<PAGE>
For Current Income
High-Yield
Opportunities Fund
[Photo of illustration from current
Income Brochure]
service and guidance
professional management
goals
1998
Semi-Annual Report
[LOGO]
<PAGE>
for
current
income
2
February 18, 1998
Dear Shareholder:
Some investors see the high-yield
bond market as a way to maximize current income. Others view high-yield bonds
as a mechanism to enhance total return.
To help investors tap the total return potential of this dynamic asset
class, Delaware Investments made High-Yield Opportunities Fund available to
the general public effective February 17, 1998.
We are pleased to report that the Fund's total return for the six
months ended January 31, 1998 was a robust +9.14% (capital change plus
reinvested dividends for Class A shares at net asset value). This
substantially outpaced the return of the unmanaged Salomon Brothers
High-Yield Bond Index for the period, as shown below.
High-Yield Opportunities Fund ranked within the top 6% of its peers
for both the six-month and one-year periods ended January 31, 1998.
Domestic high-yield bond prices have been resilient since the start of
fiscal 1998, a time of increased global market volatility. Stable credit
trends, falling interest rates and strong investor demand offset the effects
of Asian economic turbulence.
Since the summer, the returns from high-yield bonds have not only been
higher than other fixed-income securities, but have eclipsed the total return
of stocks as measured by the Standard & Poor's 500 Index and illustrated
below. While this was most likely a temporary phenomenon, we believe it shows
that high-yield bonds have the potential to help diversify an investment
portfolio and temper the effects of stock market volatility.
We attribute Delaware's success since the summer to a consistent,
disciplined investment strategy that is a result of more than a generation of
experience
High-yield bonds have the potential
to help diversify an investment
portfolio and temper the effects of stock
market volatility.
CUMULATIVE/AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Six Months Ended 12 Months Ended
January 31, 1998 January 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High-Yield Opportunities Fund A Class +9.14% +18.56%
Lipper High Current Yield Fund Average +5.89% (222 funds) +13.86% (192 funds)
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers High-Yield Bond Index +6.65% +14.67%
Lehman Brothers Aggregate Bond Index +4.90% +10.72%
Standard & Poor's 500 Index +3.56% +26.90%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
All performance quoted above, including that of the unmanaged Lehman Brothers
Index, assumes reinvestment of distributions. Fund results and those of the
Lipper Fund Average do not show the effect of sales charges. Performance for
all Fund classes can be found on page 8. Performance of other Fund classes
differs due to different charges and expenses. Past performance does not
guarantee future results. High-Yield Opportunities Fund had an expense
limitation and fee waiver for the periods shown as explained on page 8.
High-Yield Opportunities Fund A Class ranked 12th of 222 and 11th of 192
comparable mutual funds for the six months and 12 months ended 1/31/98.
Rankings are based on total return at net asset value. An expense limitation
was in effect for the periods shown. Rankings would have been lower without
the limitation. Source: Lipper Analytical Services.
<PAGE>
for
current
income
3
managing high-yield bond portfolios. During the first half of 1998,
Paul A. Matlack and Gerald T. Nichols, who manage the Fund focused on:
* bonds rated B in industries whose prospects appeared to be clearly
defined;
* new bond offerings of at least $100 million, and;
* U.S. companies with experienced management teams and underlying
financial strength.
Since 1995, high-yield, higher risk bonds have benefited from low
inflation and positive trends in credit quality of lower-rated securities. The
default rate of high-yield bonds has declined to approximately 1%, the lowest
level since the early 1980s, according to CS First Boston.
Demand for high-yield bonds has also remained strong. In calendar
1997, investors allocated more than $18 billion to high-yield bond mutual
funds, an increase of 11% from a year earlier, according to Strategic
Insight, a research firm. This helped absorb a record amount of new bond
supply last year as companies sought to take advantage of falling interest
rates to refinance their debt.
As of January 31, 1998, the domestic corporate high-yield bond market
offered an additional 310 basis points (3.1%) in income potential over
comparable maturity Treasuries. This yield premium can compensate investors
for the added risks of investing in bonds of corporations whose credit ratings
are less than BBB and which, unlike U.S. Treasuries, have no U.S. government
guarantee of bond principal.
Delaware Investments has managed high-yield bonds through a variety
of interest rate environments, and we have learned that success in this
higher risk market requires preventive medicine - a proactive approach to
analyzing credit risk and regular monitoring of external factors that might
affect our ability to provide income and preserve capital.
Inside, Mr. Matlack and Mr. Nichols review your Fund's performance
since the summer. They also explain why Delaware believes the high-yield
market may offer attractive potential for both income and total
return-oriented investors for the balance of fiscal 1998.
Delaware Investments values your continued confidence and we look
forward to reporting to you again in September.
Sincerely,
/s/ Wayne A. Stork
- -------------------------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- -------------------------------------
Jeffrey J. Nick
President and Chief Executive Officer
Your Fund's Portfolio Managers
Paul A. Matlack and Gerald T. Nichols have managed high-yield investments at
Delaware since 1990. Mr. Matlack holds an MBA in finance from George
Washington University and has 17 years of investment and credit analysis
experience. Mr. Nichols has a master of science degree in finance from the
University of Kansas and has managed high-yield bond portfolios for 15 years.
<PAGE>
for
current
income
4
Portfolio Managers' Review
Last year extended a period of unprecedented prosperity for investors in
high-yield securities. In the seven years since the trough of the last bear
market in December 1990, high-yield higher risk bonds have generated double
digit returns in six of those years. The market's average annualized rate of
return during this period was +15.6%, as measured by the unmanaged Salomon
Brothers High-Yield Bond Index.
During the 1990s, average credit quality has jumped three grades -
from B- to BB-. The default rate has fallen from more than 10% to less than
1%. As of early 1998, the market had doubled in size to more than $470 billion
in bonds outstanding, issued by more than 1,200 domestic companies. (Source:
Donaldson Lufkin & Jenrette).
Not surprisingly, investor perception of high-yield bonds has
undergone a dramatic transformation. The high-yield market is today a
mainstream strategic asset class by virtue of size, quality and performance.
* Like stocks, high-yield bonds are affected by the earnings and cash flow
growth of the issuing company. Industry profit and growth expectations are
also important.
* Like other types of fixed-income investments, high-yield bonds are affected
by inflation expectations and the outlook for the economy as a whole.
Between August 1997 and January 1998, U.S. Treasury bond prices rose
more than prices of high-yield bonds as investors sought safety of principal
in the wake of Asian currency devaluations. The Pacific Rim's fiscal woes
negatively affected some high-yield bonds issued by U.S. companies whose sales
and earnings are tied to the region's economic prospects.
Overall, however, high-yield bonds provided higher total returns than
any other fixed-income category for the first half of fiscal 1998 because of
the market's superior income characteristics. Senior debt (bonds that have
priority in the event of a bankruptcy) and bonds
with a long duration (increased sensitivity to interest rates) performed
well, especially in the telecommunications and media sectors.
Consistently strong credit quality provided us with ample opportunity
to select both new and seasoned high-yield bonds for High-Yield Opportunities
Fund during the first half of fiscal 1998. We did especially well with new
bond issues, which offered attractive income, relative safety of principal,
and in some cases, capital appreciation potential as bond prices rose
sharply.
Investment Strategy
Delaware Investments' goal in managing high-yield bond portfolios over the
years has remained constant - to provide above-average results while
maintaining a conservative approach to credit risk management. As part of our
research discipline, we ask ourselves whether
We did especially well with new bond issues, which offered attractive income,
relative safety of principal, and in some cases, capital appreciation
potential as bond prices rose sharply this past autumn.
<PAGE>
for
current
income
5
we would make a loan to the companies we review.
While your Fund seeks high current income, High-Yield Opportunities
Fund may forego some income potential in order to focus on bonds that offer
the highest total return potential.
During the first half of fiscal 1998, we sought to achieve high total
return by investing primarily in bonds rated B. We may focus on lower
yielding, better quality bonds rated BB during slower economic growth.
Our current portfolio positioning hinges on our belief that the
nation's output of goods and services (gross domestic product) will grow at a
sustained non-inflationary pace in 1998. As of January 31, more than 80% of
the bonds in your Fund's portfolio were rated B. This was about 20 percentage
points higher than the average of 174 high-yield bond funds tracked by
Morningstar, an independent evaluator of mutual funds.
Since the summer, we have increased the Fund's income and total
return potential by investing in Rule 144A bonds. These bonds represented 80%
of new issues in 1997 and are named for a Securities and Exchange Commission
rule that allows a security to be traded among sophisticated investors prior
to registration.
Rule 144A bonds offered an average of 100 basis points more yield
with credit risk similar to bonds not issued under the rule. Following
registration, Rule 144A can sometimes offer capital appreciation potential.
As with all securities selected for the Fund, we carefully examine the
operating performance of companies issuing 144A bonds before making a
purchase.
High-Yield Bonds Can
Cushion Volatility
In our opinion, an important catalyst for high-yield bond demand in calendar
1997 was the increasing volatility of the stock market. We believe investors
are embracing the notion that high-yield bonds can be an attractive
alternative investment under certain market conditions.
During October 1997, a period of increased stock market volatility,
high-yield bonds rose in value by +0.5% (as measured by the Merrill Lynch
High-Yield
Past performance is not a guarantee of future results.
How Flexibility in Choosing High-Yield Bonds Can Make a Difference
Overall Economic Conditions Historical Effect on High-Yield Bonds
- -------------------------------------------------------------------------------
Businesses are growing Bonds Rated B
at a moderate pace. May Outperform
Interest rates are stable.
- -------------------------------------------------------------------------------
Corporate profits Bonds Rated BB
are weakening. May Outperform
Credit risks are rising.
- -------------------------------------------------------------------------------
Economic growth is poised Bonds Rated CCC
to accelerate. Interest rates May Outperform
are falling sharply.
Past performance is not a guarantee of future results.
<PAGE>
for
current
income
6
Bond Index) while the Standard & Poor's 500 Index declined 3.4%. 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 have the potential to both diversify and
balance an investment portfolio that's focused heavily on equities.
Zeroing in On Opportunities
High-Yield Opportunities Fund's primary emphasis on total return rather than
current income and small size (approximately $10 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 last fall, we tended to sell bonds from
High-Yield Opportunities and, selectively realized capital appreciation. We
also owned a few zero coupon bonds that performed well. (Zero coupon bonds do
not pay interest but 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 below) was a relatively high 329% for the first half of
fiscal 1998. We feel our approach helped High-Yield Opportunities provide
superior results, and the increased return we achieved more than offset higher
trading expenses.
High-Yield Opportunities has the ability to invest up to 15% of net
assets in foreign high-yield bonds. We retained a domestic focus within
High-Yield Opportunities during the first half of fiscal 1998, but we may, in
the future, invest in U.S. dollar-denominated bonds of established overseas
companies. In recent years, foreign businesses have represented a greater
percentage of high-yield bonds issued in the U.S., and we believe this trend
may present opportunities for superior total return.
Summary Outlook
The positive economic conditions that have sparked the high-yield
bond market's remarkable results over the past few years are clearly entering
a mature phase. However, we believe 1998 will be another year when high-yield
bonds could deliver attractive returns. In our view, recession in Pacific Rim
countries should keep U.S. inflation and interest rates at current modest
levels without impairing U.S. economic growth, and by extension, credit
quality.
HIGH-YIELD OPPORTUNITIES FUND'S
CREDIT QUALITY AND INTEREST RATE SENSITIVITY
January 31, 1998
B 83.9%
Unrated 4.3%
AAA 6.0%
BB 5.82%
July 31, January 31,
1997 1998
- ----------------------------------------------------------------------
Average Effective Duration 5.2 years 5.0 years
Average Effective Maturity 8.2 years 7.2 years
Portfolio Turnover 270% 329%
Number of Bond Issues 42 38
The current Thirty-Day SEC yield as of January 31, 1998 was 8.97% for A Class
Shares. Institutional Class Thirty-Day SEC yield was 9.42%.
B and C Classes were not offered as of January 31, 1998.
<PAGE>
for
current
income
7
U.S. stocks - especially small company stocks - tend to be vulnerable
to a slowdown in earnings growth. However, high-yield bond prices have
historically been resilient to changes in a company's rate of growth, so long
as profit growth remained positive. Low interest rates on investment grade
bonds and potentially volatile equity markets suggests we'll see continued
heavy demand for high-yield bond mutual funds in the coming months.
High-yield bond
prices have
historically been
resilient to changes
in a company's rate
of growth, so long
as profit growth
remained positive.
Many of the new bonds coming to market are refinancings of existing
high-yield debt. Investors who had these companies' old bonds often provide
much of the demand for new issues. With 30-year U.S. Treasury bonds currently
yielding approximately 5.9%, we think more companies will pay investors a
premium in 1998 to tender bonds (sell them back to the issuer) before their
call dates. Between 1995 and 1997, as interest rates dropped substantially,
the amount of such tender activity by corporations nearly tripled, according
to Donaldson Lufkin & Jenrette.
Increased corporate tenders and call activity in the year ahead may
make it challenging to maintain your Funds' income potential. However, we
believe the willingness of companies to pay investors a "bonus" to refinance
can potentially augment total return.
Amid one of the longest economic growth cycles of the 20th Century,
we have structured the Fund's portfolio to emphasize bonds rated B with
above-average yields. We'll be looking for bonds with relatively strong
credit protection and the potential to benefit from a corporate debt rating
upgrade. Our success in 1998 will largely depend on our ability to
successfully compound income and preserve principal.
Paul A. Matlack
Vice President and
Senior Portfolio Manager
Gerald T. Nichols
Vice President and
Senior Portfolio Manager
February 18, 1998
High-yield bond prices have historically been resilient to changes in a
company's rate of growth, so long as profit growth remained positive.
HIGH-YIELD OPPORTUNITIES FUND'S ASSET MIX
January 31, 1998
Basic Industry 3.0%
Cash 5.1%
Capital Goods 14.3%
Environmental Services 3.6%
Media 2.2%
Consumer Products 9.6%
Leisure & Lodging 7.0%
Transportation 13.7%
Telecommunications and Electronics 10.4%
Credit Sensitive 10.3%
Food 2.8%
Energy 8.3%
Miscellaneous 9.7%
<PAGE>
for
current
income
8
HIGH-YIELD OPPORTUNITIES FUND
Growth of a $100,000 investment
December 30, 1996 to January 31, 1998
Salomon Brothers High-Yield
High-Yield Opportunities
Bond Index Fund A Class
Period End
12/30/96 $100,000 $100,000
1/31/97 $ 98,249 $100,770
2/28/97 $100,876 $102,372
3/31/97 $ 98,949 $101,553
4/30/97 $ 99,475 $102,406
5/31/97 $103,028 $104,352
6/30/97 $105,024 $106,022
7/31/97 $106,731 $108,354
8/31/97 $107,189 $108,491
9/30/97 $110,724 $110,183
10/31/97 $111,587 $111,117
11/30/97 $111,843 $111,982
12/31/97 $112,534 $112,855
1/31/98 $116,481 $113,994
Chart assumes $100,000 invested on December 30, 1996, a 3.75% front-end sales
charge and reinvestment of all distributions. Performance for other
High-Yield Opportunities Fund classes will vary due to differing charges and
expenses. Past performance does not guarantee future results. See the
following page for information about expense limitations. The unmanaged
Salomon Brothers Index shown above is an amalgam of high-yield bonds that pay
cash interest and are of varying levels of quality.
HIGH YIELD OPPORTUNITIES FUND PERFORMANCE
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
(B AND C CLASS SHARES AVAILABLE EFFECTIVE FEBRUARY 17, 1998)
Lifetime One Year
- ------------------------------------------------------------------------------
Class A (Est. 12/30/96)
Excluding Sales Charge +18.88% +18.56%
Including Sales Charge +13.81% +12.92%
THE FUND INVESTS PRIMARILY IN HIGH-YIELD SECURITIES, WHICH INVOLVES GREATER
RISK THAN INVESTING IN HIGHER QUALITY FIXED-INCOME SECURITIES. RETURN AND
SHARE VALUE WILL FLUCTUATE SO THAT SHARES WHEN REDEEMED MAY BE WORTH MORE OR
LESS THAN THE ORIGINAL COST. ALL RESULTS INCLUDE REINVESTMENT OF DISTRIBUTIONS
AND SALES CHARGES AS SHOWN BELOW. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.
CLASS A shares have a 4.75% maximum front-end sales charge and a 12b-1 fee.
High-Yield Opportunities Fund did not charge a 12b-1 fee prior to February
17, 1998 and an expense limitation of 0.95% was in effect for the periods
shown. Performance would have been lower without the limitation.
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 January 31, 1998
Lifetime One YearSix Months*
High-Yield Opportunities Fund
(Est. 12/30/96) +18.88% +18.56% +9.14%
*Cumulative Return. Institutional Class shares are available without sales or
asset-based distribution charges only to certain eligible institutional
accounts.
<PAGE>
for current income 9
Financial Statements
Delaware Group Income Funds, Inc. -
High-Yield Opportunities Fund
Statement of Net Assets
January 31, 1998 (Unaudited)
Principal Market
Amount Value
------ -----
CORPORATE BONDS - 96.71%
Aerospace & Defense - 5.40%
Derlan Manufacturing sr nts
10.00% 01/15/07 ............................. $ 250,000 $ 264,375
Roller Bearing sr sub nts 9.625% 06/15/07 ...... 275,000 283,250
---------
547,625
---------
Automobile & Auto Equipment - 6.33%
Motors and Gears sr nts 10.75% 11/15/06 ........ 400,000 437,000
Prestolite Electric sr nts 9.625% 02/01/08 ..... 200,000 204,500
---------
641,500
---------
Banking, Finance & Insurance - 0.38%
Indah Kiat Finance Mauritius sr unsec
sub nts 10.00% 07/01/07 ..................... 50,000 38,438
---------
38,438
---------
Building & Materials - 9.92%
American Builders & Contractors sr unsec
sub nts 10.625% 05/15/07 ..................... 250,000 261,563
Atrium sr sub nts 10.50% 11/15/06 .............. 350,000 372,750
Collins & Aikman Floorcovers sr sub nts
10.00% 01/15/07 ............................. 350,000 371,438
---------
1,005,751
---------
Cable, Media & Publishing - 2.05%
American Lawyer Media sr nts 9.75%
12/15/07 .................................... 200,000 207,500
---------
207,500
---------
Chemicals - 0.75%
PCI Chemicals Canada sr nts
9.25% 10/15/07 .............................. 75,000 76,125
---------
76,125
---------
Computer & Technology - 1.26%
*Decisionone Holdings sr disc debs
9.75% 08/01/08 .............................. 200,000 128,000
---------
128,000
---------
Consumer Products - 8.02%
Doskocil Manufacturing sr sub nts
10.125% 09/15/07 ............................ 275,000 288,750
Precise Technology sr unsec
sub nts 11.125% 06/15/07 ..................... 250,000 258,438
Riddell Sports sr unsec
sub nts 10.50% 07/15/07 ..................... 250,000 265,625
---------
812,813
---------
Electronics & Electrical Equipment - 4.88%
*Electronic Retailing Systems sr
disc nts 13.25% 02/01/04 ..................... 300,000 202,875
Insilco sr sub nts 10.25% 08/15/07 ............. 275,000 292,188
---------
495,063
---------
Energy - 8.26%
Panaco sr nts 10.625% 10/01/04275,000279,125
Rutherford-Moran Oil sr sub nts
10.75% 10/01/04 ............................. 275,000 294,250
Southwest Royalties sr nts 10.50% 10/15/04 ..... 275,000 264,000
---------
837,375
---------
<PAGE>
Principal Market
Amount Value
------ -----
CORPORATE BONDS (Continued)
Environmental Services - 3.63%
Hydrochem Industrial sr sub nts
10.375% 08/01/07 ........................... $ 350,000 $ 367,938
---------
367,938
---------
Food, Beverage & Tobacco - 2.82%
Community Distributors sr nts
10.25% 10/15/04 ............................ 275,000 285,313
---------
285,313
---------
Industrial Machinery - 2.61%
Elgin National Industry sr nts
11.00% 11/01/07 ............................ 250,000 265,000
---------
265,000
---------
Leisure, Lodging & Entertainment - 7.04%
AFC Enterprises sr sub nts
10.25% 05/15/07 ............................ 75,000 79,500
Hollywood Theaters sr sub nts
10.625% 08/01/07 ........................... 200,000 217,000
Trump-Atlantic City 1st mtg nts
11.25% 05/01/06 ............................ 400,000 417,000
---------
713,500
---------
Metals & Mining - 2.27%
Keystone Consolidated Industries sr nts
9.625% 08/01/07 ............................ 225,000 230,063
---------
230,063
---------
Retail - 2.58%
Leslie's Poolmart sr nts
10.375% 07/15/04 ........................... 250,000 261,875
---------
261,875
---------
Telecommunications - 4.21%
*Nextel Communications sr disc nts
10.65% 09/15/07 ............................ 300,000 200,625
Telegroup sr disc nts 10.50% 11/01/04 ........ 275,000 225,844
---------
426,469
---------
Textiles & Furniture - 1.58%
*J Crew Group sr disc debs
13.125% 10/15/08 ........................... 325,000 159,656
---------
159,656
---------
Transportation & Shipping - 13.67%
Ameriking sr nts 10.75% 12/01/06 ............. 100,000 105,625
Chemical Leaman sr nts 10.375% 06/15/05 ...... 450,000 475,308
Holt Group sr nts 9.75% 01/15/06 ............. 250,000 254,063
International Shipholdings sr nts
7.75% 10/15/07 ............................. 250,000 249,375
Offshore Logistics sr nts
7.875% 01/15/08 ............................ 300,000 301,500
---------
1,385,871
---------
<PAGE>
10 for current income
High-Yield Opportunities Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
--------- --------
CORPORATE BONDS (Continued)
Miscellaneous - 9.05%
ATC Group Services sr sub nts
12.00% 01/15/08 .............................. $ 300,000 $ 309,750
Anchor Lamina sr sub nts
9.375% 02/01/98 .............................. 300,000 300,000
Liberty Group Operating sr sub nts
9.375% 02/01/08 .............................. 300,000 307,500
---------
917,250
---------
Total Corporate Bonds (cost $9,490,619) ........ 9,803,125
---------
Number
of Shares
---------
PREFERRED STOCK - 0.15%
Cable, Media & Publishing - 0.15%
American Radio Systems
11.375% 01/15/09 ............................. 121 14,641
---------
Total Preferred Stock (cost $11,493) ........... 14,641
---------
WARRANTS - 0.09%
Electronics & Electrical Equipment - 0.09%
**Electronic Retailing System Warrants ........... 300 9,000
---------
Total Warrants (cost $12,000) .................. 9,000
---------
Principal
Amount
---------
REPURCHASE AGREEMENTS - 5.05%
With J.P. Morgan Securities 5.57% 02/02/98
(dated 01/30/98, collateralized by $172,000
U.S. Treasury Notes 6.875% due 07/31/99,
market value $175,756) ....................... 172,000 172,000
With PaineWebber 5.57% 02/02/98
(dated 01/30/98, collateralized by $26,000
U.S. Treasury Notes 6.125% due 05/15/98,
market value $26,485 and $73,000
U.S. Treasury Notes 6.25% due 04/30/01,
market value $76,466 and 68,000
U.S Treasury Notes 6.25% due 10/31/01,
market value $70,488) ........................ 170,000 170,000
With Prudential-Bache 5.56% 02/02/98 (dated
01/30/98 collateralized by 85,000
U.S Treasury Bills due 05/07/98, market value
$86,404 and $85,000 U.S. Treasury Notes
5.00% due 02/15/99,
market value $87,036) ........................ 170,000 170,000
---------
Total Repurchase Agreements
(cost $512,000) .............................. 512,000
---------
<PAGE>
Market
Value
-----
TOTAL MARKET VALUE OF SECURITIES - 102.00%
(cost $10,026,112) ........................................ $10,338,766
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (2.00%) .................................... (202,465)
-----------
NET ASSETS APPLICABLE TO 1,741,409 SHARES
($1 PAR VALUE) OUTSTANDING - 100,00% ....................... $10,136,301
===========
NET ASSET VALUE - HIGH YIELD OPPORTUNITIES FUND A CLASS
$6,517,187 / 1,119,642 .................................... $5.82
=====
NET ASSET VALUE - HIGH YIELD OPPORTUNITIES INSTITUTIONAL
CLASS $3,619,114 / 621,767 ................................. $5.82
=====
*The interest rate shown for this security is the effective yield.
**Non-income producing security.
Summary of Abbreviations:
debs - debentures mtg - mortgage nts - notes
sr - senior sub - subordinated unsec - unsecured
COMPONENTS OF NET ASSETS AT JANUARY 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 C Class and 50,000,000
shares allocated to High-Yield Opportunities
Fund Institutional Class ................................... $ 9,709,169
Undistributed net investment income ......................... 98
Accumulated net realized gain on investments ................ 114,380
Net unrealized appreciation of investments .................. 312,654
-----------
Total net assets ............................................ $10,136,301
===========
Net asset value and offering price per share -
A class High-Yield Opportunities Fund
Net asset value A class (A) ................................ $5.82
Sales charge (4.75% of offering price or 4.98% of the amount
invested per share) (B) ................................... 0.29
-----
Offering price .............................................. $6.11
=====
- ---------
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchase of $100,000
or more.
See accompanying notes
<PAGE>
for current income 11
Delaware Group Income Funds, Inc. -
High-Yield Opportunities Fund
Statement of Assets and Liabilities
January 31, 1998
(Unaudited)
ASSETS:
Investments at market (cost $10,026,112) .................. $10,338,766
Cash ...................................................... 33,040
Dividends and interest receivable ......................... 130,202
Receivable for securities sold ............................ 614,044
Other assets .............................................. 18,438
----------
Total assets ............................................ 11,134,490
----------
LIABILITIES:
Payable for securities purchased .......................... 900,000
Other accounts payable and accrued expenses ............... 98,189
----------
Total liabilities ....................................... 998,189
----------
TOTAL NET ASSETS ........................................ $10,136,301
===========
See accompanying notes
<PAGE>
Delaware Group Income Funds, Inc. -
High-Yield Opportunities Fund
Statement of Operations
Six Months Ended January 31, 1998
(Unaudited)
INVESTMENT INCOME:
Interest ........................................... $ 485,111
Dividend ........................................... 687
---------
$ 485,798
---------
Expenses:
Management fees .................................... 31,377
Distribution expense ............................... 9,376
Custodian fees ..................................... 3,801
Professional fees .................................. 2,948
Dividend disbursing and transfer agent
fees and expenses .................................. 2,696
Accounting fees and salaries ....................... 2,678
Reports and statements to shareholders ............. 1,272
Directors' fees .................................... 903
Taxes (other than taxes on income) ................. 281
Registration fees .................................. 250
Other .............................................. 607
---------
56,189
Less expenses absorbed by
Delaware Management Company, Inc. ................
or Delaware Distributors ......................... (19,999)
---------
Total Expenses ..................................... 36,190
---------
Net Investment Income .............................. 449,608
---------
Net realized and unrealized gain
on investments:
Net realized gain on investment
transactions ..................................... 293,722
Net change in unrealized appreciation of
investments ...................................... 98,190
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ..................................... 391,912
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................................... $ 841,520
=========
See accompanying notes
<PAGE>
12 for current income
Delaware Group Income Funds, Inc. -
High-Yield Opportunities Fund
Statement of Changes in Net Assets
Six Months Ended 12/30/96* to
1/31/98 7/31/97
(Unaudited)
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ............................ $ 449,608 $ 402,641
Net realized gain on investment transactions ..... 293,722 231,614
Net change in unrealized appreciation ............ 98,190 214,465
----------- -----------
Net increase in net assets resulting
from operations ................................ 841,520 848,720
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class .......................................... (379,160) (168,753)
Institutional Class .............................. (210,550) (93,688)
Net realized gain on investment transactions:
A Class .......................................... (264,225) --
Institutional Class .............................. (146,731) --
----------- -----------
(1,000,666) (262,441)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .......................................... -- 5,471,885
Institutional Class .............................. -- 3,000,006
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions:
A Class .......................................... 628,525 168,117
Institutional Class .............................. 349,035 93,335
----------- -----------
977,560 8,733,343
----------- -----------
Six Months Ended 12/30/96* to
1/31/98 7/31/97
(Unaudited)
Cost of shares repurchased:
A Class ........................................ $ (1,735) $ --
Institutional Class ............................ -- --
----------- -----------
(1,735) --
----------- -----------
Increase in net assets derived from capital
share transactions ............................... 975,825 8,733,343
----------- -----------
NET INCREASE IN NET ASSETS ....................... 816,679 9,319,622
NET ASSETS:
Beginning of period .............................. 9,319,622 --
----------- -----------
End of period .................................... $10,136,301 $ 9,319,622
=========== ===========
- ---------
* Date of commencement of trading
See accompanying notes
<PAGE>
for current income 13
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
Financial Highlights
- ------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
High-Yield Opportunities High-Yield Opportunities
A Class Institutional Class
------------------------ ------------------------
Six Months 12/30/96\1 Six Month 12/30/96\1
Ended to Ended to
1/31/98 7/31/97 1/31/98 7/31/97
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................................. $5.920 $5.500 $5.920 $5.500
Income from investment operations:
Net investment income2 ......................................................... 0.275 0.290 0.275 0.290
Net realized and unrealized gain on investments ................................ 0.241 0.299 0.241 0.299
------ ------ ------ ------
Total from investment operations ............................................... 0.516 0.589 0.516 0.589
------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income ........................................... (0.362) (0.169) (0.362) (0.169)
Distributions from net realized gain on investment transactions ................ (0.254) -- (0.254) --
------ ------ ------ ------
Total dividends and distributions .............................................. (0.616) (0.169) (0.616) (0.169)
------ ------ ------ ------
Net asset value, end of period ................................................... $5.820 $5.920 $5.820 $5.920
====== ====== ====== ======
Total return3 .................................................................... 9.14% 10.81% 9.14% 10.81%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................................ $6,517 $5,990 $3,619 $3,330
Ratio of expenses to average net assets ........................................ 0.74% 0.75% 0.74% 0.75%
Ratio of expenses to average net assets prior to expense limitation ............ 1.26% 1.57% 0.96% 1.27%
Ratio of net investment income to average net assets ........................... 9.24% 8.53% 9.24% 8.53%
Ratio of net investment income to average net assets prior to expense limitation 8.72% 7.70% 9.02% 8.00%
Portfolio turnover ............................................................. 329% 270% 329% 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.
<PAGE>
14 for current income
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
Notes to Financial Statements
January 31, 1998 (Unaudited)
- ------------------------------------------------------------------------------
Delaware Group Income Funds, Inc. - High -Yield Opportunities Fund (The
"Fund") is registered as a diversified open-end investment company under the
Investment Company Act of 1940, as amended. The Fund is organized as a
Maryland Corporation and offers four classes of shares. 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. As of January 31, 1998, the B Class
and C Class had not commenced operations. The Fund's objective is to provide
investors with high current income and total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the 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. Other securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along
with other members of the Delaware Group of Funds. The aggregate daily balance
of the pooled cash account is invested in repurchase agreements secured by
obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized.
However, in the event of default or bankruptcy by the counterparty to the
agreement, realization of the collateral may be subject to legal proceedings.
Other - Expenses common to all Funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale
of investment securities are those of the specific securities sold. Interest
income is recorded on the accrual basis. Original issue discounts are accreted
to interest income over the lives of the respective securities. The Fund
declares and pays dividends from net investment income on a monthly basis and
capital gains annually.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's average
daily net assets.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC) the Investment Manager of the Fund, an
annual fee which is calculated daily at the rate of 0.65% on the first $500
million of average daily net assets, 0.625% on the next $500 million and 0.60%
on the average daily net assets in excess of $1 billion.
DMC has elected to waive that portion if any of the management fee and
reimburse the Fund to the extent that annual operating expenses exclusive of
taxes, interest, brokerage commissions and extraordinary expenses, exceed
0.95% of average daily net assets of the Fund through September 30, 1998.
Total expenses absorbed by DMC for the period ended January 31, 1998 were
$10,623. At January 31, 1998, the fund had a liability for such fees and other
expenses payable to DMC for $24,357.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent for the Fund. The Fund
also engaged DSC to provide accounting services for the Fund. For the period
ended January 31, 1998, the Fund expensed $2,696 for dividend disbursing and
transfer agent services and $1,880 for accounting services. At January 31,
1998, the Fund had a liability for such fees and other expenses payable to DSC
for $9,692.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class. No distribution expenses are
paid by the Institutional Class. DDLP has agreed to waive distribution
expenses for all classes through February 16, 1998. Total expenses absorbed by
DDLP for the period ended January 31, 1998 were $9,376. At January 31, 1998,
the fund had a liability for other expenses payable to DDLP for $747.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation
by the Fund.
<PAGE>
for current income 15
Notes to Financial Statments (Continued)
3. Investments
During the six months ended January 31, 1998, the Fund made purchases of
$16,172,663 and sales of $15,851,270 of investment securities other than U.S.
government securities and temporary cash investments.
At January 31, 1998, the aggregate cost of securities for federal income tax
purposes was $10,026,112.
At January 31, 1998, unrealized appreciation for federal income tax purposes
aggregated $312,654 of which $368,346 related to unrealized appreciation of
securities and $55,692 related to unrealized depreciation of securities.
4. Capital Stock
Transactions in Capital Stock shares were as follows:
Six Months 12/30/96*
Ended to
1/31/98 7/31/97
------- ---------
Shares sold:
A Class ................................... -- 982,509
Institutional Class ....................... -- 545,455
Shares issued upon reinvestment of
dividends from net investment income
and net realized gains from
security transactions:
A Class ..................................... 108,494 28,932
Institutional Class ......................... 60,249 16,063
------- ---------
168,743 1,572,959
------- ---------
Shares repurchased:
A Class ..................................... (293) --
Institutional Class ......................... -- --
------- ---------
(293) --
Net Increase ................................ 168,450 1,572,959
======= =========
- ---------
*Date of commencement of trading.
5. Market and Credit Risk
The Fund may invest in high-yield fixed income securities which carry ratings
of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these
higher yielding securities may be accompanied by a greater degree of credit
risk than higher rated securities. Additionally, lower rated securities may be
more susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The
relative illiquidity of some of these securities may adversely affect the
Fund's ability to dispose of such securities in a timely manner and at a fair
price when it is necessary to liquidate such securities.
<PAGE>
This Semi-annual report is for the information of High-Yield Opportunities
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current Prospectus for 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 the Fund's
current Statement of Additional Information. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Investment Manager
Delaware Management Company
Philadelphia, 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 globes]
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan; however, shares of the
Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Fund are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
[LOGO]
Printed in the USA
on recycled paper
SA-137(1/98)PP3/98
(543)
