bonds.
The potential returns from U.S. Treasury bonds were attractive during
the first half of 1998. Bond prices rose sharply. Washington's spending
restraint, changes in tax policy and a strong U.S. economy enabled the
federal government to project a modest budget surplus for the first time
since 1969.
On the pages that follow, your Fund's portfolio managers - Paul A.
Matlack and Paul Grillo, based in Philadelphia, and Ian Sims, based in London,
explain Strategic Income Fund's investment strategy and positioning since July.
They also share their outlook for the balance of 1998.
Sincerely,
/s/ Wayne A. Stork
- ---------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- ---------------------
Jeffrey J. Nick
President and Chief Executive Officer
<PAGE>
for current
income
3
Portfolio Managers' Review
INVESTMENT STRATEGY
STRATEGIC INCOME FUND SEEKS TO provide high current income and total return by
investing primarily in fixed-income securities such as U.S. government bonds,
investment grade corporate bonds, high-yield U.S. corporate bonds and foreign
investment grade bonds.
When comparing sectors within the bond market, we weigh the risks and
potential rewards. Among the factors we examine are interest rate trends,
changes in the U.S. economy and inflation. When investing overseas, we examine
the potential political, economic and currency risks.
Between 20% and 60% of the Fund's net assets may be invested in any
one bond category. The Fund may also invest up to 10% of its net assets in
U.S. stocks to increase total return potential. We believe that diversifying
among asset classes can potentially reduce the Fund's risk profile.
A RECORD YEAR FOR U.S.
HIGH-YIELD BONDS
Consistently strong credit quality provided us with ample opportunity to
select both new and seasoned high-yield bonds for Strategic Income Fund
during the first half of fiscal 1998. We did especially well with new bond
issues, which offered attractive income, relative safety of principal, and,
in some cases, capital appreciation potential as bond prices rose sharply
this past autumn.
WE DID ESPECIALLY WELL WITH NEW BOND ISSUES, WHICH OFFERED ATTRACTIVE INCOME,
RELATIVE SAFETY OF PRINCIPAL, AND, IN SOME CASES, CAPITAL APPRECIATION
POTENTIAL AS BOND PRICES ROSE SHARPLY THIS PAST AUTUMN.
Strategic Income Fund's approach to high yield bond investing
emphasizes income and stresses capital preservation over appreciation. We
strive to achieve this by investing in bonds rated either B or BB, the two
highest non-investment grade ratings.
PORTFOLIO HIGHLIGHTS AND ASSET MIX
- -------------------------------------------------------------------------------
JANUARY 31, 1998
U.S. Investment Grade
Corporate Bonds 4.50% January 31,
Foreign Bonds 24.60% 1998
Mortgage -
Related Securities 11.70% Average Quality BBB
U.S. Treasuries 6.90% Average Effective Duration 4.6 years
Asset-Backed Securities 3.60% Average Effective Maturity 6.9 years
Cash Equivalents 3.50% Thirty-Day Current SEC Yield 7.13%*
U.S. High-Yield Bonds 45.2% Number of Issues 143
*For A Class shares measured according to Securities and Exchange Commission
guidelines. Thirty-day current SEC yield for B and C classes was 6.71% as of
January 31, 1998. Institutional Class yield was 7.76%
<PAGE>
for current
income
4
During the first half of 1998, we focused on:
o bonds rated B in industries whose prospects appeared to be
clearly defined;
o new bond offerings of at least
$100 million, and;
o U.S. companies with experienced management teams and underlying
financial strength.
Overall, high-yield bonds provided higher total returns than any
other fixed-income category for the first half of fiscal 1998. Senior debt
(bonds that have priority in the event of a bankruptcy) and bonds with a long
duration (increased sensitivity to interest rates) performed well, especially
in the telecommunications and media sectors.
As of January 31, 1998, the domestic corporate high-yield bond market
offered an additional 310 basis points (3.1%) in income potential over
comparable maturity Treasuries. This yield premium can compensate investors
for the added risks of investing in bonds of corporations whose credit ratings
are less than BBB and which have no U.S. government guarantees.
During the 1990's, average credit quality has jumped three grades
from B- to BB- while the default rate has fallen from more than 10% to less than
1%. As of early 1998, the market had just over doubled in size to approximately
$470 billion in bonds outstanding, issued by more than 1,200 domestic companies,
according to Donaldson Lufkin & Jenrette.
FOREIGN BONDS:
THE UK LED THE WAY
Financial problems in Asia made the first half of fiscal 1998 a challenging year
for global bond investors. Strategic Income Fund had the good fortune of being
minimally exposed to volatile Pacific Rim markets.
WE SEARCH THE WORLD FOR HIGH INCOME POTENTIAL
- -------------------------------------------------------------------------------
YIELDS MEASURED IN U.S. DOLLARS
<TABLE>
<CAPTION>
Y U.S. Treasuries New Zealand Government Bonds British Corporate Bonds South African Government Bonds
E <S> <C> <C> <C> <C>
A 3 months 5.18% 8.66% 7.50% 15.10%
R 6 months 5.23% 8.50% 7.56% 14.80%
S 1 Year 5.23% 7.46% 14.70%
2 Years 5.31% 7.36% 7.00% 14.01%
T 3 Years 5.33% 7.21% 6.51% 13.68%
O 4 Years 7.08% 6.66%
5 Years 5.38% 6.48% 13.52%
M 6 Years 6.92% 13.66%
A 7 Years 6.45%
T 8 Years 13.47%
U 10 Years 5.51% 6.78% 6.31% 13.66%
R 15 Years 6.75% 6.86% 13.55%
I 20 Years 6.38% 13.61%
T 30 Years 5.8%
Y YIELD
</TABLE>
The above illustration is not intended to represent the yield of Strategic
Income Fund. Past performance does not guarantee future results. Unlike U.S.
Treasuries, foreign bonds have currency, political and economic risks and are
not guaranteed by the U.S. government. Source: Bloomberg Business News
<PAGE>
for current
income
5
Europe fared substantially better as governments adopted tighter fiscal
controls in order to qualify for the forthcoming European Monetary Union. As of
mid-year nearly half of your Fund's foreign bond component was allocated to
European securities.
One country that provided both superior income and where bond prices
have risen since the summer is the United Kingdom, whose bonds have been
helped by the relative strength of the British pound.
In selecting foreign bonds for the Fund's portfolio, we rely on
income potential as a key measure of value. Our research focuses on
long-term factors such as inflation and trends that can be analyzed with
reasonable certainty.
ONE COUNTRY THAT PROVIDED BOTH SUPERIOR INCOME AND WHERE BOND PRICES HAVE
RISEN SINCE THE SUMMER IS THE UNITED KINGDOM, WHOSE BONDS HAVE BEEN HELPED BY
THE RELATIVE STRENGTH OF THE BRITISH POUND.
Your Fund's largest country weighting outside the U.S., as of January
31, 1998, was South Africa (5.7% of net assets). Yields on intermediate-term
South African bonds remain exceptionally attractive - 13.5% in U.S. dollars,
or more than twice the income potential of many European countries. While
still technically an emerging market country, we believe the South African
economy exhibits a much greater degree of stability than can be found in
other areas of the world such as the Pacific Rim.
(photo of globes)
One Pacific Rim country's bonds that performed well during the summer
was New Zealand. During this time, the country's bonds provided an extra 100
basis points (1%) of yield, on average, relative to U.S. Treasury securities
with comparable maturities. However, late in the fall New Zealand bond prices
started to suffer from the fallout of currency and fiscal problems in Asian
countries.
Strategic Income Fund did not have currency hedges in place during
the first half of fiscal 1998, and this lowered the return on our foreign
bonds as the dollar increased in value relative to other currencies.
Generally, we strive to protect the dollar value of our investments through
defensive currency hedging if we can do so without adversely affecting the
Fund's income potential.
INVESTMENT GRADE U.S. BONDS
Low inflation and Washington's commitment to balance the Federal budget
helped generate robust returns from higher quality U.S. bonds during the
first half of fiscal 1998.
Your Fund sought to maximize income and provide an attractive return
from this sector by focusing on mortgage-backed securities such as Government
National Mortgage Association (GNMA) bonds. These were complemented by U.S.
Treasuries and high quality corporate bonds.
<PAGE>
for current
income
6
Mortgage securities carry the risk that property owners will prepay
what they owe - requiring bondholders to reinvest that money - often at lower
interest rates. Investors began to fear during the fall of 1997 that refinancing
activity would increase sharply, and prices of mortgage securities consequently
suffered.
Your Fund's management seeks to mitigate refinancing risk by
investing in mortgages that have refinancing penalties paid by the borrower
if the mortgage loan is paid off early. We also sought older mortgages and
pools of mortgages with low loan balances.
Homeowners with low mortgage balances are not as likely to refinance
as homeowners with a bigger debt load, according to CS First Boston. This is
because the potential interest savings are less, all other things being
equal. When targeting low loan balance pools, we seek investments where the
maximum loan size is no more than $85,000 and the average loan balance of the
entire pool is $65,000 or lower.
WE EXPECT TO MAINTAIN A STRONG WEIGHTING IN THE U.S. HIGH-YIELD CORPORATE
BOND MARKET BECAUSE OF THE UNDERLYING STRENGTH OF THE U.S. ECONOMY.
Among Strategic Income Fund's investment grade corporate bond
holdings are bonds issued by banks and other financial services companies.
Our holdings also include Yankee bonds, which are dollar denominated bonds
issued in the U.S. by foreign banks and corporations. The bonds are issued in
the U.S. when market conditions here are more favorable than in Europe.
One series of bonds that performed well for us during the first half
of fiscal 1998 was the debt of Credit Foncier de France, a commercial bank
whose credit rating had suffered as a result of weak lending practices. We
bought the bonds shortly before the French government assumed control of the
bank last year, and the bank's credit quality was later placed on a positive
credit watch by both Moody's Investors Service and Standard & Poor's.
OUTLOOK
We believe that selected bonds in the U.S. and abroad can continue to offer
attractive income and total return potential for the remainder of 1998. In the
coming months, we expect to maintain a strong weighting in the U.S. high-yield
corporate bond market because of the underlying strength of the U.S. economy and
the superior income potential offered by non-investment grade bonds.
An expanding U.S. economy and a tight labor market often lead to wage
increases and consequently, an acceleration of inflation.
However, we believe that interest rates are unlikely to rise
significantly from current levels, in part because of the deflationary
effects of financial turmoil in the Pacific Rim. As the region recovers, we
<PAGE>
for current
income
7
believe many Asian countries will increase exports to the U.S. in order to
rebuild their economies and pay down debt. This increased supply of goods and
services may help limit consumer price increases.
Washington's apparent commitment to balancing the federal budget also
bodes well for domestic bond investors as we believe the U.S. government will
need less capital from private investors to finance operations. A reduced
supply of government securities can lead to lower interest rates, assuming
investor demand remains steady.
Overseas, we are optimistic about the economic prospects of the
United Kingdom. The U.K. has taken steps to make the Bank of England - the
U.K.'s central bank - more independent, similar to the U.S. Federal Reserve
Board. We take this as a sign that inflation there is likely to remain tame.
By selecting from a global pool of bonds with a disciplined approach,
we believe we can position the Fund to take advantage of the most attractive
fixed income opportunities around the world in 1998. Your Fund's
diversification strategy may also help temper the effects of potential bond
market volatility in any one country or sector.
PAUL A. MATLACK
Delaware Management Company
U.S. High-Yield Bonds
PAUL GRILLO
Delaware Management Company
U.S. Investment Grade Bonds
IAN SIMS
Delaware International Advisers Ltd.
Foreign Bonds
February 18, 1998
FIXED-INCOME DIVERSIFICATION HAS HISTORICALLY
GENERATED ATTRACTIVE RETURNS AND REDUCED RISK
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS JANUARY 1988 - JANUARY 1998
Average Annual
Total Return Volatility
Lehman Brothers High-Yield Bond Index 11.49% 6.88%
Lehman Brothers Global Bond Index 7.91% 9.19%
Lehman Brothers Aggregate Bond Index 8.94% 4.18%
Equal Mix of Each Index 9.59% 4.52%
*As measured by standard deviation. This illustration is not intended to
represent the performance or asset allocation of Strategic Income Fund. Past
performance is not a guarantee of future results. Each index is unmanaged.
The Lehman Brothers Aggregate Bond Index consists of investment-grade
domestic bonds, the Global Bond Index includes both domestic and overseas
bonds and the High-Yield Bond Index includes higher-risk domestic bonds with
credit ratings lower than BBB. Source: Lipper Analytical Services.
<PAGE>
for current
income
8
STRATEGIC INCOME FUND PERFORMANCE
- -----------------------------------------------
MONTHLY INCOME FROM A $100,000 INVESTMENT
OCTOBER 1, 1996 TO JANUARY 31, 1998
Nov-96 $643
Dec-96 $647
Jan-97 $651
Feb-97 $655
Mar-97 $660
Apr-97 $664
May-97 $668
Jun-97 $673
Jul-97 $677
Aug-97 $682
Sep-97 $686
Oct-97 $690
Nov-97 $694
Dec-97 $699
Jan-98 $704
With continuous reinvestment of dividends, a $100,000 investment in Strategic
Income Fund on October 1, 1996 would have provided $10,095 in dividends
through January 31, 1998.
Chart assumes a $100,000 investment on October 1, 1996, includes the effect
of a 3.75% front-end sales charge and reinvestment of dividends. Performance
of other Fund classes will vary due to other charges and expenses. Past
performance does not guarantee future results. A $2,272 capital gains
distribution was made on Nov. 21, 1997. The chart assumes this was taken in
cash.
STRATEGIC INCOME FUND PERFORMANCE
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JANUARY 31, 1998
Lifetime One Year
- -------------------------------------------------------------------------------
Class A (Est. 10/1/96)
Excluding Sales Charge +11.10% +10.65%
Including Sales Charge +7.19% +5.38%
- -------------------------------------------------------------------------------
Class B (Est. 10/1/96)
Excluding Sales Charge +10.39% +9.91%
Including Sales Charge +7.48% +5.91%
- -------------------------------------------------------------------------------
Class C (Est. 10/1/96)
Excluding Sales Charge +10.39% +9.90%
Including Sales Charge +10.39% +8.90%
Strategic Income Fund invests a portion of its portfolio in high-yield bonds,
which involves 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. Past performance
is not a guarantee of future results. Performance for Class B and C shares
excluding sales charge assumes either contingent sales charges did not apply or
the investment was not redeemed.
A voluntary expense limitation of 0.75% has been in effect since inception.
Performance would have been lower if the expense limitation was not in
effect.
Class A shares have a maximum 4.75% front-end sales charge and a 12b-1 fee of
0.25%.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee, and a deferred sales charge of up to 4%
if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If shares are
redeemed within 12 months, a 1% contingent deferred sales charge applies.
The average annual total return for the lifetime, and one-year periods and
six-month cumulative return for the period ended January 31, 1998, for
Strategic Income Fund's Institutional Class, which is available without sales
or asset-based distribution charges only to certain eligible institutional
accounts was +11.42%, +10.99% and +4.70% respectively.
<PAGE>
for current income 9
Financial Statements
DELAWARE GROUP INCOME FUNDS, INC. -
STRATEGIC INCOME FUND
STATEMENT OF NET ASSETS
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
CORPORATE BONDS - 49.67%
Aerospace & Defense - 1.12%
Atlas Air sr notes 10.75% 08/01/05 ............... $ 350,000 $ 376,250
----------
376,250
----------
BANKING, FINANCE & INSURANCE - 3.52%
Credit Foncier de France sr sub notes
8.00% 01/14/02 ................................. 200,000 211,500
Highwoods/Forsyth LP notes
6.835% 01/31/03 ................................ 200,000 202,500
Olympic Financial Units 11.50% 03/15/07 .......... 350,000 350,000
Southern Investments United Kingdom sr notes
6.375% 11/15/01 ................................ 150,000 149,625
Summit Bancorp sub notes 8.625% 12/10/02 ......... 100,000 110,375
U.S. Bancorp sub notes 8.125% 05/15/02 ........... 150,000 161,438
----------
1,185,438
----------
BUILDING & MATERIALS - 5.05%
American Architectural sr notes
11.75% 12/01/07 ................................ 500,000 517,500
American Builders and Contractors sr sub notes
10.625% 05/15/07 ............................... 300,000 313,875
American Standard sr notes 7.375% 02/01/08 ....... 500,000 500,625
Reliant Building sr sub notes
10.875% 05/01/04 ............................... 350,000 368,813
----------
1,700,813
----------
CABLE, MEDIA & PUBLISHING - 2.33%
American Banknote sr sub notes
11.25% 12/01/07 ................................ 300,000 303,750
American Lawyer Media sr notes
9.75% 12/15/07 ................................. 300,000 311,250
Turner Broadcasting 8.375% 07/01/13 .............. 150,000 170,250
----------
785,250
----------
CONSUMER PRODUCTS - 2.52%
Drypers sr notes 10.25% 06/15/07 ................. 350,000 365,313
Pen-Tab Industries sr sub notes
10.875% 02/01/07 ............................... 125,000 122,656
Precise Technology sr sub notes
11.125% 06/15/07 ............................... 350,000 361,813
----------
849,782
----------
ENERGY - 8.64%
Panaco sr notes 10.625% 10/01/04 ................. 1,250,000 1,268,750
Prestolite Electric sr notes 9.625% 02/01/08 ..... 200,000 204,500
Rutherford-Moran Oil sr sub notes
10.75% 10/01/04 ................................ 250,000 267,500
Southwest Royalties 10.50% 10/15/04 .............. 325,000 312,000
Transamerican Energy sr notes
11.50% 06/15/02 ................................ 475,000 483,906
United Refining sr unsec notes
10.75% 06/15/07 ................................ 350,000 374,063
----------
2,910,719
----------
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
CORPORATE BONDS (CONTINUED)
Food, Beverage & Tobacco - 5.45%
Ameriking sr notes 10.75% 12/01/06 ............. $ 250,000 $ 264,063
Big V Supermarkets sr sub notes
11.00% 2/15/04 ............................... 350,000 369,250
CFP Holdings sr notes 11.625% 01/15/04 ......... 175,000 173,688
Community Distributors sr notes
10.25% 10/15/04 .............................. 400,000 415,000
DiGiorgio sr notes 10.00% 06/15/07 ............. 350,000 347,813
Fleming sr sub notes 10.50% 12/01/04 ........... 250,000 265,938
----------
1,835,752
----------
HEALTHCARE & PHARMACEUTICALS - 0.38%
Cardinal Health notes 6.00% 01/15/06 ........... 130,000 129,188
----------
129,188
----------
INDUSTRIAL MACHINERY - 1.54%
Elgin National Industry sr notes
11.00% 11/01/07 ............................... 400,000 424,000
Embotelladora Andina notes 7.00% 10/01/07 ...... 100,000 96,250
----------
520,250
----------
LEISURE, LODGING & ENTERTAINMENT - 1.85%
American General Institute Cap A
7.57% 12/01/46 ............................... 100,000 103,750
Trump Atlantic City 1st mtg notes
11.25% 05/01/06 .............................. 100,000 102,000
Trump Atlantic City Association Funding
11.25% 05/01/06 .............................. 400,000 417,000
622,750
PACKAGING & CONTAINERS - 1.50%
Portola Packaging sr notes 10.75% 10/01/05 ..... 150,000 161,438
Riverwood International sr sub notes
10.875% 04/01/08 ............................. 350,000 345,625
----------
507,063
----------
RETAIL - 2.48%
Central Tractor sr notes 10.625% 04/01/07 ...... 75,000 80,438
Chief Auto Parts sr sub notes
10.50% 05/15/05 .............................. 250,000 252,188
Wilsons The Leather Expert sr notes
11.25% 08/15/04 .............................. 500,000 501,875
----------
834,501
----------
TELECOMMUNICATIONS - 5.72%
BTI Telecom sr notes 10.50% 09/15/07 ........... 350,000 375,375
Fisher Scientific International sr sub notes
9.00% 02/01/08 ............................... 500,000 513,125
Highwaymaster Communications sr notes
13.75% 09/15/05 .............................. 250,000 262,500
Iridium LLC/Capital sr notes 11.25% 07/15/05 ... 500,000 510,625
Telegroup sr notes 10.50% 11/01/04 ............. 325,000 266,906
----------
1,928,531
----------
<PAGE>
10 for current income
STRATEGIC INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
CORPORATE BONDS (CONTINUED)
TEXTILES, APPAREL & FURNITURE - 2.84%
Anvil Knitwear sr notes
10.875% 03/15/07 ........................... $ 300,000 $ 312,375
Brazo Sportswear 10.50% 07/01/07 ............. 250,000 250,313
J Crew Group debs 0.00% 10/15/08 ............. 275,000 135,094
Scovill Fasteners sr notes
11.25% 11/30/07 ............................ 250,000 260,000
------------
957,782
------------
TRANSPORTAITON & SHIPPING - 2.84%
Continental Airlines pass through certificates
6.80% 01/02/09 ............................. 75,000 76,268
Federal Express pass through cert
7.65% 01/15/14 ............................. 100,000 108,625
Federal Express pass through cert
7.85% 01/30/15 ............................. 401 438
International Shipholdings sr notes
7.75% 10/15/07 ............................. 175,000 174,563
Offshore Logistics sr notes
7.875% 01/15/08 ............................ 250,000 251,250
Pegasus Shipping Hellas sr mtg notes
11.875% 11/15/04 ........................... 350,000 347,813
------------
958,957
------------
MISCELLANEOUS - 1.89%
Pronet sr sub notes 11.875% 06/15/05 ......... C$ 350,000 378,000
Spinnaker Industries sr notes
10.75% 10/15/06 ............................ 250,000 260,000
------------
638,000
------------
Total Corporate Bonds (cost $16,435,195) ..... 16,741,026
FOREIGN BONDS - 24.61%
Australia - 1.96%
Australian Government 13.00% 07/15/00 ........ A$ 200,000 161,436
Bank of Austria 10.875% 11/17/04 ............. 150,000 127,339
Commerzbank 10.50% 01/19/00 .................. 200,000 149,377
Queensland Treasury Global
8.00% 08/14/01 ............................. 300,000 221,595
------------
659,747
------------
CANADA - 2.26%
Electric Power Development
10.375% 09/27/01 ........................... C$ 200,000 159,034
General Electric Capital of Canada
7.125% 02/12/04 ............................ 80,000 59,151
Government of Canada 10.25% 03/15/14 ......... 300,000 307,053
InterAmerica Development Bank Notes
7.25% 11/03/03 ............................. 100,000 74,367
Kansai International Airport
8.00% 07/02/03 ............................. 80,000 60,970
Kingdom of Norway 8.375% 01/27/03 ............ 130,000 100,192
------------
760,767
------------
GREECE - 1.79%
European Investment Bank
17.50% 03/08/99 ............................ Grd 30,000,000 107,779
Hellenic Republic 11.00% 11/26/99 ............ 120,000,000 388,863
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
FOREIGN BONDS (CONTINUED)
GREECE (CONTINUED)
International Finance 15.25% 5/11/99 ......... Grd 30,000,000 $ 105,579
------------
602,221
------------
ITALY - 2.61%
European Investment Bank
12.75% 02/15/00 ............................ Itl 300,000,000 190,773
Italian Government 9.50% 02/01/01 ............ 500,000,000 311,859
Italian Government 12.00% 01/01/03 ........... 530,000,000 379,180
881,812
NEW ZEALAND - 3.93%
New Zealand Government 6.50% 02/15/00 ........ NZ$ 400,000 231,255
New Zealand Government 8.00% 02/15/01 ........ 350,000 209,908
New Zealand Government 8.00% 11/15/06 ........ 1,400,000 884,421
------------
1,325,584
------------
SOUTH AFRICA - 5.68%
Electric Supply Communication
11.00% 06/01/08 ............................ Zar 3,500,000 606,725
Republic of South Africa 12.50% 01/15/02 ..... 6,650,000 1,308,817
------------
1,915,542
------------
SWEDEN - 3.62%
Swedish Government 8.00% 08/15/07 ............ Sk 1,000,000 144,624
Swedish Government 10.25% 05/05/00 ........... 1,800,000 246,318
Swedish Government 10.25% 05/05/03 ........... 5,500,000 828,902
------------
1,219,844
------------
UNITED KINGDOM - 2.76%
Abbey National Treasury 8.00% 04/02/03 ....... Gbp 80,000 137,170
Anglian Water 12.00% 01/07/14 ................ 60,000 145,289
Blue Circle 10.75% 11/29/13 .................. 40,000 87,190
BOC Group 6.75% 02/18/04 ..................... 75,000 121,635
Glaxo Wellcome 8.75% 12/01/05 ................ 60,000 109,915
J. Sainsbury 8.25% 12/22/00 .................. 30,000 50,521
John Lewis 10.50% 01/23/14 ................... 40,000 87,353
Nippon Telegraph & Telephone
10.875% 05/10/01 ........................... 30,000 54,376
Pearson 10.50% 06/13/08 ...................... 40,000 81,314
Thames Water Utilities 10.50% 11/21/01 ....... 30,000 54,529
929,292
------------
Total Foreign Bonds (cost $8,875,671) ........ 8,294,809
------------
AGENCY MORTGAGE-BACKED SECURITIES - 3.45%
Federal Home Loan Mortgage
6.00% 11/01/26 ............................. $ 63,828 63,070
Federal National Mortgage Association
5.75% 01/25/22 ............................. 100,000 97,738
Federal National Mortgage Association
6.00% 02/01/05 ............................. 100,000 99,750
Government National Mortgage Association
6.50% 12/15/23 ............................. 96,545 96,484
Government National Mortgage Association
6.50% 02/01/28 ............................. 670,000 666,441
Government National Mortgage Association
9.50% 09/15/17 ............................. 61,246 67,122
<PAGE>
for current income 11
STRATEGIC INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
Government National Mortgage Association
10.00% 07/15/17 .................................. $ 67,351 $ 74,654
----------
Total Agency Mortgage-Backed Securities
(cost $1,159,148) ................................ 1,165,259
----------
ASSET-BACKED SECURITIES - 3.62%
ADVANTA Series 93-1A2 5.95% 5/25/09 ................ 99,402 98,165
CIT Group Securitization-Series 95-2 A2
6.00% 05/15/26 ................................... 97,693 97,908
Countrywide Home Equity Loan-Series 97-1 A4
6.95% 05/25/21 ................................... 150,000 152,508
First Union Residential Securitization Trust-Series
96-2 A2 6.46% 09/25/11 ........................... 140,000 140,306
MetLife Capital Equipment Loan Trust-Series 97-AA
6.85% 05/20/08 ................................... 150,000 155,160
NationsCredit Grantor Trust-Series 97-2 A1
6.35% 04/15/14 ................................... 93,407 94,428
Oakwood Mortgage Investors-Series 97C A3
6.65% 11/15/27 ................................... 75,000 76,031
Standard Credit Card Master Trust Series 93-2 A
5.95% 09/07/03 ................................... 150,000 150,000
The Money Store Home Equity Trust-Series 97-AA9
7.235% 04/15/27 .................................. 100,000 103,859
World Omni Automobile Lease Securitization-Series
97-B A4 6.20% 11/25/03 ........................... 150,000 151,266
----------
Total Asset-Backed Securities
(cost $1,196,163) ................................ 1,219,631
----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.24%
Asset Securitization
Series 97-D5 A3 7.11% 02/14/41 ..................... 200,000 206,688
Series 97-D5 A1E 6.93% 02/14/41 .................... 150,000 154,570
Series 97-D4 A1A 7.35% 04/14/29 .................... 86,213 89,688
Series 96-D2 A1 6.92% 02/14/29 ..................... 193,438 202,172
Series 96-D3 A1B 7.21% 10/13/26 .................... 100,000 105,781
Contitrade Services Home Equity Loan Trust 91-2 A
7.70% 09/15/06 ................................... 58,044 58,189
First Union-Lehman Brothers Commercial Mortgage
Series 97-C1 A1 7.15% 02/18/04 ..................... 95,789 100,519
Lehman Large Loan 97-LLI A1
6.79% 06/12/04 ................................... 149,185 154,313
Merrill Lynch Mortgage Investors-Series C1-A1
6.95% 06/18/29 ................................... 96,909 100,422
Mortgage Capital Funding-Series 96-MC2 A1
6.758% 12/21/26 .................................. 191,758 197,241
NationsBank Credit Card Master Trust 93-2 A
6.00% 12/15/05 ................................... 145,000 145,885
Nomura Asset Securities-Series 95-MD3 A1A
8.17% 03/04/20 ................................... 65,648 68,889
Norwest Asset Securities-Series 97-1 A8
7.25% 02/25/12 ................................... 96,160 99,724
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Residential Accredit Loans
Series 96-QS2 A6 7.45% 04/25/23 .................. $ 75,000 $ 76,852
Series 96-QS3 AI3 7.29% 06/25/26 ................. 175,000 176,887
Series 97-QS1 A8 6.75% 02/25/27 .................. 200,000 201,031
Series 97-QS1 A8 6.75% 02/25/27 .................. 140,000 140,202
Series 96-A4 A5 7.50% 04/25/27 ................... 100,000 102,094
Series 97-QS6 A5 7.50% 06/25/12 .................. 210,500 219,282
Series 97-QS4 A3 7.25% 05/25/27 .................. 75,000 76,160
Residential Funding Mortgage-Series 1994-S10
6.50% 03/25/09 ................................... 100,000 102,072
---------
Total Collateralized Mortgage Obligations
(cost $2,723,958) ................................ 2,778,661
---------
MUNICIPAL BONDS - 0.29%
Philadelphia, Pennsylvania Authority For Industrial
Development Tax Claim Revenue
Class A 6.488% 06/15/04 .......................... 95,611 96,089
---------
Total Municipal Bonds (cost $95,611) .............. 96,089
---------
U.S. TREASURY OBLIGATIONS - 6.86%
U.S. Treasury Bond 6.25% 08/15/23 ................ 500,000 523,600
U.S. Treasury Note 5.625% 12/31/99 ............... 500,000 502,620
U.S. Treasury Note 5.75% 10/31/02 ................ 100,000 101,355
U.S. Treasury Note 6.25% 08/31/00 ................ 100,000 102,137
U.S. Treasury Note 6.25% 02/15/03 ................ 250,000 259,030
U.S. Treasury Note 6.50% 05/15/05 ................ 130,000 137,623
U.S. Treasury Note 6.50% 08/15/05 ................ 165,000 174,750
U.S. Treasury Note 6.75% 04/30/00 ................ 50,000 51,456
U.S. Treasury Note 7.00% 07/15/06 ................ 25,000 27,383
U.S. Treasury Note 7.25% 08/15/04 ................ 395,000 433,189
---------
Total U.S. Treasury Obligations
(cost $2,240,561) ................................ 2,313,143
---------
NUMBER
OF SHARES
COMMON STOCK - 0.42%
REAL ESTATE - 0.42%
Kilroy Realty ..................................... 5,000 142,500
---------
Total Common Stock (cost $115,000) ................ 142,500
---------
PREFERRED STOCK - 0.36%
Cable, Media & Publishing - 0.36%
**American Radio Systems 11.375% 01/15/09 ........... 60 7,260
Pegasus Communications Unit pik
12.75% 01/01/07 .................................. 1,000 114,000
---------
Total Preferred Stock (cost $105,699) ............. 121,260
---------
REPURCHASE AGREEMENTS - 5.01%
With JP Morgan Securities 5.56% 02/02/98
(dated 01/30/98, collateralized by
$685,000 U.S. Treasury Notes
6.875% due 07/31/99
market value $722,341) .......................... 707,000 707,000
<PAGE>
12 for current income
STRATEGIC INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT* VALUE
(U.S. $)
------------------------------
REPURCHASE AGREEMENTS (Continued)
With PaineWebber 5.57% 02/02/98
(dated 01/30/98, collateralized by
$451,000 U.S. Treasury Notes
6.00% due 08/15/98
market value $467,072) .......................... $458,000 $458,000
With Prudential Bache Securites 5.56%
02/02/98 (dated 01/30/98,
collateralized by $541,000
U.S. Treasury Bills
market value $533,795) .......................... 523,000 523,000
------------
Total Repurchase Agreements
(cost $1,688,000) ........................................... 1,688,000
------------
TOTAL MARKET VALUE OF SECURITIES - 102.53%
(cost $34,635,006) .......................................... 34,560,378
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (2.53%) .................................. (854,877)
------------
NET ASSETS APPLICABLE TO 6,005,305 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ...................... $ 33,705,501
============
NET ASSET VALUE - STRATEGIC
INCOME FUND A CLASS
($14,352,178 / 2,556,359 shares) ............................ $ 5.61
=======
NET ASSET VALUE - STRATEGIC
INCOME FUND B CLASS
($11,951,974 / 2,129,810 shares) ............................ $ 5.61
=======
NET ASSET VALUE - STRATEGIC
INCOME FUND C CLASS
($3,797,150 / 676,328 shares) ............................... $ 5.61
=======
NET ASSET VALUE - STRATEGIC
INCOME FUND INSTITUTIONAL
CLASS ($3,604,199 / 642,808 shares) ......................... $ 5.61
=======
COMPONENTS OF NET ASSETS AT JANUARY 31, 1998:
Common stock, $.01 par value, 200,000,000 shares
authorized to the Fund with 100,000,000 shares
allocated to Strategic Income Fund A Class,
25,000,000 shares allocated to Strategic Income
Fund B Class, 25,000,000 shares allocated
to Strategic Income Fund C Class, and 50,000,000
shares allocated to Strategic Income Fund
Institutional Class ......................................... $ 33,699,307
Distribution in excess of net investment income*** ........... (11,092)
Accumulated net realized gain on investments ................. 103,154
Net unrealized depreciation of investments and foreign
currencies ................................................. (85,868)
------------
Total net assets ............................................. $ 33,705,501
============
- ----------
* Principal amount is stated in the currency in which each bond is
denominated.
A$ - Australian Dollars Grd - Greek Drakma Zar - South African Rand
Gbp - British Pounds Itl - Italian Lire Sk - Swedish Kroner
C$ - Canadian Dollars NZ$ - New Zealand Dollars $ - U.S. Dollars
**Non-income producing security.
***Undistributed net investment income includes net realized gains
(losses) on foreign currencies. Net realized gains on foreign currencies
are distributed as net investment income in accordance with provisions of
the Internal Revenue Code.
cert - certificate mtg - mortgage sub - subordinate
debs - debentures sr - senior unsec - unsecured
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC. -
STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
ASSETS:
Investments at market (cost $34,635,006) .................... $34,560,378
Dividends and interest receivable ........................... 745,818
Cash and foreign currencies ................................. 687,448
Subscriptions receivable .................................... 212,378
Receivable for securities sold .............................. 110,566
Other assets ................................................ 37,057
-----------
Total assets ................................................ 36,353,645
-----------
LIABILITIES:
Payable for securities purchased ............................ 2,400,150
Other accounts payable and accrued expenses ................. 221,282
Liquidations payable ........................................ 26,712
-----------
Total liabilities ........................................... 2,648,144
-----------
TOTAL NET ASSETS ............................................ $33,705,501
===========
See accompanying notes
<PAGE>
for current income 13
DELAWARE GROUP INCOME FUNDS, INC. -
STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ........................................ $ 1,214,706
Dividends ....................................... 4,216 $ 1,218,922
-----------
EXPENSES:
Management fees ................................. 91,175
Distribution expense ............................ 78,635
Dividend disbursing and transfer agent fees
and expenses ................................... 36,990
Registration fees ............................... 27,408
Amortization of organization expenses ........... 16,729
Professional fees ............................... 9,600
Accounting and administration ................... 7,700
Directors' fees ................................. 1,863
Taxes (other than taxes on income) .............. 1,196
Custodian fees .................................. 1,104
Reports and statements to shareholders .......... 807
Other ........................................... 1,178
-----------
274,385
Less expenses absorbed by Delaware
Management Company, Inc. ........................ (90,108) 184,277
----------- -----------
Net investment income ........................... 1,034,645
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions ......................... 416,166
Foreign currencies .............................. (8,378)
-----------
Net realized gain ............................... 407,788
Net change in unrealized appreciation/
depreciation of investments and foreign
currencies ...................................... (217,694)
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCIES .............. 190,094
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................. $ 1,224,739
===========
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC. -
STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months 10/01/96*
Ended to
1/31/98 7/31/97
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................ $ 1,034,645 $ 852,824
Net realized gain on investments
and foreign currencies ......................... 407,788 309,154
Net change in unrealized appreciation/depreciation
on investments and foreign currencies .......... (217,694) 131,826
------------ ------------
Net increase in net assets
resulting from operations ...................... 1,224,739 1,293,804
------------ ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
Stategic Income Fund A Class ................... (454,869) (372,603)
Stategic Income Fund B Class ................... (338,730) (225,684)
Stategic Income Fund C Class ................... (104,200) (55,686)
Stategic Income Fund Institutional Class ....... (139,560) (200,724)
Net realized gain on investment transactions:
Stategic Income Fund A Class ................... (260,060) --
Stategic Income Fund B Class ..................... (218,691) --
Stategic Income Fund C Class ................... (67,987) --
Stategic Income Fund Institutional Class ....... (73,555) --
------------ ------------
(1,657,652) (854,697)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Stategic Income Fund A Class ................... 6,231,111 9,997,064
Stategic Income Fund B Class ................... 5,746,665 7,087,454
Stategic Income Fund C Class ................... 2,127,584 2,029,588
Stategic Income Fund Institutional Class ....... 55,484 3,112,438
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions:
Stategic Income Fund A Class ................... 528,673 250,324
Stategic Income Fund B Class ................... 352,302 129,461
Stategic Income Fund C Class ................... 80,751 23,810
Stategic Income Fund Institutional Class ....... 213,115 194,119
------------ ------------
15,335,685 22,824,258
------------ ------------
Cost of shares repurchased:
Stategic Income Fund A Class ................... (1,374,278) (1,269,709)
Stategic Income Fund B Class ................... (867,093) (464,293)
Stategic Income Fund C Class ................... (312,883) (142,624)
Stategic Income Fund Institutional Class ....... (14,085) (15,671)
------------ ------------
(2,568,339) (1,892,297)
------------ ------------
Increase in net assets derived from capital
share transactions ............................. 12,767,346 20,931,961
------------ ------------
NET INCREASE IN NET ASSETS ....................... 12,334,433 21,371,068
NET ASSETS:
Beginning of period .............................. 21,371,068 --
------------ ------------
End of period .................................... $ 33,705,501 $ 21,371,068
============ ============
- ----------
* Date of commencement of trading.
See accompanying notes
<PAGE>
14 for current income
DELAWARE GROUP INCOME FUND, INC. - STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Strategic Income Fund Strategic Income Fund Strategic Income Fund Strategic Income Fund
A Class B Class C Class Institutional Class
--------------------- --------------------- --------------------- ---------------------
Six Months 10/01/96(1) Six Months 10/01/96(1) Six Months 10/01/96(1) Six Months 10/01/96(1)
Ended to Ended to Ended to Ended to
01/31/98 07/31/97 01/31/98 07/31/97 01/31/98 07/31/97 07/31/97 07/31/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period......................... $5.700 $5.500 $5.700 $5.500 $5.700 $5.500 $5.700 $5.500
Income from investment operations:
Net investment income(2) ......... 0.231 0.337 0.209 0.308 0.209 0.313 0.238 0.367
Net realized and unrealized gain
from investments and
foreign currencies ............... 0.019 0.204 0.022 0.203 0.022 0.198 0.021 0.187
Total from investment operations . 0.250 0.541 0.231 0.511 0.231 0.511 0.259 0.554
Less dividends and distributions:
Dividends from net
investment income .............. (0.220) (0.341) (0.201) (0.311) (0.201) (0.311) (0.229) (0.354)
Distributions from net
realized gain on
investment transactions ......... (0.120) - (0.120) - (0.120) - (0.120) -
Total dividends and distributions (0.340) (0.341) (0.321) (0.311) (0.321) (0.311) (0.349) (0.354)
Net asset value, end of period ...... $5.610 $5.700 $5.610 $5.700 $5.610 $5.700 $5.610 $5.700
Total return(3) ..................... 4.54% 10.11% 4.19% 9.53% 4.19% 9.53% 4.70% 10.36%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ................. $14,352 $9,144 $11,952 $6,878 $3,797 $1,944 $3,604 $3,405
Ratio of expenses to average
net assets .................... 1.00% 1.00% 1.75% 1.75% 1.75% 1.75% 0.75% 0.75%
Ratio of expenses to average
net assets prior to
expense limitation .............. 1.64% 2.12% 2.39% 2.87% 2.39% 2.87% 1.39% 1.87%
Ratio of net investment income
to average net assets ........... 7.60% 7.76% 6.86% 7.01% 6.86% 7.01% 7.84% 7.90%
Ratio of net investment income
to average net assets
prior to expense limitation ..... 6.96% 6.64% 6.22% 5.89% 6.22% 5.89% 7.20% 6.78%
Portfolio turnover .............. 162% 183% 162% 183% 162% 183% 162% 183%
</TABLE>
- ----------
(1) Date of commencement of trading; ratios have been annualized and total
returns have not been annualized.
(2) Per share information for the six months ended January 31, 1998 was based
on the average shares outstanding method.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of A Class. Does not include
contingent deferred sales charge which varies from 1-4% depending upon the
holding period for B Class and 1% for C Class.
<PAGE>
for current income 15
DELAWARE GROUP INCOME FUNDS, INC. - STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
Delaware Group Income Funds, Inc. - Strategic Income Fund (the "Fund") is
registered as a diversified open-end investment company under the Investment
Company Act of 1940, as amended. The Fund is organized as a Maryland Corporation
and offers four classes of shares. The Strategic Income Fund A Class carries a
front-end sales charge of 4.75%. The Strategic Income Fund B Class carries a
back-end deferred sales charge. The Strategic Income Fund C Class carries a
level load deferred sales charge and Strategic Income Fund Institutional Class
has no sales charge.
The objective of the Fund is to seek to provide investors with high current
income and total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the
last quoted sales price as of the close of the NYSE on the valuation date.
Securities not traded or securities not listed on an exchange are valued at
the mean of the last quoted bid and asked prices. Securities listed on a
foreign exchange are valued at the last quoted sales price before the Fund
is valued. Long-term debt securities are valued by an independent pricing
service and such prices 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. Other
securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a
regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes has been
made in the financial statements. Income and capital gain distributions are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes
of the Fund on the basis of daily net assets of each class. Distribution
expenses relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account
along with other members of the Delaware Group of Funds. The aggregate
daily balance of the pooled cash account is invested in repurchase
agreements secured by obligations of the U.S. government. The respective
collateral is held by the Fund's custodian bank until the maturity of the
respective repurchase agreements. Each repurchase agreement is at least
100% collateralized. However, in the event of default or bankruptcy by the
counterparty to the agreement, realization of the collateral may be subject
to legal proceedings.
Foreign Currency Transactions - Transactions denominated in foreign currencies
are recorded in the Fund's records at the current prevailing exchange rates. The
value of all assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at the exchange rate of such currencies against the
U.S. dollar as of 3:00 PM EST. Transaction gains or losses resulting from
changes in exchange rates during the reporting period or upon settlement of the
foreign currency transaction are reported in operations for the current period.
It is not practical to isolate that portion of both realized and unrealized
gains and losses on investments in equity securities that result from
<PAGE>
fluctuations in foreign currency exchange rates in the statement of operations.
The Fund does isolate that portion of gains and losses on investments in debt
securities which are due to changes in the foreign exchange rate from that which
are due to changes in market prices of debt securities. The Fund reports certain
foreign currency related transactions as components of realized gains for
financial reporting purposes, whereas such components are treated as ordinary
income (loss) for federal income tax purposes.
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. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis. Foreign dividends are also recorded on the ex-dividend date or as
soon after the ex-dividend date that the Fund is aware of such dividends, net of
all non-rebatable tax withholdings. Original issue discounts are accreted to
interest income over the lives of the respective securities. Withholding taxes
on foreign interest have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. The Fund declares
dividends daily from net investment income and pays such dividends monthly and
declares and pays distributions from net realized gain on investment
transactions, if any, semi-annually.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Fund pays Delaware Management Company, Inc. (DMC) the Investment Manager of
the Fund, an annual fee which is calculated daily at the rate of 0.65% on
the first $500 million of daily net assets, 0.625% on the next $500 million
and 0.60% on the daily net assets in excess of $1 billion. DMC has entered
into a sub-advisory agreement with Delaware International Advisors Ltd.
(DIAL) with respect to the management of the investment in foreign
securities. DIAL will receive a fee equal to one third of the investment
management fees and other expenses. At January 31, 1998 the Fund had a
liability for such fees and other expenses payable to DMC of $12,667.
DMC has elected to waive that portion if any of the management fee and reimburse
the Fund to the extent that annual operating expenses, exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and distribution
expenses exceed 0.75% of average daily net assets of the Fund through July 31,
1998. Total expenses absorbed by DMC for the period ended January 31, 1998 were
$90,108.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services for the
Fund. For the six months ended January 31, 1998, the Fund expensed $36,990 for
dividend disbursing and transfer agent services and $5,475 for accounting
services. At January 31, 1998, the Fund had a liability for such fees and other
expenses payable to DSC of $40,720.
<PAGE>
16 for current income
NOTES TO FINANCIAL STATMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 0.25% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class.
For the six months ended January 31, 1998, DDLP earned $13,211 for commissions
on sales of the Fund A Class shares. At January 31, 1998 the Fund had a
liability to DDLP for distribution fees and other expenses payable of $81,380.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
3. Investments
During the six months ended January 31, 1998, the Fund made purchases of
$33,563,733 and sales of $21,387,013 of investment securities other than
U.S. government securities and temporary cash investments.
At January 31, 1998, the aggregate cost of securities for federal income tax
purposes was $34,636,471.
At January 31, 1998, unrealized depreciation for federal income tax purposes
aggregated $76,093 of which $596,042 related to unrealized appreciation of
securities and $672,135 related to unrealized depreciation of securities.
4. Capital Stock
Transactions in capital stock shares were as follows:
Six Months 10/01/96*
Ended to
1/31/98 7/31/97
Shares sold:
Strategic Income Fund A Class ...................... 1,102,820 1,786,116
Strategic Income Fund B Class ...................... 1,014,103 1,266,123
Strategic Income Fund C Class ...................... 376,435 361,988
Strategic Income Fund Institutional Class .......... 9,636 565,743
Shares issued upon reinvestment of dividends from
net investment income and net realized gain
on investments:
Strategic Income Fund A Class ...................... 93,900 44,619
Strategic Income Fund B Class ...................... 62,619 23,076
Strategic Income Fund C Class ...................... 14,346 4,239
Strategic Income Fund Institutional Class .......... 38,045 34,615
2,711,904 4,086,519
Shares repurchased:
Strategic Income Fund A Class ...................... (244,050) (227,046)
Strategic Income Fund B Class ...................... (153,334) (82,777)
Strategic Income Fund C Class ...................... (55,297) (25,383)
Strategic Income Fund Institutional Class .......... (2,467) (2,764)
(455,148) (337,970)
Net Increase ....................................... 2,256,756 3,748,549
- ----------
* Date of commencement of trading.
5. Lines of Credit
The Fund has a committed line of credit for $300,000. No amount was outstanding
at January 31, 1998, or at any time during the six month period.
<PAGE>
6. Foreign Exchange Contracts
The Fund will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. A fund may enter into these contracts to
fix the U.S. dollar value of a security that it has agreed to buy or sell for
the period between the date the trade was entered into and the date the security
is delivered and paid for. A fund may also use these contracts to hedge the U.S.
dollar value of securities it already owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. The change in market value is recorded
by the Fund as an unrealized gain or loss. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's securities, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the value
of the currency increase. In addition, the Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
7. Market and Credit Risk
Some countries in which the Fund may invest require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Fund may
be inhibited. In addition, a significant proportion of the aggregate market
value of equity securities listed on the major securities exchanges in emerging
markets are held by a smaller number of investors. This may limit the number of
shares available for acquisition or disposition by the Fund.
The Fund may invest in high-yield fixed income securities which carry ratings of
BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Prepayment of these loans may shorten the stated
maturity of the respective obligation and may result in a loss of premium, if
any has been paid.
The Fund may invest up to 15% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect the Fund's ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities.
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS FOR CURRENT INCOME
Delchester Fund
FOR GROWTH OF CAPITAL High-Yield Opportunities Fund
Aggressive Growth Fund Strategic Income Fund
Trend Fund U.S. Government Fund
DelCap Fund Delaware-Voyageur
Small Cap Value Fund U.S. Government Securities Fund
U.S. Growth Fund Limited-Term Government Fund
Growth Stock Fund
Tax-Efficient Equity Fund FOR TAX-EXEMPT INCOME
National High Yield Municipal Bond Fund
FOR TOTAL RETURN Tax-Free USA Fund
Social Awareness Fund Tax-Free Insured Fund
Blue Chip Fund Tax-Free USA Intermediate Fund
Devon Fund State Tax-Free Funds*
Decatur Total Return Fund
Decatur Income Fund MONEY MARKET FUNDS
REIT Fund Delaware Cash Reserve
Delaware Fund Tax-Free Money Fund
FOR INTERNATIONAL DIVERSIFICATION ASSET ALLOCATION FUNDS
Emerging Markets Fund Growth Portfolio
New Pacific Fund Balanced Portfolio
Overseas Equity Fund Income Portfolio
International Equity Fund
Global Assets Fund
Global Bond Fund
* Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, North Dakota, New Jersey, New
Mexico, New York, Ohio, Oregon, Pennsylvania, Utah, Washington, Wisconsin.
Insured and intermediate bond funds are available in selected states.
funds
[Photo of Keyboard]
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF STRATEGIC INCOME FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH prospective investors when preceded or
accompanied by a current Prospectus for Strategic Income 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
Philadelphia
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
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
[Photo of globes]
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
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 the
principal. Shares of the Fund are not bank or credit union deposits.
DELAWARE
INVESTMENTS
=====================
Philadelphia o London
Copy Rights Delaware Distributors, L.P.
Printed in the USA
on recycled paper
SA-125 [1/98] PP3/98
(544)
