DELAWARE GROUP INCOME FUNDS INC, N-30D, 1998-09-29

DELAWARE GROUP INCOME FUNDS INC
N-30D, 1998-09-29

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<PAGE>

FOR CURRENT INCOME

Delchester Fund
High-Yield Opportunities Fund

(various photos demonstrating service and
guidance, professional management and goals)

service and guidance

professional management

goals
1998
Annual
Report

DELAWARE(SM)
INVESTMENTS
- -------------------
Philadelphia o London
<PAGE>

A TRADITION OF SOUND INVESTING

commitment

A Commitment To Our Investors

Delaware Investments has a tradition of money management that dates back to
1929. We have a long and distinguished history of helping individuals and
institutions - including some of America's largest pension funds - reach their
financial goals.

Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, the Delaware organization established its first mutual fund in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.

Delaware Investments offers a full range of mutual funds. We also manage
investments for variable annuity products and closed-end funds, and offer
retirement plan services for individuals and businesses.

Delaware manages more than $42 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned by
Lincoln National Corporation, which manages more than $130 billion in assets.

(photo of keyboard)

(photo of illustration from Current Income Brochure)

Delchester Fund Objective

To seek as high a current income as is consistent with providing reasonable
safety.

High-Yield Opportunities Fund Objective
To seek total return and, as a secondary objective, high current income.

Table of Contents

Letter To Shareholders Page 1
Portfolio Managers' Review Page 3
Two Diverse Portfolios Page 5
Performance Summary Page 8
Statements of Net Assets Page 10
Financial Highlights Page 17

current
income

tradition
<PAGE>

August 5, 1998

for current
income
1

Dear Shareholder:

THE ENDURANCE OF THE HIGH-YIELD BOND market was tested during fiscal 1998.
Corporate profit growth softened. Credit quality peaked. Slackening demand from
Asia negatively affected industries such as technology, paper, chemicals and
metals, sectors that tend to issue many high-yield, higher risk bonds.
Still, Delaware Investments' two high-yield bond funds each provided
excellent returns for the 12 months ended July 31, 1998 (capital change plus
reinvested dividends for A Class shares at net asset value). Each Fund's results
outdistanced the unmanaged Salomon Smith Barney High-Yield Bond Index, as shown
below.
Delchester Fund and High-Yield Opportunities Fund each provided a
double-digit return in fiscal 1998 that substantially exceeded the average of
mutual funds specializing in high-yield bond investments.* In fact, both Funds
even outperformed the most widely quoted benchmark of America's largest
industrial stocks - the Dow Jones Industrial Average - which rose just +9.90%
during fiscal 1998.
Delaware Investments has managed high-yield bond investments for over 40
years. Now more than ever, as uncertainty about the future direction of U.S.
equity prices has increased, we believe high-yield bonds can help investors
diversify their portfolios and temper the effects of stock market volatility.
We attribute Delaware Investments' long-term success to a consistent,

IN FISCAL 1998, DELCHESTER FUND AND HIGH-YIELD OPPORTUNITIES FUND EACH
OUTPERFORMED THE MOST WIDELY QUOTED BENCHMARK OF AMERICA'S LARGEST INDUSTRIAL
STOCKS - THE DOW JONES INDUSTRIAL AVERAGE.

CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
12 Months
Ended July 31, 1998
- --------------------------------------------------------------------------------
Delchester Fund A Class +10.73%
High-Yield Opportunities Fund A Class +15.66%
- --------------------------------------------------------------------------------
Lipper High Current Yield Fund Average +9.15% (224 funds)
Salomon Smith Barney High-Yield Bond Index +9.61%
Lehman Brothers Aggregate Bond Index +7.87%
Dow Jones Industrial Average +9.90%
- --------------------------------------------------------------------------------
All performance quoted above assumes reinvestment of distributions. Fund
results and those of the Lipper average do not show the effect of sales
charges. Performance for all Fund classes can be found on pages 8 and 9.
Performance of other Fund classes differs due to different charges and
expenses. Past performance does not guarantee future results.

* High-Yield Opportunities Fund's performance ranked 9th of 224 funds and 25th
out of 182 funds for the one-year and lifetime periods ended 7/31/98,
according to Lipper Analytical Services. Delchester Fund ranked 61st of 224
funds, 63rd of 136 funds, 58th of 77 funds and 29th of 52 funds for the
one-year, three-year, five-year and 10-year periods ended 7/31/98. Rankings
are based on total return at net asset value. An expense limitation was in
effect for High-Yield Opportunities Fund for the period shown. Returns and
rankings would have been lower without the limitation.
<PAGE>

for current
income
2

disciplined investment strategy. During fiscal 1998, Paul A. Matlack and Gerald
T. Nichols, both Funds' portfolio managers, 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 superior cash flow, strong market share and ample
liquidity.

High-yield, higher risk bonds have benefited from low inflation and
relatively strong profits since the early 1990s. We believe these trends remain
firmly in place.
Strong investor demand has been another positive force affecting the
high-yield market. During the first six months of 1998, investors allocated some
$19 billion in new money to high-yield bond funds, according to Strategic
Insight, a research firm. This helped absorb a record amount of new bond supply.
This past summer the total amount of high-yield debt outstanding reached nearly
$600 billion.
Over the past five years, high-yield bonds have offered excellent income
and total return potential, as shown below, for investors willing to accept
additional risks. To tap this potential, Mr. Matlack and Mr. Nichols take a
proactive approach to analyzing credit risk and regularly monitor external
factors that might affect each Fund's ability to provide income and preserve
capital.
We'd like to thank you for choosing Delaware Investments' fixed-income
funds to help you meet your financial goals. We suggest you regularly meet with
your financial adviser to review your bond and equity allocation mix.

Sincerely,

/s/ Wayne A. Stork
- ------------------
Wayne A. Stork
Chairman

/s/ Jeffrey J. Nick
- -------------------
Jeffrey J. Nick
President and Chief Executive Officer

discipline

INTEREST INCOME - THE PRIMARY COMPONENT
OF TOTAL RETURN FROM HIGH-YIELD BONDS
- -------------------------------------------------
AVERAGE ANNUAL RETURNS - FIVE YEARS ENDED 7/31/98
- -------------------------------------------------
<TABLE>
<CAPTION>
Merrill Lynch Ten-Year High-Quality One-Year
High-Yield Bond Index Treasuries Corporate Bonds T-Bills
<S> <C> <C> <C> <C>
Total Return 10.65% 8.42% 7.57% 5.13%
Income Return 9.38% 7.55% 7.71% 5.13%
Capital Return 1.27% 0.87% -0.14% 5.13%
</TABLE>

Source: Merrill Lynch. Past performance is not a guarantee of future results.
Unlike U.S. Treasuries, high-yield and high quality corporate bonds are not
guaranteed as to the timely payment of interest and repayment of principal.
The performance figures given above are not intended to reflect the past or
future performance of any mutual fund offered by Delaware Investments. There
is no guarantee that Delchester Fund or High-Yield Opportunities Fund's
performance will match that of any index.
<PAGE>

for current
income
3

Portfolio Managers' Review

IN THE HIGH-YIELD, HIGHER RISK BOND market, there was no place like home in
fiscal 1998.
By focusing exclusively on domestic high-yield bonds, Delchester Fund and
High-Yield Opportunities Fund provided above-average results at a reduced level
of risk compared to funds investing in high-yield overseas bonds.
U.S. high-yield bonds provided higher total returns than any other
fixed-income category during the past fiscal year because of their superior
income traits and relatively strong liquidity. Senior domestic 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
telecommunications and media bonds.
Bonds of cyclical companies with ties to Asia have fared poorly since July
1997 as recession, currency devaluations and political turmoil have swept
through the Pacific Rim like a twister through Kansas. Within both Funds we
avoided industries whose cash flow was tied to the overall health of the U.S.
economy or the value of the U.S. dollar. We believed sectors such as paper,
chemicals and metals were likely to suffer from increased competition with
imports and reduced overseas sales.
Although the size of the domestic high-yield market has doubled since 1994,
credit quality has generally improved, bolstering investor confidence. Most
domestic bonds issued today have an average rating of BB-, compared to B- in the
early 1990s. Default rates have remained less than 2% for the past five years,
according to Merrill Lynch.
Consistently strong credit quality in fiscal 1998 provided us with ample
opportunity to select both new and seasoned bonds for Delchester Fund and
High-Yield Opportunities Fund. We did especially well with new bonds, which
offered attractive income, relative safety of principal, and in some cases,
capital appreciation potential.
Attractive low interest rates drove up the supply of high-yield debt as
established

DURING FISCAL 1998, ESTABLISHED COMPANIES REPLACED HIGHER COUPON PAPER AND
YOUNGER COMPANIES ENTERED THE HIGH-YIELD MARKET TO REDUCE SHORT-TERM BANK
FINANCING WITH RELATIVELY CHEAP LONGER TERM DEBT.

overview

DELCHESTER FUND'S LOWER RISK APPROACH TO HIGH-YIELD BONDS
- --------------------------------------------------------------------------------
LATEST MORNINGSTAR RISK SCORES (6/30/98)

Delchester High-Yield Fund
Fund Category Average
- --------------------------------------------------------------------------------
Three Years (74 funds) 0.47 0.68
Five Years (65 funds) 0.73 0.81
Ten Years (55 funds) 1.18 1.21
- --------------------------------------------------------------------------------
The average risk factor for all bond funds equals 1.00. Numbers greater than
1.00 indicate more relative risk, less than 1.00 indicates lower relative
risk. Past performance does not guarantee future results. To calculate risk,
Morningstar concentrates on those months during which a fund underperformed
the average return of a three-month U.S. Treasury bill. It adds up the amounts
by which a fund fell short of a Treasury bill's return and divides the result
by the total number of months in the rating period.
<PAGE>

for current
income
4

companies replaced higher coupon paper and younger companies entered the
market to reduce short-term bank financing with relatively cheap longer term
debt, thus strengthening and positioning their balance sheets for future
growth.

INVESTMENT STRATEGY

Over the years, Delaware Investments' goal in managing high-yield bond
portfolios has been to provide above-average results while maintaining a prudent
approach to credit risk management. As part of our research discipline, we ask
ourselves whether we would make a loan to the companies we review.
A team of five analysts and traders assists us in bond research. We meet
weekly to review market conditions. Both portfolio managers have to agree to buy
a bond before it is selected for the portfolio. However, either manager can sell
a bond.
Historically, income has been the dominant component of return from
high-yield bonds, and in both Funds we stress capital preservation over
appreciation. We sought to achieve this by investing primarily in bonds rated B.
As of year's end, more than three-quarters of the bonds in each Fund's portfolio
were rated B. This was much higher than the 63% average of 97 high-yield bond
funds tracked by Morningstar.

HIGH-YIELD BONDS
CUSHION VOLATILITY
An important catalyst for high-yield bond demand in fiscal 1998 was the
increasing volatility of the stock market. Investors appear to have embraced the
idea that high-yield bonds can be a defensive investment.
For example, between mid-July and the first week of August 1998, most
high-yield bonds generally retained their value (as measured by the Merrill
Lynch High-Yield Bond Index) while the Standard & Poor's 500 Index declined 9%.
Of course, the past doesn't guarantee the future, but we believe it is worth
noting that since 1980 the high-yield bond market has generally provided a
positive return when the S&P 500 Index has posted a negative return, according
to Chase Securities. Thus, high-yield bonds can diversify and balance an equity
investment portfolio.

[photo of family on the beach]

HISTORICALLY, INCOME HAS BEEN THE DOMINANT COMPONENT OF RETURN FROM HIGH-YIELD
BONDS, AND IN BOTH FUNDS WE STRESS CAPITAL PRESERVATION OVER APPRECIATION.

CREDIT QUALITY AND INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------
JULY 31, 1998
Delchester High-Yield
Fund Opportunities Fund
- --------------------------------------------------------------------------------
AAA 6.0% 5.9%
BB 1.9% 2.2%
B 76.8% 80.5%
CCC 4.3% 2.8%
Unrated 11.0% 8.6%
- --------------------------------------------------------------------------------
Current 30-Day SEC Yield* 8.71% 7.81%
Average Effective Duration 4.9 years 5.0 years
Average Effective Maturity 6.8 years 7.2 years
Portfolio Turnover 117% 316%
Number of Securities 180 60
- --------------------------------------------------------------------------------
* For A Class shares measured according to Securities and Exchange Commission
guidelines. Current 30-Day SEC yield as of 7/31/98 for B and C Class shares
was 8.38% for Delchester Fund and 7.50% and 7.56% for B and C Classes of
High-Yield Opportunities Fund. Institutional Class yields were 9.41% and 8.52%
for Delchester Fund and High-Yield Opportunities Fund, respectively.

<PAGE>

for current
income
5

ZEROING IN ON OPPORTUNITIES
High-Yield Opportunities Fund's primary emphasis on total return rather than
current income and its small size ($15.7 million in net assets) gave us added
flexibility to invest in bonds that we believed were likely to rise in price.
As the bond market rallied during the year, we sold some bonds to realize
capital appreciation, including zero coupon bonds that performed well. Prices of
zero coupon bonds tend to rise to a greater degree than other bonds during
periods of declining interest rates. (Zero coupon bonds are sold at a discount
to face value and tend to rise in price as the security nears maturity).
This strategy explains why High-Yield Opportunities' portfolio turnover
rate (as shown on page 4) was a relatively high 316% for fiscal 1998. Our
approach helped High-Yield Opportunities provide superior results, and the
increased return we achieved more than offset higher trading expenses.

SUMMARY OUTLOOK
We expect that the remainder of calendar 1998 will bring more of the same for
the U.S. economy: moderate growth, stable interest rates, as well as low
inflation.
Within both Delchester Fund and High-Yield Opportunities Fund, we will
continue to favor strong, liquid domestic bonds with B ratings over those of
both higher and lower credit quality. We will avoid overseas bonds and bonds
with deferred interest or pay-in-kind securities (bonds that pay interest in the
form of more bonds rather than cash) because we believe they have a poor
risk/reward profile.
In fiscal 1999, each Fund's portfolio is likely to remain underweighted in
higher quality bonds with BB ratings. That is because bonds rated BB tend to
underperform bonds with B ratings when interest rates are stable. Despite the
age of the current U.S. economic expansion, and sluggish profits at some
cyclical companies, we see nothing on the horizon that would precipitate a
domestic recession or a major drop in rates.

PAUL A. MATLACK
Vice President
Senior Portfolio Manager

GERALD T. NICHOLS
Vice President
Senior Portfolio Manager
August 5, 1998

outlook

A TIME-TESTED STRATEGY - TWO DIVERSE PORTFOLIOS
- --------------------------------------------------------------------------------
ASSET MIX - JULY 31, 1998

High-Yield
Delchester Fund Opportunities Fund
- --------------------------------------------------------------------------------
Basic Industry 15.3% 18.1%
Capital Goods 7.1% 10.9%
Consumer Growth* 15.0% 21.0%
Consumer Cyclicals** 9.0% 3.8%
Credit Sensitive 3.1% 4.2%
Food 7.0% 5.2%
Energy 4.6% 10.0%
Miscellaneous 4.2% 5.9%
Telecommunications 19.1% 10.0%
- --------------------------------------------------------------------------------
* Media, leisure, health care and transportation.
** Retailing, textiles and autos.

<PAGE>

for current
income
6

DELCHESTER FUND
PROVIDING HIGH INCOME FOR THREE DECADES
- --------------------------------------------------------------------------------
ANNUAL INCOME FROM A $100,000 INVESTMENT
AUGUST 20, 1970 TO JULY 31, 1998

Total Account Value = $1,339,798

Delchester begins operations 8/20/70
July '71 $ 4,806
July '72 $ 7,272
July '73 $ 8,570 - Arab oil embargo
July '74 $ 9,366
July '75 $ 10,625
July '76 $ 11,458 - High-yield bond market less than $4 billion
July '77 $ 12,602
July '78 $ 13,865
July '79 $ 15,336 - Double-digit inflation
July '80 $ 18,151
July '81 $ 21,698 - Recession, high unemployment
July '82 $ 25,566
July '83 $ 29,181
July '84 $ 32,580
July '85 $ 48,190 - High-yield market grows to $78 billion
July '86 $ 49,624
July '87 $ 53,110
July '88 $ 58,385 - Credit quality of new issuance drops, defaults rise
July '89 $ 63,289
July '90 $ 69,198 - High-yield bond yields average 18.7%
July '91 $ 72,943
July '92 $ 80,466
July '93 $ 88,794
July '94 $ 95,985 - Fed raises interest rates to fight inflation
July '95 $ 96,183
July '96 $ 99,758 - Credit quality improves, default rates drop
July '97 $104,908
July '98 $112,546 in annual income - Account grows to $1.3 million

- --------------------------------------------------------------------------------
Chart assumes $100,000 invested on August 20, 1970, a 4.75% front-end sales
charge and reinvestment of all distributions. Performance for other Delchester
classes will vary due to differing charges and expenses. Past performance does
not guarantee future results.
<PAGE>

for current
income
7
Delchester Fund's return and share value fluctuate so that shares, when
redeemed, may be worth more or less than their original costs. Past
performance is not a guarantee of future results.

Performance of other classes of Delchester Fund differ from the above due to
differing charges and expenses. See pages 8 and 9 for complete performance
information.
<PAGE>

for current
income
8

PERFORMANCE SUMMARY

DELCHESTER FUND
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
JULY 31, 1988 TO JULY 31, 1998

U.S. Consumer
Salomon Smith Barney Delchester Fund Price Index
High-Yield Bond Index A Class (Inflation)
- ----- --------------------- --------------- -------------
Jul '88 $10,000 $ 9,521 $10,000
Jul '89 $11,059 $10,357 $10,042
Jul '90 $10,926 $ 9,963 $10,542
Jul '91 $12,311 $11,408 $11,051
Jul '92 $15,144 $14,139 $11,542
Jul '93 $17,604 $16,183 $11,907
Jul '94 $18,164 $16,442 $12,237
Jul '95 $20,791 $17,832 $12,576
Jul '96 $22,654 $19,277 $13,301
Jul '97 $26,229 $22,657 $13,602
Jul '98 $29,032 $25,030 $13,822
- --------------------------------------------------------------------------------
Chart assumes $10,000 invested on July 31, 1988, a 4.75% front-end sales
charge and reinvestment of all distributions. Performance for other Fund
classes will vary due to differing charges and expenses. Past performance does
not guarantee future results.

HIGH-YIELD OPPORTUNITIES FUND
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
DECEMBER 30, 1996 TO JULY 31, 1998

Salomon Smith Barney High-Yield Opportunities
High-Yield Bond Index Fund A Class
--------------------- ------------------------
Dec. 30 '96 $10,000 $ 9,532
Jan. '97 $10,077 $ 9,723
Feb. '97 $10,237 $ 9,983
Mar. '97 $10,155 $ 9,792
Apr. '97 $10,241 $ 9,844
May '97 $10,435 $10,196
Jun. '97 $10,602 $10,393
July '97 $10,835 $10,562
Aug. '97 $10,849 $10,607
Sep. '97 $11,018 $10,957
Oct. '97 $11,115 $11,043
Nov. '97 $11,201 $11,068
Dec. '97 $11,314 $11,151
Jan. '98 $11,559 $11,495
Feb. '98 $11,641 $11,644
Mar. '98 $11,769 $11,779
Apr. '98 $11,843 $11,899
May '98 $11,870 $12,018
Jun. '98 $11,905 $11,999
July '98 $11,993 $12,184

- -------------------------------------------------------------------------------
Chart assumes $10,000 invested on December 30, 1996, a 4.75% front-end sales
charge and reinvestment of all distributions. Performance for other Fund
classes will vary due to differing charges and expenses. Past performance does
not guarantee future results.
<PAGE>

for current
income
9
<TABLE>
<CAPTION>
DELCHESTER FUND PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS THROUGH JULY 31, 1998

Lifetime Ten Years Five Years One Year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (Est. 8/20/70)
Excluding Sales Charge +9.91% +10.17% +9.16% +10.73%
Including Sales Charge +9.72% +9.64% +8.11% +5.43%
- ----------------------------------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +9.26% +9.91%
Including Sales Charge +8.91% +5.91%
- ----------------------------------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +11.85% +9.91%
Including Sales Charge +11.85% +8.91%

HIGH-YIELD OPPORTUNITIES FUND PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS THROUGH JULY 31, 1998

Lifetime One Year
- ----------------------------------------------------------------------------------------------------------------------------------
Class A (Est. 12/30/96)
Excluding Sales Charge +16.84% +15.66%
Including Sales Charge +13.38% +10.08%
- ----------------------------------------------------------------------------------------------------------------------------------
Class B (Est. 2/17/98)*
Excluding Sales Charge +3.54%
Including Sales Charge -0.46%
- ----------------------------------------------------------------------------------------------------------------------------------
Class C (Est. 2/17/98)*
Excluding Sales Charge +3.54%
Including Sales Charge +2.54%
</TABLE>

Each Fund invests primarily in high-yield bonds, which involve greater risk than
higher quality bonds. 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 contingent sales
charges did not apply or the investment was not redeemed. Past performance does
not guarantee future results. High-Yield Opportunities Fund had an expense
limitation in effect for the periods shown. Performance would have been lower
without the limitation.

* Cumulative return.

Class A shares have a 4.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.

Average Annual Institutional Class Returns Through July 31, 1998
<TABLE>
<CAPTION>
Lifetime 10 Years Five Years One Year
<S> <C> <C> <C> <C>
Delchester Fund (Est. 6/1/92) +10.01% +10.46% +9.43% +11.00%
High-Yield Opportunities Fund (Est. 12/30/96) +16.93% +15.82%
</TABLE>

Institutional Class shares are available without sales or asset-based
distribution charges only to certain eligible institutional accounts.

<PAGE>

10 for current income

Financial Statements

DELAWARE GROUP INCOME FUNDS, INC. -
DELCHESTER FUND
STATEMENT OF NET ASSETS
JULY 31, 1998
- --------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS - 90.71%
AEROSPACE & DEFENSE - 0.70%
Federal Data sr sub nts 10.125% 8/1/05 ......... $10,450,000 $10,802,688
-----------
10,802,688
-----------
AUTOMOBILE & AUTO EQUIPMENT - 3.65%
*Accuride sr sub nts 9.25% 2/1/08 ............... 10,000,000 10,200,000
ADV Accessory/AAS Capital
sr sub nts 9.75% 10/1/07 ..................... 7,350,000 7,515,375
CSK Auto sr sub nts 11.00% 11/1/06 ............. 5,315,000 5,819,925
Motors & Gears sr nts 10.75% 11/15/06 .......... 11,800,000 12,670,250
*Newcor co guarantee 9.875% 3/1/08 .............. 4,700,000 4,700,000
Stanadyne Automobile
sr sub nts 10.25% 12/15/07 ................... 11,200,000 11,606,000
Talon Automotive sr sub nts 9.625% 5/1/08 ...... 3,700,000 3,746,250
-----------
56,257,800
-----------
BANKING, FINANCE & INSURANCE - 0.84%
American Banknote
unsec sr sub nts 11.25% 12/1/07 .............. 10,750,000 10,911,250
*Western Financial Bank - FSB
sub debs 8.875% 8/1/07 ....................... 2,300,000 2,093,000
-----------
13,004,250
-----------
BUILDING & MATERIALS - 2.28%
American Builders & Contractors
sr unsec sub nts 10.625% 5/15/07 ............. 4,100,000 4,248,625
Atrium sr sub nts 10.50% 11/15/06 .............. 3,225,000 3,418,500
Collins & Aikman Floorcovers
sr sub nts 10.00% 1/15/07 .................... 12,820,000 13,541,125
Wesco Distribution
sr sub nts 9.125% 6/1/08 ..................... 9,250,000 9,319,375
+Wesco International
sr disc nts 11.125% 6/1/08 ................... 7,750,000 4,601,563
-----------
35,129,188
-----------
CABLE, MEDIA & PUBLISHING - 6.74%
+Falcon Holdings debs 9.285% 4/15/10 ............ 11,500,000 7,762,500
+*Marcus Cable sr disc nts 14.25% 12/15/05 ....... 9,600,000 9,060,000
Marsulex sr sub nts 9.625% 7/1/08 .............. 4,850,000 5,019,750
Northland Cable Television
sr sub nts 10.25% 11/15/07 ................... 9,100,000 9,873,500
Perry-Judd sr sub nts 10.625% 12/15/07 ......... 6,000,000 6,300,000
PSINET sr nts 10.00% 2/15/05 ................... 10,500,000 11,077,500
+PX Escrow sr disc nts 9.625% 2/1/06 ............ 14,000,000 10,237,500
Pathnet units 12.25% 4/15/08 ................... 5,800,000 6,307,500
Pegasus Communications
sr nts 9.625% 10/15/05 ....................... 7,000,000 7,210,000
+Radio Unica sr disc nts 11.75% 8/1/06 .......... 4,250,000 2,704,063
STC Broadcasting sr sub nts 11.00% 3/15/07 ..... 7,250,000 8,029,375
Sullivan Graphics sr sub nts 12.75% 8/1/05 ..... 10,375,000 10,984,531

<PAGE>

Principal Market
Amount Value
--------- ------
CORPORATE BONDS (CONTINUED)
CABLE, MEDIA & PUBLISHING (CONTINUED)
+United International Holdings
sr disc nts 10.75% 2/15/08 ................... $ 14,600,000 $ 9,325,750
------------
103,891,969
------------
CHEMICALS - 4.57%
Aqua Chemical sr sub nts 11.25% 7/1/08 ......... 9,200,000 9,568,000
Brunner Mond Group
sr sub nts 11.00% 7/15/08 .................... 6,600,000 6,732,000
Geo Specialty Chemicals
sr sub nts 10.125% 8/1/08 .................... 5,800,000 5,901,500
Huntsman sr sub nts 9.50% 7/1/07 ............... 11,000,000 11,412,500
Koppers Industries
unsec sr sub nts 9.875% 12/1/07 .............. 9,500,000 9,832,500
*LaRoche Industries sr sub nts 9.50% 9/15/07 .... 16,500,000 16,376,250
+*Sterling Chemical Holdings
sr disc nts 13.50% 8/15/08 ................... 17,575,000 10,632,875
------------
70,455,625
------------
COMPUTER & TECHNOLOGY - 0.87%
+Cellnet Data Systems
sr disc nts 14.00% 10/1/07 ................... 12,000,000 6,720,000
Statia Terminals mtg nts 11.75% 11/15/03 ....... 6,250,000 6,656,250
------------
13,376,250
------------
CONSUMER PRODUCTS - 6.30%
AAI.Fostergrant sr nts 10.75% 7/15/06 .......... 2,000,000 2,020,000
Desa International sr sub nts 9.875% 12/15/07 .. 13,300,000 13,333,250
Derby Cycle/Lyon sr nts 10.00% 5/15/08 ......... 8,900,000 8,966,750
Drypers sr nts 10.25% 6/15/07 .................. 10,575,000 11,024,438
French Fragrance sr nts 10.375% 5/15/07 ........ 9,000,000 9,630,000
Home Interiors & Gifts
sr sub nts 10.125% 6/1/08 .................... 10,350,000 10,815,750
+Iron Age sr sub nts 9.875% 5/1/08 .............. 9,000,000 8,910,000
+Iron Age Holdings sr disc nts 12.125% 5/1/09 ... 4,000,000 2,300,000
+*Revlon Worldwide sr disc nts 3/15/01 ........... 13,400,000 10,636,250
Riddell Sports sr unsec sub nts 10.50% 7/15/07 . 8,000,000 8,080,000
+Spin Cycle units 12.75% 5/1/05 ................. 5,000,000 3,575,000
Zeta Consumer Products
sr nts 11.25% 11/30/07 ....................... 9,200,000 7,774,000
------------
97,065,438
------------
ELECTRONICS, INFORMATION & DATA - 1.20%
Elgar Holdings sr nts 9.875% 2/1/08 ............ 5,600,000 5,152,000
Phase Metrics sr nts 10.75% 2/1/05 ............. 6,300,000 5,040,000
+Rhythms Netconnections
units 13.50% 5/15/08 ......................... 16,600,000 8,300,000
------------
18,492,000
------------
<PAGE>

for current income 11

STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS (CONTINUED)
ENERGY - 4.58%
First Wave Marine sr nts 11.00% 2/1/08 ......... $ 6,900,000 $ 7,365,750
Michael Petroleum sr nts 11.50% 4/1/05 ......... 7,600,000 7,524,000
Panaco unsec sr sub nts 10.625% 10/1/04 ........ 9,350,000 9,385,063
Rutherford-Moran Oil
sr sub nts 10.75% 10/1/04 .................... 10,450,000 11,103,125
+*Transamerican Energy sr nts 13.00% 6/15/02 ..... 11,750,000 9,400,000
*Transamerican Energy sr nts 11.50% 6/15/02 ..... 9,950,000 9,154,000
Transamerican Refining units 16.00% 6/30/03 .... 9,000,000 9,585,000
+Universal Compression
sr disc nts 9.875% 2/15/08 ................... 11,000,000 7,067,500
------------
70,584,438
------------
ENVIRONMENTAL SERVICES - 0.43%
Hydrochem Industrial Services
sr sub nts 10.375% 8/1/07 .................... 6,410,000 6,618,325
------------
6,618,325
------------
FOOD, BEVERAGE & TOBACCO - 6.97%
Ameriserve Food Distributors
sr sub nts 10.125% 7/15/07 ................... 14,250,000 14,392,500
*Core-Mark International
sr sub nts 11.375% 9/15/03 ................... 7,975,000 8,503,344
+Del Monte Foods sr disc nts 12.50% 12/15/07 .... 22,750,000 15,015,000
*DiGiorgio sr nts 10.00% 6/15/07 ................ 12,500,000 12,531,250
+Electronic Retailing Systems
sr disc nts 13.25% 2/1/04 .................... 13,200,000 5,874,000
Favorite Brands sr nts 10.75% 5/15/06 .......... 9,200,000 8,395,000
Fleming sr sub nts 10.50% 12/1/04 .............. 13,225,000 13,853,188
Fresh Foods sr nts 10.75% 6/1/06 ............... 6,250,000 6,312,500
*Jitney-Jungle Stores
unsec sr sub nts 10.375% 9/15/07 ............. 13,700,000 14,864,500
Shoppers Food Warehouse sr nts 9.75% 6/15/04 ... 6,900,000 7,728,000
------------
107,469,282
------------
HEALTHCARE & PHARMACEUTICALS - 2.83%
+Alaris Medical sr disc nts 11.125% 8/1/08 ...... 9,000,000 5,253,750
Alliance Imaging sr sub nts 9.6% 12/15/05 ...... 8,550,000 8,763,750
Dynacare sr nts 10.75% 1/15/06 ................. 9,750,000 10,432,500
Insight Health Services
sr sub nts 9.63% 6/15/08 ..................... 10,000,000 9,925,000
Kinetic Concepts sr sub nts 9.625% 11/1/07 ..... 9,000,000 9,292,500
------------
43,667,500
------------
INDUSTRIAL MACHINERY - 4.29%
AEP Industries sr sub nts 9.875% 11/15/07 ...... 4,800,000 4,992,000
Burke Industries unsec sr nts 10.00% 5/15/07 ... 8,985,000 9,299,475
Cambridge Industries
sr sub nts 10.25% 7/15/07 .................... 9,700,000 10,039,500
Generac Portable Products
sr sub nts 11.25% 7/1/06 ..................... 6,250,000 6,406,250
Outboard Marine sr nts 10.75% 6/1/08 ........... 4,600,000 4,715,000
Safety Components International
sr sub nts 10.125% 7/15/07 ................... 8,400,000 8,736,000
Spinnaker Industries sr nts 10.75% 10/15/06 .... 9,500,000 9,690,000
Trench Electric 10.25% 12/15/07 ................ 12,000,000 12,240,000
------------
66,118,225
------------

<PAGE>
Principal Market
Amount Value
--------- ------

CORPORATE BONDS (CONTINUED)
LEISURE, LODGING & ENTERTAINMENT - 3.34%
+Aladdin Gaming units 13.50% 3/1/10 .............. $18,000,000 $ 8,595,000
+Premier Parks sr disc nts 10.00% 4/1/08 ......... 14,050,000 9,641,813
Regal Cinemas sr sub nts 9.50% 6/1/08 ........... 9,600,000 9,912,000
Silver Cinemas sr sub nts 10.50% 4/15/05 ........ 8,750,000 8,968,750
Town Sports International
unsec sr nts 9.75% 10/15/04 ................... 3,425,000 3,437,844
Trump Atlantic City Association II
1st mtg nts 11.25% 5/1/06 ..................... 2,100,000 2,071,125
United Artists sr sub nts 9.75% 4/15/08 ......... 8,800,000 8,888,000
-----------
51,514,532
-----------
METALS & MINING - 4.07%
Commonwealth Aluminum
sr sub nts 10.75% 10/1/06 ..................... 8,825,000 9,266,250
Doe Run Resources sr nts 11.25% 3/15/05 ......... 13,500,000 13,955,625
Great Lakes Carb sr sub nts 10.25% 5/15/08 ...... 5,500,000 5,637,500
Jorgensen Earle M. sr sub nts 9.50% 4/1/05 ...... 13,700,000 13,631,500
Metallurg sr nts 11.00% 12/1/07 ................. 11,750,000 12,410,938
P & L Coal Holdings sr sub nts 9.625% 5/15/08 ... 7,450,000 7,766,625
-----------
62,668,438
-----------
PACKAGING & CONTAINERS - 4.05%
*Gaylord Container sr sub nts 9.875% 2/15/08 ..... 18,800,000 16,544,000
*Gaylord Container sr nts 9.75% 6/15/07 .......... 9,950,000 9,303,250
+Graham Packaging/GPC Capital
sr disc nts 10.75% 1/15/09 .................... 7,000,000 4,541,250
Graham Packaging/GPC Capital
sr sub nts 8.75% 1/15/08 ...................... 4,500,000 4,545,000
*Riverwood International
unsec sr sub nts 10.875% 4/1/08 ............... 20,200,000 20,654,500
Silgan Holdings pik debs 13.25% 7/15/06 ......... 6,185,001 6,788,038
-----------
62,376,038
-----------
PAPER & FOREST PRODUCTS - 2.18%
Four M sr nts 12.00% 6/1/06 ..................... 14,225,000 15,220,750
*MAXXAM Group sr sec nts 12.00% 8/1/03 ........... 9,400,000 10,481,000
MAXXAM Group sr sec nts 11.25% 8/1/03 ........... 7,450,000 7,859,750
-----------
33,561,500
-----------
RETAIL - 3.94%
Advance Stores sr sub nts 10.25% 4/15/08 ........ 9,200,000 9,637,000
Frank's Nursery & Crafts
sr sub nts 10.25% 3/1/08 ...................... 9,500,000 9,808,750
*Leslie's Poolmart sr nts 10.375% 7/15/04 ........ 10,450,000 11,050,875
Petro Stopping Centers sr nts 10.50% 2/1/07 ..... 7,500,000 8,081,250
Sonic Automotive
sr sub nts 144A 11.00% 8/1/08 ................. 9,600,000 9,576,000
US Office Products sr sub nts 9.75% 6/15/08 ..... 12,500,000 12,593,750
-----------
60,747,625
-----------
TELECOMMUNICATIONS - 19.14%
+21st Century Telecom Group
sr sub nts 12.25% 2/15/08 ..................... 16,600,000 9,316,750
American Mobile Satellite
units 144A 12.25% 4/1/08 ...................... 9,300,000 8,556,000
+Arch Communications
sr disc nts 10.875% 3/15/08 ................... 16,000,000 9,000,000

<PAGE>

12 for current income

STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Arch Communications sr nts 12.75% 7/1/07 ....... $ 10,000,000 $ 10,437,500
BTI Telecom sr nts 10.50% 9/15/07 .............. 18,925,000 18,877,688
Call-Net Enterprises sr nts 8.00% 8/15/08 ...... 2,700,000 2,713,500
+Call-Net Enterprises sr disc nts 8.94% 8/15/08 . 12,000,000 7,845,000
Caprock Communications
sr nts 12.00% 7/15/08 ........................ 13,500,000 13,702,500
Convergent Communication
units 13.00% 4/1/08 .......................... 7,500,000 7,425,000
+DTI Holdings units 12.50% 3/1/08 ............... 11,500,000 6,123,750
+*E. Spire Communications
sr disc nts 10.625% 7/1/08 ................... 5,400,000 3,321,000
+Econophone sr disc nts 11.00% 2/15/08 .......... 9,200,000 5,428,000
+FirstWorld Communication
units 13.00% 4/15/08 ......................... 18,500,000 8,695,000
+GST USA sr disc nts 13.875% 12/15/05 ........... 14,000,000 11,550,000
Global Crossing Holdings Limited
sr nts 9.625% 5/15/08 ........................ 11,100,000 11,766,000
Highwaymaster Communications
sr nts 13.75% 9/15/05 ........................ 3,325,000 2,161,250
+KMC Telecom Holdings units 12.50% 2/15/08 ...... 14,000,000 8,400,000
+McCaw International
sr disc nts 13.00% 4/15/07 ................... 14,900,000 9,983,000
*Metrocall unsec sr sub nts 10.375% 10/1/07 ..... 12,900,000 13,609,500
Metronet Communications
sr disc nts 9.95% 6/15/08 .................... 11,700,000 7,488,000
+Nextel Communications
sr disc nts 9.95% 2/15/08 .................... 25,000,000 16,656,250
+Nextel Communications
sr disc nts 10.65% 9/15/07 ................... 14,500,000 10,077,500
+Nextlink Communications
sr disc nts 9.45% 4/15/08 .................... 8,300,000 5,249,750
Nextlink Communications
sr nts 9.625% 10/1/07 ........................ 5,000,000 5,175,000
Paging Network sr sub nts 10.125% 8/1/07 ....... 9,400,000 9,917,000
+RCN sr disc nts 9.80% 2/15/08 .................. 17,500,000 10,937,500
+RCN sr disc nts 11.125% 10/15/07 ............... 10,000,000 6,550,000
RCN sr nts 10.00% 10/15/07 ..................... 3,800,000 3,971,000
Splitrock Services units 11.75% 7/15/08 ........ 6,600,000 6,699,000
*Telex Communications
sr sub nts 10.50% 5/1/07 ..................... 6,000,000 5,160,000
+Teligent sr disc nts 11.50% 3/1/08 ............. 7,000,000 4,060,000
*Teligent sr nts 11.50% 12/1/07 ................. 17,000,000 17,467,500
Time Warner Telecommunications LLC
sr nts 9.75% 7/15/08 ......................... 4,800,000 4,932,000
*USA Mobile Communication
sr nts 14.00% 11/1/04 ........................ 4,500,000 4,972,500
+Viatel units 12.50% 4/15/08 .................... 10,200,000 6,706,500
------------
294,930,938
------------
TEXTILES & FURNITURE - 1.43%
CMI Industries sr sub nts 9.50% 10/1/03 ........ 4,000,000 4,220,000
Globe Manufacturing sr sub nts 10.00% 8/1/08 ... 9,000,000 9,112,500
Scovill Fasteners sr unsec nts 11.25% 11/30/07 . 8,400,000 8,778,000
------------
22,110,500
------------

<PAGE>

Principal Market
Amount Value
--------- ------

CORPORATE BONDS (Continued)
TRANSPORTATION & SHIPPING - 2.10%
Ameriking sr nts 10.75% 12/1/06 .............. $ 9,300,000 $ 9,904,500
Millennium Seacarriers
sr sub nts 12.00% 7/15/05 .................. 3,800,000 3,743,000
Navigator Gas Transport nts 10.50% 6/30/07 ... 9,400,000 9,682,000
Navigator Gas Transport unit 12.00% 6/30/07 .. 8,000,000 9,120,000
------------
32,449,500
------------
MISCELLANEOUS - 4.21%
ATC Group Services
co guarantee 12.00% 1/15/08 ................ 4,800,000 4,512,000
Axia sr sub nts 10.75% 7/15/08 ............... 4,500,000 4,545,000
Comforce Operating sr nts 12.00% 12/1/07 ..... 6,550,000 7,090,375
Eagle Picher Ind co guarantee 9.375% 3/1/08 .. 13,000,000 13,243,750
*EV International sr sub nts 11.00% 3/15/07 ... 9,000,000 8,493,750
Grove Worldwide sr sub nts 9.25% 5/1/08 ...... 14,950,000 14,950,000
Indesco International sr sub nts 9.75% 4/15/08 4,500,000 4,522,500
Paragon Corporate Holdings
sr nts 9.625% 4/1/08 ....................... 4,800,000 4,320,000
+Thermadyne Holdings debs 12.50% 6/1/08 ....... 5,500,000 3,135,000
------------
64,812,375
------------
Total Corporate Bonds (cost $1,385,367,846) .. 1,398,104,424
------------

U.S. TREASURY OBLIGATIONS - 4.43%
U.S. Treasury Notes 9.125% 5/15/99 ........... 66,350,000 68,195,182
------------
Total U.S. Treasury Obligations
(cost $68,278,676) ......................... 68,195,182
------------

Number
of Shares
---------

PREFERRED STOCKS - 3.19%
CSC Holdings ................................. 96 11,136
Dobson Communications ........................ 5,033 5,485,970
Eagle-Picher Holdings ........................ 101,000 5,832,750
*Echostar Communications ...................... 72,123 8,149,885
E.Spire Communications ....................... 108,204 11,483,178
Nebco Evans Holding .......................... 67,752 7,012,295
Nextel Communications ........................ 3,292 3,523,456
Pegasus Communications ....................... 11,611 1,306,238
Pegasus Communications Unit .................. 45,000 5,208,750
Terex-Appreciation Rights .................... 55,200 1,214,400
------------
Total Preferred Stocks (cost $45,169,463) .... 49,228,058
------------

WARRANTS - 0.05%
**American Banknote ............................ 134,181 107,500
**Cellnet Data Systems ......................... 164,052 420,000
**Electronic Retailing System .................. 13,200 132,000
**Gothic Energy ................................ 19,600 19,600
**Highway Master ............................... 5,900 11,800
**Nextel International ......................... 1,188 5,600
------------
Total Warrants (cost $743,344) ............... 696,500
------------

<PAGE>
for current income 13

STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------

Total Market Value of Securities - 98.38%
(cost $1,499,559,329).................................. $1,516,224,164
Receivables and Other Assets Net of Liabilities - 1.62%.... 24,993,491
--------------
Net Assets Applicable to 231,867,156
Delchester Fund Shares Outstanding - 100.00% .......... $1,541,217,655
==============

Net asset value - Delchester Fund A Class
($1,060,135,783/159,491,210 shares) ............................. $6.65
=====
Net asset value - Delchester Fund B Class
($376,463,403/56,636,711) ....................................... $6.65
=====
Net asset value - Delchester Fund C Class
($50,945,342/7,664,428 shares)................................... $6.65
=====
Net asset value - Delchester Fund Institutional Class
($53,673,127/8,074,807) ......................................... $6.65
=====

Components of Net assets at July 31, 1998:
Common 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........................................ $1,667,891,057
Undistributed net investment income ............................ 2,464,142
Accumulated net realized loss on investments ................... (145,802,379)
Net unrealized appreciation of investments ..................... 16,664,835
--------------
Total Net Assets ............................................... $1,541,217,655
==============
- ----------------------
* Security on loan.
** Non-income producing security for the period ended July 31, 1998.
+ Zero coupon security as of July 31, 1998. The coupon shown is the step-up
rate.

Net asset value and offering price per share -
Delchester Fund A Class
Net asset value A Class (A)............................................ $6.65

Sales Charge (4.75% of offering price or 4.96% of the
amount invested per share) (B) .................................... 0.33
-----
Offering Price ........................................................ $6.98
=====
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.

(B) See How to Buy Shares in the current Prospectus for purchases of $100,000 or
more.

Summary of Abbreviations:
co guarantee - company guaranteed
debs - debentures
disc - discount
mtg - mortgage
nts - notes
pik - pay-in-kind
sr - senior
sub - subordinated
unsec - unsecured

See accompanying notes

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC. -
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF NET ASSETS
JULY 31, 1998
- -------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS - 88.03%
AEROSPACE & DEFENSE - 3.10%
Compass Aerospace sr sub nts 10.125% 4/15/05 . $ 200,000 $ 206,000
Roller Bearing sr sub nts 9.625% 6/15/07 ..... 275,000 279,125
----------
485,125
----------
AUTOMOBILE & AUTO EQUIPMENT - 3.41%
Prestolite Electric sr nts 9.625% 2/1/08 ..... 200,000 205,000
Talon Automotive sr sub nts 9.625% 5/1/08 .... 325,000 329,063
----------
534,063
----------
BUILDING & MATERIALS - 4.14%
American Builders & Contractors
sr unsec sub nts 10.625% 5/15/07 .......... 150,000 155,438
Atrium sr sub nts 10.50% 11/15/06 ............ 100,000 106,000
Collins & Aikman Floorcovers
sr sub nts 10.00% 1/15/07 ................. 175,000 184,844
Henry sr nts 10.00% 4/15/08 .................. 200,000 203,000
----------
649,282
----------
CABLE, MEDIA & PUBLISHING - 6.42%
Classic Cable sr sub nts 9.875% 8/1/08 ....... 325,000 340,438
Pathnet sr nts 12.25% 4/15/08 ................ 300,000 326,250
R.H. Donnelly sr sub nts 9.125% 6/1/08 ....... 325,000 338,000
----------
1,004,688
----------
CHEMICALS - 4.41%
Octel sr nts 10.00% 5/1/06 ................... 325,000 334,750
Philipp Brothers sr sub nts 9.875% 6/1/08 .... 350,000 356,563
----------
691,313
----------
COMPUTER & TECHNOLOGY - 2.40%
+Decisionone Holdings
sr disc debs 13.80% 8/1/08 ................ 200,000 117,000
Precise Technology sr sub nts 11.125% 6/15/07 250,000 258,125
----------
375,125
----------
CONSUMER PRODUCTS - 9.49%
A.A.I. Fostergrant sr nts 10.75% 7/15/06 ..... 425,000 429,250
CEX Holdings sr sub nts 9.625% 6/1/08 ........ 325,000 333,531
Doskocil Manufacturing
sr sub nts 10.125% 9/15/07 ................ 275,000 292,188
Riddell Sports sr unsec sub nts 10.50% 7/15/07 250,000 252,500
+Spin Cycle sr disc nts 12.90% 5/1/05 ......... 250,000 178,750
----------
1,486,219
----------
ELECTRONICS & ELECTRICAL EQUIPMENT - 0.94%
American Radio Systems
sr sub debs 11.375% 1/15/09 ............... 12,100 14,021
Electronic Retailing Systems
sr nts 13.25% 2/1/04 ...................... 300,000 133,500
----------
147,521
----------
ENERGY - 9.93%
Dailey International sr sub nts 9.50% 2/15/08 350,000 343,875
Frontier Oil Corp sr nts 9.125% 2/15/06 ...... 300,000 303,750
P and L Coal Holdings sr nts 8.875% 5/15/08 .. 325,000 338,813
Panaco sr nts 10.625% 10/1/04 ................ 275,000 276,031

<PAGE>

14 for current income

STATEMENT OF NET ASSETS (CONTINUED)
- -------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
Rutherford-Moran Oil
sr sub nts 10.75% 10/1/04 ................ $ 275,000 $ 292,188
----------
1,554,657
----------
ENVIRONMENTAL SERVICES - 6.25%
ATC Group Services sr sub nts 12.00% 1/15/08 300,000 282,000
Hydrochem Industrial
sr sub nts 10.375% 8/1/07 ................ 350,000 361,375
Les sr sub nts 9.25% 6/1/08 ................. 325,000 334,750
----------
978,125
----------
FOOD, BEVERAGE & TOBACCO - 3.65%
AFC Enterprises sr sub nts 10.25% 5/15/07 ... 75,000 80,250
Aurora Foods sr sub nts 8.75% 7/1/08 ........ 200,000 206,500
Community Distributors sr nts 10.25% 10/15/04 275,000 284,625
----------
571,375
----------
INDUSTRIAL MACHINERY - 5.77%
Anthony Crane Rentals sr nts 10.375% 8/1/08 . 200,000 201,000
JTM Industries sr sub nts 10.00% 4/15/08 .... 200,000 204,000
Jackson Products sr sub nts 9.50% 4/15/05 ... 225,000 225,000
Morris Materials Handling sr nts 9.50% 4/1/08 300,000 273,750
----------
903,750
----------
LEISURE, LODGING & ENTERTAINMENT - 4.22%
Silver Cinemas sr sub nts 10.50% 4/15/05 .... 325,000 333,125
United Artists sr sub nts 9.75% 4/15/08 ..... 325,000 328,250
----------
661,375
----------
METALS & MINING - 5.46%
Keystone Consolidated Industries
sr nts 9.625% 8/1/07 ..................... 225,000 229,500
Schuff Steel sr nts 10.50% 6/1/08 ........... 325,000 325,813
Simcala sr nts 9.625% 4/15/06 ............... 200,000 198,500
WHX sr nts 10.50% 4/15/05 ................... 100,000 100,750
----------
854,563
----------
PAPER & FOREST PRODUCTS - 2.11%
Republic Group sr sub nts 9.50% 7/15/08 ..... 325,000 330,281
----------
330,281
----------
RETAIL - 4.93%
Duane Reade sr sub nts 9.25% 2/15/08 ........ 175,000 179,813
Leslie's Poolmart sr nts 10.375% 7/15/04 .... 250,000 264,375
US Office Products sr sub nts 9.75% 6/15/08 . 325,000 327,438
----------
771,626
----------
TELECOMMUNICATIONS - 4.34%
+Metronet Communications
sr disc nts 11.92% 6/15/08 ............... 350,000 224,000
+Nextel Communications
sr disc nts 12.00% 9/15/07 ............... 300,000 208,500
+Viatel sr disc nts 11.91% 4/15/08 ........... 375,000 246,563
----------
679,063
----------

<PAGE>

STATEMENT OF NET ASSETS (CONTINUED)
- -------------------------------------------------------------------------------

Principal Market
Amount Value
--------- ------
CORPORATE BONDS (CONTINUED)
TEXTILES & FURNITURE - 0.93%
Galey & Lord sr sub nts 9.125% 3/1/08 ...... $ 150,000 $ 145,875
-----------
145,875
-----------
TRANSPORTATION & SHIPPING - 2.43%
American Commercial Lines 10.25% 6/30/08 .... 325,000 330,681
American Reefer 1st mtg pfd nts 10.25% 3/1/08 50,000 50,063
-----------
380,744
-----------
MISCELLANEOUS - 3.70%
Anchor Lamina sr sub nts 9.875% 2/1/08 ...... 300,000 297,750
Brand Scaffold Services sr nts 10.25% 2/15/08 175,000 178,937
Numatics sr sub nts 9.625% 4/1/08 ........... 100,000 102,750
-----------
579,437
-----------
Total Corporate Bonds (cost $13,622,515) .... 13,784,207
-----------

Number
of shares
---------
PREFERRED STOCKS - 5.57%
TELECOMMUNICATIONS - 5.57%
21st Century Telecom Group ................. 415 431,226
Nextel Communications ...................... 412 440,432
-------
Total Preferred Stocks (cost $805,651)...... 871,658
-------

WARRANTS - 0.16%
TELECOMMUNICATIONS - 0.14%
*21st Century Telecommunications ............ 3,510 22,000
-------
22,000
-------
ELECTRONICS & ELECTRICAL EQUIPMENT - 0.02%
*Electronic Retailing System Warrants ....... 300 3,000
-------
3,000
-------
Total Warrants (cost $34,000) .............. 25,000
-------

Principal
Amount
---------
REPURCHASE AGREEMENTS - 4.23%
With Chase Manhattan 5.58% 8/03/98
(dated 7/31/98, collateralized by 205,000
U.S. Treasury Notes 6.00% due 8/15/99,
market value $211,486) .................. $207,000 207,000
With J.P. Morgan Securities 5.60% 8/03/98
(dated 7/31/98, collateralized by $244,000
U.S. Treasury Notes 8.00% due 8/15/99,
market value $259,152)................... 254,000 254,000
With PaineWebber 5.60% 8/03/98
(dated 7/31/98, collateralized by $202,000
U.S. Treasury Notes 5.75% due 11/30/02,
market value $205,000)................... 201,000 201,000
------------
Total Repurchase Agreements (cost $662,000). 662,000
------------

<PAGE>

for current income 15

Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------

TOTAL MARKET VALUE OF SECURITIES - 97.99%
(cost $15,124,166) ................................... $15,342,865
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.01%... 315,442
------------
NET ASSETS APPLICABLE TO 2,646,952 SHARES
($1 PAR VALUE) OUTSTANDING - 100.00% ................. $15,658,307
============

NET ASSET VALUE - HIGH YIELD OPPORTUNITIES FUND A CLASS
($9,670,471 / 1,634,818) ............................. $5.92
=====
NET ASSET VALUE - HIGH YIELD OPPORTUNITIES FUND B CLASS
($1,603,158 / 270,929)................................ $5.92
=====
NET ASSET VALUE - HIGH YIELD OPPORTUNITIES FUND C CLASS
($547,349 / 92,490) .................................. $5.92
=====
NET ASSET VALUE - HIGH YIELD OPPORTUNITIES INSTITUTIONAL CLASS
($3,837,329 / 648,715) ............................... $5.92
=====

COMPONENTS OF NET ASSETS AT JULY 31, 1998:
Common stock, $1 par value, 200,000,000
shares authorized to the Fund with
100,000,000 shares allocated to High-Yield
Opportunities Fund A Class, 25,000,000 shares
allocated to High-Yield Opportunities Fund B Class,
25,000,000 shares allocated to High-Yield
Opportunities Fund C Class and 50,000,000 shares
allocated to High-Yield Opportunities Fund
Institutional Class ................................... $15,055,903
Undistributed net investment income ....................... 17,696
Accumulated net realized gain on investments .............. 366,009
Net unrealized appreciation of investments................. 218,699
------------
Total net assets .......................................... $15,658,307
============
- ----------------------
+ Zero coupon security as of July 31, 1998. The coupon shown is the step-up
rate.
* Non-income producing security for the period ended July 31, 1998.

NET ASSET VALUE AND OFFERING PRICE PER SHARE -
HIGH-YIELD OPPORTUNITIES FUND A CLASS
Net asset value A class (A) ............................... $5.92
Sales charge (4.75% of offering price or 5.07% of the amount
invested per share) (B)................................ 0.30
-----
Offering price ............................................ $6.22
=====
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchase of $100,000 or
more.

Summary of Abbreviations:
debs - debentures
disc - discount
mtg - mortgage
nts - notes
pfd - preferred
sr - senior
sub - subordinated
unsec - unsecured

See accompanying notes

<PAGE>

DELAWARE GROUP INCOME FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
- -------------------------------------------------------------------------------

High-Yield
Delchester Opportunities
Fund Fund
---------- -------------
Investment Income:
Interest ....................................... $ 142,905,106 $ 1,038,818
Dividends ...................................... 4,554,186 29,148
------------- -----------
147,459,292 1,067,966
------------- -----------
Expenses:
Management fees ................................ 8,245,496 70,555
Distribution expense ........................... 6,123,229 21,441
Dividend disbursing and transfer agent fees
and expenses ............................... 2,132,069 8,289
Accounting and administration .................. 700,896 5,541
Reports and statements to shareholders ......... 307,666 3,148
Registration fees .............................. 136,523 28,955
Taxes (other than taxes on income) ............. 90,207 768
Professional fees .............................. 80,640 3,663
Directors' fees ................................ 27,302 1,865
Other .......................................... 18,582 1,984
------------- -----------
17,862,610 146,209
Less expenses absorbed by Delaware
Management Company
or Delaware Distributors, L.P. ............. -- (42,498)
------------- -----------
Total Expenses ................................. 17,862,610 103,711
------------- -----------
Net Investment Income .......................... 129,596,682 964,255
------------- -----------

Net realized and unrealized gain on investments:
Net realized gain on investments ............... 45,654,625 545,351
Net change in unrealized appreciation/
depreciation of investments ................ (33,736,187) 4,234
------------- -----------

Net realized and unrealized
gain on investments ........................ 11,918,438 549,585
------------- -----------
Net increase in net assets
resulting from operations ................. $ 141,515,120 $ 1,513,840
============= ===========

See accompanying notes

<PAGE>

16 for current income

DELAWARE GROUP INCOME FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Delchester Fund High-Yield Opportunities Fund
Year Ended Year Ended Year Ended 12/30/96* to
7/31/98 7/31/97 7/31/98 7/31/97
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income ............................................ $129,596,682 $119,783,445 $964,255 $402,641
Net realized gain on investments ................................. 45,654,625 47,638,271 545,351 231,614
Net change in unrealized appreciation/depreciation of investments. (33,736,187) 39,751,252 4,234 214,465
------------ ------------ ----------- ----------
Net increase in net assets resulting from operations ............. 141,515,120 207,172,968 1,513,840 848,720
------------ ------------ ----------- ----------

Distribution to shareholders from:
Net investment income:
A Class ..................................................... (94,068,758) (94,104,779) (696,516) (168,753)
B Class ..................................................... (26,481,128) (19,288,798) (15,881) --
C Class ..................................................... (2,685,408) (967,413) (4,660) --
Institutional Class .......................................... (4,338,358) (5,288,670) (369,702) (93,688)
Net realized gain on investment transactions:
A Class ..................................................... -- -- (264,225) --
B Class ..................................................... -- -- -- --
C Class ..................................................... -- -- -- --
Institutional Class .......................................... -- -- (146,731) --
------------ ------------ ----------- ----------
(127,573,652) (119,649,660) (1,497,715) (262,441)
------------ ------------ ----------- ----------
Capital share transactions:
Proceeds from shares sold:
A Class ...................................................... 196,600,397 189,097,203 3,291,902 5,471,885
B Class ...................................................... 140,491,313 114,988,203 1,599,171 --
C Class ...................................................... 36,526,139 15,224,523 554,661 --
Institutional Class .......................................... 46,366,224 26,230,680 -- 3,000,006
Net asset value of shares issued upon reinvestment of
dividends from net investment income and distributions
of net realized gain on investment transactions:
A Class ...................................................... 44,559,762 45,057,620 922,596 168,117
B Class ...................................................... 10,738,318 7,617,766 6,132 --
C Class ...................................................... 1,568,430 613,365 3,037 --
Institutional Class .......................................... 3,815,302 4,464,404 507,888 93,335
------------ ------------ ----------- ----------
480,665,885 403,293,764 6,885,387 8,733,343
------------ ------------ ----------- ----------
Cost of shares repurchased:
A Class ...................................................... (222,496,607) (245,410,292) (546,285) --
B Class ...................................................... (50,887,559) (40,864,850) (4,598) --
C Class ...................................................... (6,294,131) (2,539,287) (11,944) --
Institutional Class .......................................... (40,696,971) (49,688,282) -- --
------------ ------------ ----------- ----------
(320,375,268) (338,502,711) (562,827) --
------------ ------------ ----------- ----------
Increase in net assets derived from capital share transactions ... 160,290,617 64,791,053 6,322,560 8,733,343
------------ ------------ ----------- ----------
Net increase in net assets ....................................... 174,232,085 152,314,361 6,338,685 9,319,622

Net Assets:
Beginning of period .............................................. 1,366,985,570 1,214,671,209 9,319,622 --
-------------- -------------- ----------- ----------
End of period .................................................... $1,541,217,655 $1,366,985,570 $15,658,307 $9,319,622
============== ============== =========== ==========

</TABLE>
- ----------------------
* Date of commencement of trading

See accompanying notes

<PAGE>

for current income 17

DELAWARE GROUP INCOME FUNDS, INC. -
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Delchester Fund A Class
----------------------------------------------------------------------
Year Ended July 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $6.570 $6.140 $6.280 $6.450 $7.070

Income from investment operations:
Net investment income .......................... 0.608 0.598 0.628 0.668 0.744
Net realized and unrealized gain (loss)
on investments ................................ 0.070 0.430 (0.141) (0.167) (0.618)
------ ------ ------- ------ ------
Total from investment operations ............... 0.678 1.028 0.487 0.501 0.126
------ ------ ------- ------ ------

Less dividends and distributions:
Dividends from net investment income ........... (0.598) (0.598) (0.627) (0.671) (0.746)
------ ------ ------- ------ ------
Total dividends and distributions .............. (0.598) (0.598) (0.627) (0.671) (0.746)
------ ------ ------- ------ ------
Net asset value, end of year ....................... $6.650 $6.570 $6.140 $6.280 $6.450
====== ====== ======= ====== ======

Total return(1) .................................... 10.73% 17.53% 8.10% 8.46% 1.60%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ........$1,060,136 $1,030,328 $973,939 $1,020,763 $983,569
Ratio of expenses to average net assets ........ 1.06% 1.04% 1.02% 1.09% 1.05%
Ratio of net investment income to average
net assets .................................... 9.16% 9.48% 10.11% 10.77% 10.48%
Portfolio turnover ............................. 117% 154% 108% 92% 92%
</TABLE>
- ----------------------
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.

See accompanying notes

<PAGE>

18 for current income

FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:

<TABLE>
<CAPTION>
DELCHESTER FUND B CLASS
----------------------------------------------------------------------
YEAR ENDED JULY 31, 5/2/94(2) TO
1998 1997 1996 1995 7/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................... $6.570 $6.140 $6.280 $6.450 $6.730

Income from investment operations:
Net investment income ............................... 0.556 0.550 0.581 0.624 0.120
Net realized and unrealized gain (loss)
on investments ...................................... 0.072 0.430 (0.141) (0.170) (0.280)
------ ------ ------ ------ ------
Total from investment operations .................... 0.628 0.980 0.440 0.454 (0.160)
------ ------ ------ ------ ------

Less dividends and distributions:
Dividends from net investment income ................ (0.548) (0.550) (0.580) (0.624) (0.120)
------ ------ ------ ------ ------
Total dividends and distributions ................... (0.548) (0.550) (0.580) (0.624) (0.120)
------ ------ ------ ------ ------
Net asset value, end of period .......................... $6.650 $6.570 $6.140 $6.280 $6.450
====== ====== ====== ====== ======

Total return(1) ......................................... 9.91% 16.66% 7.30% 7.64% (3)

Ratios and supplemental data:
Net assets, end of period (000 omitted) ............. $376,463 $273,499 $176,266 $111,860 $21,776
Ratio of expenses to average net assets ............. 1.81% 1.79% 1.77% 1.82% 1.83%
Ratio of net investment income to average
net assets ........................................ 8.41% 8.73% 9.36% 10.14% 9.70%
Portfolio turnover .................................. 117% 154% 108% 92% 92%

DELCHESTER FUND C CLASS
----------------------------------------------------------
YEAR ENDED JULY 31, 1/29/95(2) TO
1998 1997 7/31/96
Net asset value, beginning of period ............................. $6.570 $6.140 $6.210

Income from investment operations:
Net investment income ........................................ 0.555 0.550 0.385
Net realized and unrealized gain (loss)
on investments ............................................... 0.073 0.430 (0.069)
------ ------ ------
Total from investment operations ............................. 0.628 0.980 0.316
------ ------ ------

Less dividends and distributions:
Dividends from net investment income ......................... (0.548) (0.550) (0.386)
------ ------ ------
Total dividends and distributions ............................ (0.548) (0.550) (0.386)
------ ------ ------
Net asset value, end of period ................................... $6.650 $6.570 $6.140
====== ====== ======

Total return(1) .................................................. 9.91% 16.66% 5.20%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ...................... $50,945 $19,094 $4,953
Ratio of expenses to average net assets ...................... 1.81% 1.79% 1.77%
Ratio of net investment income to average
net assets ................................................. 8.41% 8.73% 9.36%
Portfolio turnover ........................................... 117% 154% 108%

</TABLE>

- ----------------------
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
(2) Commencement of operations; ratios have been annualized and total returns
have not been annualized.
(3) Total return has been omitted as management believes that such information
for this relatively short period is not meaningful.

See accompanying notes

<PAGE>

for current income 19

FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:

<TABLE>
<CAPTION>
DELCHESTER FUND INSTITUTIONAL CLASS
---------------------------------------------------------
YEAR ENDED JULY 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................................. $6.570 $6.140 $6.280 $6.450 $7.070

Income from investment operations:
Net investment income ........................................... 0.620 0.614 0.644 0.685 0.758
Net realized and unrealized gain (loss) on investments .......... 0.075 0.429 (0.142) (0.169) (0.617)
------ ------ ------ ------ ------
Total from investment operations ................................ 0.695 1.043 0.502 0.516 0.141
------ ------ ------ ------ ------

Less dividends and distributions:
Dividends from net investment income ............................ (0.615) (0.613) (0.642) (0.686) (0.761)
------ ------ ------ ------ ------
Total dividends and distributions ............................... (0.615) (0.613) (0.642) (0.686) (0.761)
------ ------ ------ ------ ------
Net asset value, end of year ........................................ $6.650 $6.570 $6.140 $6.280 $6.450
====== ====== ====== ====== ======

Total return ........................................................ 11.00% 17.82% 8.37% 8.72% 1.82%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ......................... $53,673 $44,065 $59,513 $61,742 $71,122
Ratio of expenses to average net assets ......................... 0.81% 0.79% 0.77% 0.82% 0.83%
Ratio of net investment income to average net assets ............ 9.41% 9.73% 10.36% 11.14% 10.70%
Portfolio turnover .............................................. 117% 154% 108% 92% 92%

</TABLE>
See accompanying notes

<PAGE>

20 for current income

<TABLE>
<CAPTION>
HIGH-YIELD OPPORTUNITIES HIGH-YIELD OPPORTUNITIES
FUND A CLASS FUND B CLASS
------------------------- ------------------------
<S> <C> <C> <C>
YEAR 12/30/96(1) 2/17/98(1)
ENDED TO TO
7/31/98 7/31/97 7/31/98
Net asset value, beginning of period ....................... $5.920 $5.500 $5.870

Income from investment operations:
Net investment income .................................. 0.523 0.290(2) 0.161
Net realized and unrealized gain on investments ........ 0.336 0.299 0.044
------ ------ ------
Total from investment operations ....................... 0.859 0.589 0.205
------ ------ ------

Less dividends and distributions:
Dividends from net investment income ................... (0.605) (0.169) (0.155)
Distributions from net realized gain on
investment transactions ................................ (0.254) -- --
------ ------ ------
Total dividends and distributions ...................... (0.859) (0.169) (0.155)
------ ------ ------
Net asset value, end of period ............................. $5.920 $5.920 $5.920
====== ====== ======
Total return(3) ............................................ 15.66% 10.81% 3.54%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $9,670 $5,990 $1,603
Ratio of expenses to average net assets ................ 1.14% 0.75% 1.84%
Ratio of expenses to average net assets prior to
expense limitation ..................................... 1.44% 1.57% 2.14%
Ratio of net investment income to
average net assets .................................... 8.88% 8.53% 8.18%
Ratio of net investment income to average
net assets prior to expense limitation ................. 8.58% 7.70% 7.88%
Portfolio turnover ..................................... 317% 270% 317%

<PAGE>

HIGH-YIELD OPPORTUNITIES HIGH-YIELD OPPORTUNITIES
FUND C CLASS FUND INSTITUTIONAL CLASS
------------------------ --------------------------
2/17/98(1) YEAR 12/30/96(1)
TO ENDED TO
7/31/98 7/31/98 7/31/97
Net asset value, beginning of period ....................... $5.870 $5.920 $5.500

Income from investment operations:
Net investment income .................................. 0.161 0.537 0.290(2)
Net realized and unrealized gain on investments ........ 0.044 0.330 0.299
------ ------ ------
Total from investment operations ....................... 0.205 0.867 0.589
------ ------ ------

Less dividends and distributions:
Dividends from net investment income ................... (0.155) (0.613) (0.169)
Distributions from net realized gain on
investment transactions ................................ -- (0.254) --
------ ------ ------
Total dividends and distributions ...................... (0.155) (0.867) (0.169)
------ ------ ------
Net asset value, end of period ............................. $5.920 $5.920 $5.920
====== ====== ======
Total return(3) ............................................ 3.54% 15.82% 10.81%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $547 $3,837 $3,330
Ratio of expenses to average net assets 1.84% 0.84% 0.75%
Ratio of expenses to average net assets prior to
expense limitation ..................................... 2.14% 1.14% 1.27%
Ratio of net investment income to
average net assets .................................... 8.18% 9.18% 8.53%
Ratio of net investment income to average
net assets prior to expense limitation ................. 7.88% 8.88% 8.00%
Portfolio turnover ..................................... 317% 317% 270%

</TABLE>
- ----------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for this short of a time period
may not be representative of longer term results.
(2) The average shares outstanding method has been applied for per share
information.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of A Class shares. Does not include contingent
deferred sales charge which varies from 1%-4% for the High-Yield
Opportunities Fund B Class. Does not include contingent deferred sales
charge of 1% for the High-Yield Opportunities Fund C Class.

See accompanying notes

<PAGE>

for current income 21

DELAWARE GROUP INCOME FUNDS, INC. -
DELCHESTER FUND AND HIGH-YIELD OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
- --------------------------------------------------------------------------------
Delaware Group Income Funds, Inc. 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 three series: the
Delchester Fund, the High-Yield Opportunities Fund and the Strategic Income
Fund. These financial statements and related notes pertain to the Delchester
Fund and High-Yield Opportunities Fund (The "Funds"). The Funds offer four
classes of shares. The A Class carries a front-end sales charge of 4.75%. The
B Class carries a back-end deferred sales charge. The C Class carries a level
load deferred sales charge and the Institutional Class has no sales charge.

The investment objective of the Delchester Fund is to seek as high a current
income as is consistent with providing reasonable safety.

The investment objective of the High-Yield Opportunities Fund is to provide
investors with high current income and total return.

1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Funds.

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. 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 Funds' Board of Directors.

Federal Income Taxes - Each 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.

<PAGE>

Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
each 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 - Each Fund may invest in a pooled cash account along
with other members of the Delaware Investments Family 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 each 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.

Other - Expenses common to all Funds within the Delaware Investments Family 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. Original issue discounts are accreted to
interest income over the lives of the respective securities. Each Fund
declares and pays dividends from net investment income daily and capital
gains, if any, annually.

Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Funds' 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.

<PAGE>

22 for current income

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Funds
pay Delaware Management Company (DMC), the Investment Manager, an annual fee
which is calculated daily at the following rates less fees paid to
unaffiliated directors.
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
---------- ------------------
On the first $500 million.... 0.600% On the first $500 million.... 0.650%
On the next $250 million..... 0.575% On the next $500 million..... 0.625%
Over $750 million............ 0.550% Over $1 billion.............. 0.600%

At July 31, 1998 the liability for Investment Management Fees and other
expenses payable to DMC were as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
---------- ------------------
$190,696 $37,298

DMC has elected to waive that portion if any of the management fee and
reimburse the High-Yield Opportunities Fund to the extent that annual expenses
exclusive of taxes, interest, brokerage commissions, distribution and
extraordinary expenses, exceed 0.95% of average daily net assets of the Fund
through September 30, 1998. Total expenses absorbed by DMC for the period
ended July 31, 1998 were $42,498.

The Funds have engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services
for the Funds. For the year ended July 31, 1998, the amounts expensed for each
Fund were as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
---------- ------------------
Dividend disbursing, transfer
agent fees and other expenses ........ $2,132,069 $8,289
Accounting and administration fees ..... 561,991 4,225

At July 31, 1998, the Funds had liabilities for such fees and other expenses
payable to DSC as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
---------- ------------------
$216,687 $23,612

Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class for each Series.

For the year ended July 31, 1998, DDLP earned commissions on sales of the Fund
A Class shares for each Fund as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
---------- ------------------
$532,365 $3,799

Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Funds. These officers, directors and employees are paid no compensation
by the Funds.

<PAGE>

3. Investments
During the year ended July 31, 1998, the Funds made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
-------------- ------------------
Purchases .......................... $1,805,187,194 $38,655,916
Sales .............................. 1,604,531,034 33,693,520

At July 31, 1998, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
DELCHESTER HIGH-YIELD
FUND OPPORTUNITIES FUND
-------------- ------------------
Cost of Investments ................. $1,500,352,165 $15,124,166
============== ===========
Aggregate unrealized appreciation ... $45,046,808 $398,122
Aggregate unrealized depreciation ... 29,174,809 179,423
-------------- -----------
Net unrealized appreciation ......... $15,871,999 $218,699
============== ===========

For federal income tax purposes, the Delchester Fund had a capital loss
carryforward at July 31, 1998 of $145,009,543 which may be carried forward and
applied against future capital gains. The capital loss carryforward expires as
follows: 1999 - $53,787,833, 2002 - $3,628,131 and 2003 - $87,593,579.

4. Capital Stock
Transactions in capital stock shares were as follows:
YEAR ENDED YEAR ENDED
7/31/98 7/31/97
---------- ----------
Shares sold:
Delchester Fund A Class ....................... 29,471,425 29,886,498
Delchester Fund B Class ....................... 21,058,076 18,171,332
Delchester Fund C Class ....................... 5,466,954 2,401,059
Delchester Fund Institutional Class ........... 6,933,908 4,110,657

Shares issued upon reinvestment of dividends from net investment income and
net realized gains on investment transactions:
Delchester Fund A Class ....................... 6,683,860 7,101,822
Delchester Fund B Class ....................... 1,609,981 1,198,602
Delchester Fund C Class ....................... 234,859 96,296
Delchester Fund Institutional Class ........... 572,273 712,863
---------- ----------
72,031,336 63,679,129
---------- ----------

Shares repurchased:
Delchester Fund A Class ....................... (33,418,788) (38,750,393)
Delchester Fund B Class ....................... (7,641,608) (6,448,410)
Delchester Fund C Class ....................... (942,339) (398,589)
Delchester Fund Institutional Class ........... (6,135,486) (7,805,689)
---------- ----------
(48,138,221) (53,403,081)
---------- ----------
Net Increase ...................................... 23,893,115 10,276,048
========== ==========
<PAGE>

for current income 23

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. Capital Stock (Continued)
12/30/96*
YEAR ENDED TO
7/31/98 7/31/97
---------- ---------
Shares sold:
High-Yield Opportunities Fund A Class .............. 557,471 982,509
High-Yield Opportunities Fund B Class .............. 270,668 --
High-Yield Opportunities Fund C Class .............. 94,007 --
High-Yield Opportunities Fund Institutional Class .. -- 545,455

Shares issued upon reinvestment of dividends from
net investment income and net realized gains
from investment transactions:
High-Yield Opportunities Fund A Class .............. 158,375 28,932
High-Yield Opportunities Fund B Class .............. 1,039 --
High-Yield Opportunities Fund C Class .............. 514 --
High-Yield Opportunities Fund Institutional Class .. 87,197 16,063
--------- ---------
1,169,271 1,572,959
--------- ---------
Shares repurchased:
High-Yield Opportunities Fund A Class .............. (92,469) --
High-Yield Opportunities Fund B Class .............. (778) --
High-Yield Opportunities Fund C Class .............. (2,031) --
High-Yield Opportunities Fund Institutional Class .. -- --
--------- ---------
(95,278) --
--------- ---------
Net Increase ......................................... 1,073,993 1,572,959
========= =========
- ----------------------
* Date of commencement of trading

See accompanying notes

<PAGE>

5. Lines of Credit
Committed lines of credit were $56,300,000 for Delchester Fund and $400,000
for High-Yield Opportunities Fund. No amount was outstanding at July 31, 1998,
or at any time during the fiscal year.

6. Market and Credit Risk
Both Funds 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 Delchester Fund may invest up to 10% of its total assets in illiquid
securities (15% for High-Yield Opportunities Fund) 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 each 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.

7. Securities Lending
Security loans for Delchester Fund are required at all times to be secured by
collateral at least equal to 102% of the market value of the securities on
loan. However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. In the event that the borrower fails to return loaned
securities, and the collateral being maintained by the borrower is
insufficient to cover the value of loaned securities and provided such
collateral insufficiency is not the result of investment losses, the lending
agent has agreed to pay the amount of the shortfall to the Fund or, at the
option of the lending agent, replace the loaned securities. The market value
of securities on loan to brokers and the related collateral received at July
31, 1998 was $84,063,692 and $85,744,966, respectively.

High-Yield Opportunities Fund does not participate in securities lending.

<PAGE>

24 for current income

REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP INCOME FUNDS, INC. -
DELCHESTER FUND AND HIGH-YIELD OPPORTUNITIES FUND

We have audited the accompanying statements of net assets of Delaware Group
Income Funds, Inc. - Delchester Fund and Delaware Group Income Funds, Inc.
- -High-Yield Opportunities Fund (the "Funds") as of July 31, 1998, and the
related statements of operations for the year then ended, and the statements
of changes in net assets and financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 1998, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at July 31, 1998, the results of their operations for
the year then ended, and the changes in their net assets and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania
September 4, 1998

<PAGE>

THIS ANNUAL REPORT IS FOR THE INFORMATION OF DELCHESTER FUND AND HIGH-YIELD
OPPORTUNITIES FUND shareholders, but it may be used with prospective investors
when preceded or accompanied by a current Prospectus for Delchester Fund and
High-Yield Opportunities Fund, which sets forth details about charges, expenses,
investment objectives and operating policies of each Fund. You should read the
prospectus carefully before you invest. Summary investment results are
documented in each 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 each Fund
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.

Board of Directors

WAYNE A. STORK
Chairman
Delaware Investments Family of Funds
Philadelphia, PA

JEFFREY J. NICK
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA

WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA

JOHN H. DURHAM
Partner, Complete Care Services
Horsham, PA

ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY

ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC

W. THACHER LONGSTRETH
City Councilman
Philadelphia, PA

THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN

CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA

Affiliated Officers

DAVID K. DOWNES
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA

GEORGE M. CHAMBERLAIN, JR.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA

BRUCE D. BARTON
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA

<PAGE>

directors
& officers
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania

INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania

1818 Market Street
Philadelphia, PA 19103-3682

(Photo of Globe)

<PAGE>

(photo of globe)

This report must be preceded or accompanied by a current Delchester Fund and
High-Yield Opportunities Fund Prospectus and the Delaware Investments Fund
Performance Update for the most recently completed calendar quarter. For a
prospectus of any other mutual fund from Delaware Investments, contact your
financial adviser or Delaware Investments.

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
Funds 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 amount invested. Shares of the Funds are not bank or credit union
deposits.

Printed in the USA
on recycled paper

(1002)
AR-024[7/98]TKO9/98

DELAWARE(SM)
INVESTMENTS
- -------------------
Philadelphia o London