DELAWARE GROUP INCOME FUNDS INC, 497, 1998-09-17

DELAWARE GROUP INCOME FUNDS INC
497, 1998-09-17

Previous: DEERE JOHN CAPITAL CORP, 424B3, 1998-09-17

Next: DRAVO CORP, 8-K, 1998-09-17

<PAGE>

DELAWARE
INVESTMENTS
- -----------

A CLASS

B CLASS

C CLASS

CORPORATE BOND FUND
EXTENDED DURATION BOND FUND

PROSPECTUS

SEPTEMBER 14, 1998

[PHOTO OF HOUSE BY STREAM WITH WATER WHEEL]

<PAGE>

Table of
Contents

COVER PAGE..................................................................1
SYNOPSIS....................................................................2
SUMMARY OF EXPENSES.........................................................4
INVESTMENT OBJECTIVES AND POLICIES
Suitability................................................................6
Investment Strategy........................................................6

Risks Factors..............................................................7

THE DELAWARE DIFFERENCE
Plans and Services.........................................................8

CLASSES OF SHARES..........................................................10

HOW TO BUY SHARES..........................................................17
REDEMPTION AND EXCHANGE....................................................20
DIVIDENDS AND DISTRIBUTIONS................................................25
TAXES......................................................................26

CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE.................................................28

MANAGEMENT OF THE FUNDS....................................................29

OTHER INVESTMENT POLICIES AND
RISK CONSIDERATIONS.......................................................32

APPENDIX A -- RATINGS......................................................37

<PAGE>

Corporate Bond Fund
Extended Duration Bond Fund
A Class/B Class/C Class

September 14, 1998

1818 Market Street, Philadelphia, PA 19103

For Prospectus and Performance:
Nationwide 800-523-1918

Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500

Representatives of Financial Institutions:
Nationwide 800-659-2265

This Prospectus describes shares of the Corporate Bond Fund series and the
Extended Duration Bond Fund series (together, the "Funds") of Delaware Group
Income Funds, Inc. ("Income Funds, Inc."), a professionally- managed mutual
fund of the series type. The investment objective of each Fund is to seek to
provide investors with total return.
Each Fund offers three retail classes: "Class A Shares", "Class B Shares
and "Class C Shares" (individually, a "Class" and collectively, the "Classes").
These alternatives permit an investor to choose the method of purchasing shares
that is most suitable for his or her needs.

This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Funds' Statement of Additional Information ("Part
B" of Income Funds, Inc.'s registration statement) dated September 14, 1998, as
it may be amended from time to time, contains additional information about the
Funds and has been filed with the Securities and Exchange Commission ("SEC").
Part B is incorporated by reference into this Prospectus and is available,
without charge, by writing to Delaware Distributors, L.P. at the above address
or by calling the above numbers. The SEC also maintains a Web site
(http://www.sec.gov) that contains Part B, material incorporated by reference
into Income Funds, Inc.'s registration statement, and other information
regarding registrants that electronically file with the SEC. The Funds'
financial statements, when available, will appear in their Annual Report, which
will accompany any requests for Part B.

The Corporate Bond Fund also offers Corporate Bond Fund Institutional
Class ("Institutional Shares") and the Extended Duration Bond Fund offers
Extended Duration Bond Fund Institutional Class ("Institutional Shares"), which
are available for purchase only by certain investors. A prospectus for the
Funds' Institutional Shares can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling the above number.

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

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

1
<PAGE>

Synopsis

Investment Objectives
The investment objective of each Fund is to seek to provide investors with
total return. Each Fund seeks to achieve its objective by investing primarily
in corporate bonds rated at least BBB by Standard & Poor's Ratings Group
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or similarly
rated by another nationally-recognized statistical rating organization, or, if
unrated (which may be more speculative in nature than rated bonds), judged to
be of comparable quality by the Manager (as defined below). The average
duration of the Corporate Bond Fund is expected to be between 4 and 7 years and
that of the Extended Duration Bond Fund is expected to be between 8 and 11
years. Each Fund may also invest in U.S. and foreign government securities and
commercial paper. For further details, see Investment Objectives and Policies,
Risk Factors and Other Investment Policies and Risk Considerations.

Risk Factors
Each Fund may invest in high-yield securities (junk bonds) and greater
risks may be involved with an investment in a Fund than an investment in a
mutual fund comprised exclusively of investment grade bonds. See Risk Factors
under Investment Objectives and Policies.

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

Sales Charges
The price of each of the Class A Shares includes a maximum front-end sales
charge of 4.75% of the offering price. The sales charge is reduced on certain
transactions of at least $100,000 but under $1,000,000. For purchases of
$1,000,000 or more, the front-end sales charge is eliminated; if a dealer's
commission is paid in connection with those sales, a contingent deferred sales
charge ("Limited CDSC") of 1% will be imposed if shares are redeemed during the
first year after purchase and 0.50% will be imposed if shares are redeemed
during the second year after the purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.

The price of each of the Class B Shares is equal to the net asset value
per share. Class B Shares are subject to a contingent deferred sales charge
("CDSC") of: (i) 4% if shares are redeemed within two years of purchase; (ii)
3% if shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase; (iv)
1% if shares are redeemed during the sixth year following purchase; and
(v) 0% thereafter. Class B Shares are subject to annual 12b-1 Plan expenses
which are assessed against such shares for approximately eight years after
purchase. See Deferred Sales Charge Alternative -- Class B Shares and Automatic
Conversion of Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses
which are assessed against such shares for the life of the investment. See
Classes of Shares and Distribution (12b-1) and Service under Management of the
Funds.

2
<PAGE>

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

Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net asset
value calculated after receipt of the redemption or exchange request. Neither
the Funds nor the Distributor assesses a charge for redemptions or exchanges of
Class A Shares, except for certain redemptions of shares purchased at net asset
value, which may be subject to a CDSC if a dealer's commission was paid in
connection with such purchases. See Front-End Sales Charge Alternative -- Class
A Shares under Classes of Shares.

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

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

3
<PAGE>

Summary of
Expenses

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

Corporate Bond Fund
-------------------------------------
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- ------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) . 4.75% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) ........................................................... None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) .............................. None(1) 4.00%(2) 1.00%(3)
Redemption Fees ............................................................... None(4) None(4) None(4)

<CAPTION>
Extended Duration Bond Fund
-------------------------------------
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- ------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) . 4.75% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price) ........................................................... None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) .............................. None(1) 4.00%(2) 1.00%(3)
Redemption Fees ............................................................... None(4) None(4) None(4)
</TABLE>

<PAGE>

Corporate Bond Fund
----------------------------------------
Annual Operating Expenses Class A Class B Class C
(as a percentage of average daily net assets) Shares Shares Shares
- --------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Management Fees (after voluntary waivers) ........................... 0.04%(5) 0.04%(5) 0.04%(5)
12b-1 Plan Expenses (including service fees) ........................ 0.25%(6) 1.00%(6) 1.00%(6)
Other Operating Expenses ............................................ 0.51%(5) 0.51%(5) 0.51%(5)
----- ----- -----
Total Operating Expenses (after voluntary waivers) ................ 0.80%(5) 1.55%(5) 1.55%(5)
===== ===== =====

<CAPTION>
Extended Duration Bond Fund
----------------------------------------
Annual Operating Expenses Class A Class B Class C
(as a percentage of average daily net assets) Shares Shares Shares
- --------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C>
Management Fees (after voluntary waivers) ........................... 0.06%(5) 0.06%(5) 0.06%(5)
12b-1 Plan Expenses (including service fees) ........................ 0.25%(6) 1.00%(6) 1.00%(6)
Other Operating Expenses ............................................ 0.49%(5) 0.49%(5) 0.49%(5)
----- ----- -----
Total Operating Expenses (after voluntary waivers) ................ 0.80%(5) 1.55%(5) 1.55%(5)
===== ===== =====

</TABLE>

(1) Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid
to the financial adviser through whom such purchase is effected, a Limited
CDSC of 1% will be imposed on certain redemptions made during the first year
after purchase and 0.50% will be imposed on certain redemptions made during
the second year after purchase. Additional Class A purchase options
involving the imposition of a CDSC may be permitted as described in the
Prospectus from time to time. See Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.

(2) Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the
third or fourth year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; (iv) 1% if shares are redeemed
during the sixth year following purchase; and (v) 0% thereafter. See
Deferred Sales Charge Alternative -- Class B Shares.
(3) Class C Shares are subject to a CDSC of 1% if the shares are redeemed within
12 months of purchase. See Level Sales Charge Alternative -- Class C Shares
under Classes of Shares.
(4) CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
(5) Total Operating Expenses and Other Operating Expenses for Class A Shares,
Class B Shares and Class C Shares are based on estimated amounts for the
first full fiscal year of the Classes, after giving effect to the voluntary
expense waivers and payments. The Manager has elected voluntarily to waive
that portion, if any, of the annual management fees payable by each Fund and
to pay each Fund's expenses to the extent necessary to ensure that the
"Total Operating Expenses" of a Fund do not exceed 0.55%, excluding 12b-1
Plan expenses for each Fund on an annualized basis from the commencement of
operations through March 31, 1999. If the voluntary fee waivers and expense
payments by the Manager through March 31, 1999 were not in effect, it is
estimated that for the first full year, the Total Operating Expenses, as a
percentage of average daily net assets, would be: (i) 1.26%, 2.01% and
2.01%, respectively, for Class A Shares, Class B Shares and Class C Shares
of the Corporate Bond Fund, including other operating expenses of 0.51% and
management fees of 0.50%; and (ii) 1.29%, 2.04% and 2.04%, respectively, for
Class A Shares, Class B Shares and Class C Shares of the Extended Duration
Bond Fund, including other operating expenses of 0.49% and management fees
of 0.55%. See Management of the Funds.
(6) Class A Shares, Class B Shares and Class C Shares are subject to separate
12b-1 Plans. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. (the "NASD"). The annual
12b-1 Plan expenses for Class A Shares have been set by the Board of
Directors at 0.25% of the average daily net assets of such Class. The
maximum annual 12b-1 Plan expenses permitted under the 12b-1 Plan for Class
A Shares are 0.30% of the average daily net assets of such Class. See
Distribution (12b-1) and Service under Management of the Fund.

4
<PAGE>

Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy. However, the
annual maintenance fee is waived until further notice. Investors who utilize
the Asset Planner for an Individual Retirement Account ("IRA") will pay an
annual IRA fee of $15 per Social Security number. See Part B.

For expense information about each Fund's Institutional Shares, see the
separate prospectus relating to that class.

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

Corporate Bond Fund
------------------------------------------
Assuming No
Assuming Redemption Redemption
1 year 3 years 1 year 3 years
-------- --------- -------- --------
Class A Shares .......... $ 55(1) $72 $55 $72
Class B Shares(2) ....... $ 55 $79 $16 $49
Class C Shares .......... $ 26 $49 $16 $49

Extended Duration Bond Fund
------------------------------------------
Assuming No
Assuming Redemption Redemption
1 year 3 years 1 year 3 years
-------- --------- -------- --------
Class A Shares .......... $ 55(1) $72 $55 $72
Class B Shares(2) ....... $ 55 $79 $16 $49
Class C Shares .......... $ 26 $49 $16 $49

(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, or other CDSC,
which has not been reflected in this calculation, may be imposed on certain
redemptions made within 24 months after a purchase. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares will
be automatically converted into Class A Shares. The example above does not
assume conversion of Class B Shares since it reflects figures only for one
and three years. See Automatic Conversion of Class B Shares under Classes of
Shares for a description of the automatic conversion feature.

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

The purpose of the above tables is to assist investors in understanding
the various costs and expenses they will bear directly or indirectly in owning
shares of a Fund.

5
<PAGE>

Investment Objectives and Policies

The investment objective of each Fund is to seek total return. Each Fund
seeks to achieve its objective by investing primarily in corporate bonds rated
BBB or higher by S&P or Baa or higher by Moody's, or similarly rated by another
nationally-recognized statistical rating organization or, if unrated (which may
be more speculative in nature than rated bonds), judged to be of comparable
quality by the Manager. See Appendix A -- Ratings for more rating information.
Each Fund's investment objective is non-fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to a material change in a
Fund's objective.

SUITABILITY
Each Fund may be suitable for the investor interested in total return and
the Manager's primary focus in selecting securities for each Fund will be total
return. Investors in each Fund should be willing to accept the risks associated
with investments in fixed income securities.
The net asset value per share of each Class may fluctuate in response to
the condition of individual companies and general market and economic
conditions and, as a result, the Funds are not appropriate for a short-term
investor. The Funds cannot assure a specific rate of return or yield, or that
principal will be protected. However, through the cautious selection and
supervision of its portfolio, the Manager will strive to achieve each
Fund's objective.
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of Fund shares as equivalent to a
complete investment program. Delaware Investments offers a family of funds,
generally available through registered investment dealers, which may be used
together to create a more complete investment program.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconvenience which is typically connected with direct purchases of the types
of securities in which each Fund invests.

Each Fund may also invest in securities of, or guaranteed by, the U.S. and
foreign governments, their agencies or instrumentalities and commercial paper
of companies having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated A-1 or A-2 by S&P
or rated P-1 or P-2 by Moody's or, if unrated, judged to be of comparable
quality by the Manager.
Each Fund may acquire zero-coupon bonds and, to a lesser extent,
pay-in-kind (PIK) bonds. See Zero-Coupon Bonds and Pay-In-Kind Bonds under
Other Investment Policies and Risk Considerations. Each Fund may also invest in
other types of income-producing securities, including common stocks and
preferred stocks, some of which may have convertible features or attached
warrants and which may be speculative. See Convertible, Debt and
Non-Traditional Equity Securities under Other Investment Policies and Risk
Considerations.
Each Fund may purchase privately-placed debt and other securities the
resale of which is restricted under applicable securities laws. Such securities
may be less liquid than securities that are not subject to resale restrictions.
Each Fund will not purchase illiquid assets, if more than 15% of its net assets
would consist of such illiquid securities. See Restricted/Illiquid Securities
under Other Investment Policies and Risk Considerations.
Each Fund may invest up to 15% of its total assets in securities of
issuers domiciled in foreign countries. See Foreign Investment Information
under Other Investment Policies and Risk Considerations.

6
<PAGE>

Each Fund may invest up to 20% of its net assets in high yield, higher
risk fixed-income securities, which are commonly called "junk" bonds and are
considered to be speculative. See Other Investment Policies and Risk
Considerations for a description of the risks associated with investing in
lower-rated fixed-income securities.

Each Fund may hold cash or invest in short-term debt securities and other
money market instruments when, in the Manager's opinion, such holdings are
prudent given then prevailing market conditions or pending investment in other
types of securities. All these short-term investments will be of the highest
quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Manager. See Short-Term Investments
under Other Investment Policies and Risk Considerations.
The Manager does not normally intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, the Manager may take advantage of short-term opportunities that are
consistent with its investment objective.

* * *
For a description of the Funds' other investment policies and for a
further description of some of the policies described above, see Other
Investment Policies and Risk Considerations.
Although each Fund will constantly strive to attain its objective, there
can be no assurance that it will be attained.
Each Fund's designation as an open-end investment company and as a
diversified fund, may not be changed unless authorized by the vote of a
majority of that Fund's outstanding voting securities. A "majority vote of the
outstanding voting securities" of a Fund is the vote by the holders of the
lesser of a) 67% or more of the Fund's voting securities present in person or
represented by proxy if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or b) more than 50%
of the outstanding voting securities. Part B lists other more specific
investment restrictions of each Fund which may not be changed without a
majority shareholder vote.

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

RISK FACTORS
Each Fund invests principally in investment grade fixed-income securities.
The market values of fixed-income securities generally fall when interest rates
rise and, conversely, rise when interest rates fall. Each Fund may also invest
in lower-rated and unrated fixed-income securities tend to reflect short-term
corporate and market developments to a greater extent than higher-rated
fixed-income securities, which react primarily to fluctuations in the general
level of interest rates. These lower-rated or unrated securities generally have
a greater potential for price appreciation and can offer higher yields, but, as
a result of factors such as reduced creditworthiness of issuers, increased risk
of default and a more limited and less liquid secondary market, are subject to
greater volatility and risk of loss of income and principal than are
higher-rated securities. The Manager will attempt to reduce such risk through
portfolio diversification, credit analysis, and attention to trends in the
economy, industries and financial markets.
See High-Yield, High Risk Securities under Other Investment Policies and
Risk Considerations for further information about high-yield securities.

7
<PAGE>

The Delaware Difference

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

SHAREHOLDER PHONE DIRECTORY

Shareholder Service Center and Investor Information Center
800-523-1918
Information on Existing Regular Investment Accounts and Retirement Plan
Accounts; Wire Investments; Wire Liquidations; Telephone Liquidations
and Telephone Exchanges; Fund Information; Literature; Price; Yield and
Performance Figures

Delaphone
800-362-FUND
(800-362-3863)

Performance Information
During business hours, you can call the Investor Information Center for
current yield information. Current yield and total return information may also
be included in advertisements and information given to shareholders. Yields are
computed on an annual basis over a 30-day period.

Shareholder Services
During business hours, you can call Delaware Investments' Shareholder
Service Center. Our representatives can answer any questions about your
account, the Funds, various service features and other funds available from
Delaware Investments.

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

Dividend Payments
Dividends, capital gains and other distributions, if any, are
automatically reinvested in your account, unless you elect to receive them in
cash. You may also elect to have the dividends earned in one fund automatically
invested in another Delaware Investments fund with a different investment
objective, subject to certain exceptions and limitations.
For more information, see Additional Methods of Adding to Your Investment
- -- Dividend Reinvestment Plan under How to Buy Shares or call the Shareholder
Service Center.

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

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

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

MoneyLineSM Services
Delaware Investments offers the following services for fast and convenient
transfer of funds between your personal bank account and your Fund account:

1. MoneyLineSM Direct Deposit Service
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may
choose the MoneyLineSM Direct Deposit Service and have such payments
transferred from your Fund account to your predesignated bank account. See
Dividends and Distributions. In addition, you may elect to have your Systematic
Withdrawal Plan payments transferred from your Fund account to your
predesignated bank account through this service. See Systematic Withdrawal
Plans under Redemption and Exchange. This service is not available for certain
retirement plans.

8
<PAGE>

2. MoneyLineSM On Demand
You or your investment dealer may request purchases and redemptions of
Fund shares by using MoneyLineSM On Demand. When you authorize a Fund to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) or deposited to (for share redemptions) your
predesignated bank account. Your request will be processed the same day if you
call prior to 4 p.m., Eastern time. There is a $25 minimum and a $50,000 maximum
limit for MoneyLineSM On Demand transactions. This service is not available for
retirement plans, except for purchases of shares by IRAs.
For each MoneyLineSM Service, it may take up to four business days for the
transactions to be completed. You can initiate either service by completing an
Account Services form. If the name and address on your designated bank account
are not identical to the name and address on your Fund account, you must have
your signature guaranteed. The Funds do not charge a fee for any MoneyLineSM
Service; however, your bank may charge a fee. Please call the Shareholder
Service Center for additional information about these services.

Retirement Planning
An investment in the Funds may be a suitable investment option for
tax-deferred retirement plans. Delaware Investments offers a full spectrum of
qualified and non-qualified retirement plans, including the popular 401(k)
deferred compensation plan, IRA, and the new Roth IRA. Please call Delaware
Investments at 1-800-523-1918 for more information.

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

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

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

Exchange Privilege

The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of other mutual funds in the Delaware Investments
family, subject to certain exceptions and limitations. For additional
information on exchanges, see Investing by Exchange under How to Buy Shares and
Redemption and Exchange.

Wealth Builder Option
You may elect to invest in the Funds through regular liquidations of
shares in your accounts in other mutual funds in the Delaware Investments
family. Investments under this feature are exchanges and are therefore subject
to the same conditions and limitations as other exchanges of Fund shares. See
Additional Methods of Adding to Your Investment -- Wealth Builder Option and
Investing by Exchange under How to Buy Shares, and Redemption
and Exchange.

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

9
<PAGE>

Classes of Shares

Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net asset
value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 0.30% (currently no more than 0.25% pursuant to Board approval) of
average daily net assets of such shares. Certain purchases of Class A Shares
qualify for reduced front-end sales charges. See Front-End Sales Charge
Alternative -- Class A Shares, below. See also Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange and Distribution (12b-1) and Service under Management
of the Funds.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales
charge when they are purchased, but are subject to a contingent deferred sales
charge if they are redeemed within six years of purchase. Class B Shares are
subject to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which
are service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of such shares for approximately eight years after purchase. Class B
Shares permit all of the investor's dollars to work from the time the
investment is made. The higher 12b-1 Plan expenses paid by Class B Shares will
cause such shares to have a higher expense ratio and to pay lower dividends
than Class A Shares. At the end of approximately eight years after purchase,
Class B Shares automatically will be converted into Class A Shares and,
thereafter, for the remainder of the life of the investment, the annual 12b-1
Plan fee of up to 0.30% for the Class A Shares will apply. See Automatic
Conversion of Class B Shares, below.

Class C Shares. An investor who elects the level sales charge alternative
acquires Class C Shares, which do not incur a front-end sales charge when they
are purchased, but are subject to a contingent deferred sales charge if they
are redeemed within 12 months of purchase. Class C Shares are subject to annual
12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service fees
to be paid to the Distributor, dealers or others for providing personal service
and/or maintaining shareholder accounts) of average daily net assets of such
shares for the life of the investment. The higher 12b-1 Plan expenses paid by
Class C Shares will cause such shares to have a higher expense ratio and to pay
lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares do
not convert to another class.
The alternative purchase arrangements described above permit investors to
choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and
other relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares
and incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in a Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in a Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized
on the additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will be
realized on such additional money. In addition, the effect of any return earned
on such additional money will diminish over time. In comparing Class B Shares
to Class C Shares, investors should also consider the duration of the annual
12b-1 Plan expenses to which each of the Classes is subject and the
desirability of an automatic conversion feature, which is available only for
Class B Shares.

10
<PAGE>

For the distribution and related services provided to, and the expenses
borne on behalf of, each Fund, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Distribution (12b-1) and Service under Management of the Funds.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time, on the same day
and will be in the same amount, except that the additional amount of 12b-1 Plan
expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Calculation of Offering Price and Net Asset
Value Per Share.
The NASD has adopted certain rules relating to investment company sales
charges. Income Funds, Inc. and the Distributor intend to operate in compliance
with these rules.

Front-End Sales Charge Alternative -- Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

Corporate Bond Fund Class A Shares and
Extended Duration Bond Fund Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Dealer's
Front-End Sales Charge Commission***
as % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
- ----------------------- ---------- ----------------------- --------------
Extended
Corporate Duration
Bond Bond
Fund Fund
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.91% 4.91% 4.00%
$100,000 but under
$250,000 3.75 3.82 3.82 3.00
$250,000 but under
$500,000 2.50 2.55 2.55 2.00
$500,000 but under
$1,000,000* 2.00 2.00 2.00 1.60
</TABLE>

* There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a Limited
CDSC of 1% may apply upon redemption of such shares made during the first
year after purchase and 0.50% may apply upon redemption of such shares
made during the second year after purchase.
** Based upon an initial net asset value of $5.50 per share of Class
A Shares.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
---------------------------------------------------------------------------

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

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which
the Distributor may reallow to dealers up to the full amount of the
front-end sales charge shown above. In addition, certain dealers who enter
into an agreement to provide extra training and information on Delaware
Investments products and services and who increase sales of Delaware
Investments funds may receive an additional commission of up to 0.15% of
the offering price. Dealers who receive 90% or more of the sales charge
may be deemed to be underwriters under the Securities Act of 1933.
---------------------------------------------------------------------------
11
<PAGE>

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

Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
- ------------------------------------ --------------------
Up to $5 million 1.00%
Next $20 million up to $25 million 0.50
Amount over $25 million 0.25

Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after purchase and 0.50% if shares are redeemed
during the second year after purchase.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other funds from Delaware
Investments as to which a Limited CDSC applies may be aggregated with those of
Class A Shares of a Fund. Financial advisers also may be eligible for a
dealer's commission in connection with certain purchases made under a Letter of
Intention or pursuant to an investor's Right of Accumulation. Financial
advisers should contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of combined purchases.

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

Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.

Combined Purchases Privilege

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

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

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

Combined purchases of $1,000,000 or more, including certain purchases made
at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative -- Class A Shares, above.

Allied Plans
Class A Shares are available for purchase by participants in certain
defined contribution plans ("Allied Plans") which are made available under a
joint venture agreement between the Distributor and another institution through
which mutual funds are marketed and which allow investments in Class A Shares
of designated Delaware Investments funds ("eligible Delaware Investments fund
shares"), as well as shares of designated classes of non-Delaware Investments
funds ("eligible non-Delaware Investments fund shares"). Class B Shares and
Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares.

12
<PAGE>

Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible
fund shares, both Delaware Investments and non-Delaware Investments, which were
not subject to a front-end sales charge, will be subject to the applicable
sales charge if exchanged for eligible Delaware Investments fund shares to
which a sales charge applies. No sales charge will apply if the eligible fund
shares were previously acquired through the exchange of eligible shares on
which a sales charge was already paid or through the reinvestment of dividends.
See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated.
The Limited CDSC is applicable to redemptions of net asset value purchases
from an Allied Plan on which a dealer's commission has been paid. Waivers of
the Limited CDSC, as described under Waiver of Limited Contingent Deferred
Sales Charge -- Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.

Buying Class A Shares at Net Asset Value
Class A Shares of a Fund may be purchased at net asset value under the
Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
See The Delaware Difference and Redemption and Exchange for additional
information.

Purchases of Class A Shares may be made at net asset value by current and
former officers, directors and employees (and members of their families) of the
Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase
Class A Shares at net asset value. Moreover, purchases may be effected at net
asset value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special products.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase Institutional Shares of a Fund;
any group retirement plan (excluding defined benefit pension plans), or such
plans of the same employer, for which plan participant records are maintained
on the Retirement Financial Services, Inc. (formerly named Delaware Investment
& Retirement Services, Inc.) proprietary record keeping system that (i) has in
excess of $500,000 of plan assets invested in Class A Shares of Delaware
Investments funds and any stable value account available to investment advisory
clients of the Manager or its affiliate, or (ii) is sponsored by an employer
that has at any point after May 1, 1997 had more than 100 employees while such
plan has held Class A Shares of a Delaware Investments fund and such employer
has properly represented to Retirement Financial Services, Inc. in writing that
it has the requisite number of employees and has received written confirmation
back from Retirement Financial Services, Inc. See Group Investment Plans for
information regarding the applicability of the Limited CDSC.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A
Shares of any of the funds in the Delaware Investments family at net asset
value.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Investments account in connection with loans originated from accounts
previously maintained by another investment firm will also be invested at net
asset value.

13
<PAGE>

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

Group Investment Plans

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

The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Investments funds. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at
Net Asset Value under Redemption and Exchange.
For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.

Deferred Sales Charge Alternative -- Class B Shares

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

Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid to
the Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class
B Shares. Payments to the Distributor and others under the Class B 12b-1 Plan
may be in an amount equal to no more than 1% annually. The combination of the
CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Funds to
sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Prospectus, even after the exchange. Such CDSC schedule may
be higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.

Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business
day of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B
Shares falls on a Conversion Date, an investor's Class B Shares will be
converted on that date. If the eighth anniversary occurs between Conversion
Dates, an investor's Class B Shares will be converted on the next Conversion
Date after such anniversary. Consequently, if a shareholder's eighth
anniversary falls on the day after a Conversion Date, that shareholder will
have to hold Class B Shares for as long as three additional months after the
eighth anniversary of purchase before the shares will automatically convert
into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case of
Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute tax-free
exchanges for federal income tax purposes. See Taxes.

14
<PAGE>

Level Sales Charge Alternative -- Class C Shares

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

Contingent Deferred Sales Charge -- Class B Shares and Class C Shares

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

The following table sets forth the rates of the CDSC for Class B Shares of
the Funds:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
- --------------------------- --------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30%
(currently, no more than 0.25% pursuant to Board action) of average daily net
assets of such shares.
In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge -- Class B and Class C
Shares under Redemption and Exchange.

15
<PAGE>

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

Subject to pending amendments to the NASD's Conduct Rules, in connection
with the promotion of Delaware Investments fund shares, the Distributor may,
from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the SEC. It is likely that the NASD's
Conduct Rules will be amended such that the ability of the Distributor to pay
non-cash compensation as described above will be restricted in some fashion.
The Distributor intends to comply with the NASD's Conduct Rules as they may be
amended.

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

16
<PAGE>

How To Buy Shares

Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under the Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase
of $25. Minimum purchase requirements do not apply to retirement plans other
than IRAs, for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class B
Shares or Class C Shares by the plan.

Each Fund makes it easy to invest through your investment dealer, by mail,
by wire and by exchange.

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

Investing by Mail
1. Initial Purchases--An Investment Application or, in the case of a retirement
plan account, an appropriate retirement plan application, must be completed,
signed and sent with a check payable to the specific Fund and Class selected,
to Delaware Investments at 1818 Market Street, Philadelphia, PA 19103.

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

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

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

2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.

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

17
<PAGE>

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

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

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

1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Income Funds,
Inc. to transfer a designated amount monthly from your checking account to your
Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans or, 403(b)(7) or 457 Deferred
Compensation Plans.

2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone,
annuity payments). Each Fund also accepts preauthorized recurring government
and private payments by Electronic Fund Transfer, which avoids mail time and
check clearing holds on payments such as social security, federal salaries,
Railroad Retirement benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Income Funds, Inc. has the
right to liquidate your shares to reimburse the government or transmitting
bank. If there are insufficient funds in your account, you are obligated to
reimburse the appropriate Fund.

3. MoneyLineSM On Demand
Through the MoneyLineSM On Demand service, you or your investment dealer
may call your Fund to request a transfer of funds from your predesignated bank
account to your Fund account. See MoneyLineSM Services under The Delaware
Difference for additional information about this service.

4. Wealth Builder Option

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

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

18
<PAGE>

5. Dividend Reinvestment Plan

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

Reinvestments of distributions into Class A Shares of a Fund or of other
Delaware Investments funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Investments funds or into Class C Shares of a Fund or of other
Delaware Investments funds are also made without any sales charge and will not
be subject to a CDSC if later redeemed. See Automatic Conversion of Class B
Shares under Classes of Shares for information concerning the automatic
conversion of Class B Shares acquired by reinvesting dividends.

Holders of Class A Shares of a Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Investments
family, including the Funds. Holders of Class B Shares of a Fund may reinvest
their distributions only into Class B Shares of funds that offer that class of
shares. Similarly, holders of Class C Shares of a Fund may reinvest their
distributions only into Class C Shares of Delaware Investments funds that offer
that class of shares. For more information about reinvestments, call the
Shareholder Service Center.

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

Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and Class C
Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The effective date of a purchase is the date the order is received by a
Fund, its agent or designee. The effective date of a direct purchase is the day
your wire, electronic transfer or check is received unless it is received after
the time the offering price or net asset value of shares is determined, as
noted above. Purchase orders received after such time will be effective the
next business day.

The Conditions of Your Purchase

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

Each Fund also reserves the right, following shareholder notification, to
charge a service fee on non-retirement accounts that, as a result of a
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified
of their insufficient account balance and advised that they have until the end
of the current calendar quarter to raise their balance to the stated minimum.
If the account has not reached the minimum balance requirement by that time,
the appropriate Fund will charge a $9 fee for that quarter and each subsequent
calendar quarter until the account is brought up to the minimum balance. The
service fee will be deducted from the account during the first week of each
calendar quarter for the previous quarter, and will be used to help defray the
cost of maintaining low-balance accounts. No fees will be charged without
proper notice, and no CDSC will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.

19
<PAGE>

Redemption and Exchange

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

All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. See Purchase Price and Effective Date under
How to Buy Shares. A shareholder submitting a redemption request may indicate
that he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, and in the case of certain redemptions
from retirement plan accounts, a Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B and Class C
Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.

Except as noted below, for a redemption request to be in "good order," you
must provide your account number, account registration, and the total number of
shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. Each
Fund may suspend, terminate, or amend the terms of the exchange privilege upon
60 days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a
check was tendered as payment, but a Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.

20
<PAGE>

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds available from Delaware
Investments (in each case, "New Shares") in a permitted exchange, will not be
subject to a CDSC that might otherwise be due upon redemption of the Original
Shares. However, such shareholders will continue to be subject to the CDSC and,
in the case of Class B Shares, the automatic conversion schedule of the
Original Shares as described in this Prospectus and any CDSC assessed upon
redemption will be charged by the fund from which the Original Shares were
exchanged. In an exchange of Class B Shares from a Fund, the Fund's CDSC
schedule may be higher than the CDSC schedule relating to the New Shares
acquired as a result of the exchange. For purposes of computing the CDSC that
may be payable upon a disposition of the New Shares, the period of time that an
investor held the Original Shares is added to the period of time that an
investor held the New Shares. With respect to Class B Shares, the automatic
conversion schedule of the Original Shares may be longer than that of the New
Shares. Consequently, an investment in New Shares by exchange may subject an
investor to the higher 12b-1 fees applicable to Class B Shares of a Fund for a
longer period of time than if the investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except for the
CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Funds or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares
redeemed or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by a Fund or its agent.

Written Redemption

You can write to each Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more
than $50,000, or when the proceeds are not sent to the shareholder(s) at the
address of record, each Fund requires a signature by all owners of the account
and a signature guarantee for each owner. A signature guarantee can be obtained
from a commercial bank, a trust company, a member firm of a domestic stock
exchange or a member of a securities transfer association medallion program. A
signature guarantee cannot be provided by a notary public. A signature
guarantee is designed to protect the shareholders, Income Funds, Inc. and its
agents from fraud. The Funds reserve the right to reject a signature guarantee
supplied by an institution based on its creditworthiness. The Funds may require
further documentation from corporations, executors, retirement plans,
administrators, trustees or guardians.

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

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

Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificate(s).
The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in writing that you do not
wish to have such services available with respect to your account. Each Fund
reserves the right to modify, terminate or suspend these procedures upon 60
days' written notice to shareholders. It may be difficult to reach the Funds by
telephone during periods when market or economic conditions lead to an
unusually large volume of telephone requests.

21
<PAGE>

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

Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.

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

MoneyLineSM On Demand
Through the MoneyLineSM On Demand service, you or your investment dealer
may call the Funds to request a transfer of funds from your Fund account to
your predesignated bank account. See MoneyLineSM Services under The Delaware
Difference for additional information about this service.

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

<PAGE>

Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly (or quarterly)
payment. This is particularly useful to shareholders living on fixed incomes,
since it can provide them with a stable supplemental amount. With accounts of
at least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or
more. The Funds do not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLineSM Direct
Deposit Service. Your funds will normally be credited to your bank account up
to four business days after the payment date. There are no separate fees for
this redemption method. See MoneyLine SM Services under The Delaware Difference
for more information about this service.

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

* * *

Shareholders should not purchase additional shares while participating in
a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 2 years prior to the withdrawal and a dealer's commission was paid on
that purchase. See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value, below.

22
<PAGE>

The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or
were acquired through the reinvestment of distributions. The 12% annual limit
will be reset on the date that any Systematic Withdrawal Plan is modified (for
example, a change in the amount selected to be withdrawn or the frequency or
date of withdrawals), based on the balance in the account on that date. See
Waiver of Contingent Deferred Sales Charge -- Class B and Class C Shares,
below.
For more information on Systematic Withdrawal Plans, call the Shareholder
Service Center.

Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more, a Limited CDSC will be imposed on
certain redemptions of Class A Shares (or shares into which such Class A Shares
are exchanged) according to the following schedule: (1) 1.00% if shares are
redeemed during the first year after purchase; and (2) 0.50% if such shares are
redeemed during the second year after purchase, if such purchases were made at
net asset value and triggered the payment by the Distributor of the dealer's
commission described above.

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

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

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

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

23
<PAGE>

Waiver of Contingent Deferred Sales Charge -- Class B and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in connection
with the following redemptions: (i) redemptions that result from a Fund's
right to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than the then-effective minimum account
size; (ii) returns of excess contributions to an IRA, SIMPLE IRA, SEP/IRA or
403(b)(7) or 457 Deferred Compensation Plans; (iii) periodic distributions
from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457 Deferred
Compensation Plan due to death, disability or attainment of age 59 1/2, and
IRA distributions qualifying under Section 72(t) of the Internal Revenue Code;
and (iv) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Code) of all registered owners occurring after the purchase of the shares
being redeemed.

The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in
the account is less than the then-effective minimum account size; (ii) returns
of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Code; (iv)
distributions from a 403(b)(7) or 457 Deferred Compensation Plan, Profit
Sharing Plan, or 401(k) Defined Contribution Plan, under hardship provisions of
the plan; (v) distributions from a 403(b)(7) or 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Pension Plan or a 401(k) Defined
Contribution Plan upon attainment of normal retirement age under the plan or
upon separation from service; (vi) periodic distributions from an IRA or SIMPLE
IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of all registered owners of
the account (in the case of accounts established under the Uniform Gifts to
Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver
applies upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered owners
occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.

24
<PAGE>

Dividends and Distributions

Each Fund declares a dividend to all shareholders of record at the time
the offering price of shares is determined. See Purchase Price and Effective
Date under How to Buy Shares. Thus, when redeeming shares, dividends continue
to be credited up to and including the date of redemption.
Each Fund's dividends are expected to be declared daily and paid monthly.
Distributions from net realized securities profits, if any, will be distributed
twice a year. The first payment normally would be made during the first quarter
of the next fiscal year. The second payment would be made near the end of the
calendar year to comply with certain requirements of the Code.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning
dividends on the date the wire is received. Purchases by check earn dividends
upon conversion to Federal Funds, normally one business day after receipt.
Each class of a Fund will share proportionately in the investment income
and expenses of the Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will
vary due to the expenses under the 12b-1 Plan applicable to each Class.
Generally, the dividends per share on Class B Shares and Class C Shares can be
expected to be lower than the dividends per share on Class A Shares because the
expenses under the 12b-1 Plans relating to Class B and Class C Shares will be
higher than the expenses under the 12b-1 Plan relating to Class A Shares. See
Distribution (12b-1) and Service under Management of the Funds.

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

25
<PAGE>

Taxes

The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the Code.
Because many of these changes are complex, and only indirectly affect the Funds
and their distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As such, a Fund will not be subject to federal income
tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and by satisfying certain other requirements relating to
the sources of its income and diversification of its assets.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, even though received in additional shares.
It is expected that only a nominal portion of a Fund's dividends will be
eligible for the dividends-received deduction for corporations.
Distributions paid by a Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. The Funds do not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a
taxable distribution.

Treatment of Capital Gain Distributions under the Taxpayer Relief Act of 1997

The 1997 Act creates a category of long-term capital gain for individuals
who will be taxed at new lower tax rates. For investors who are in the 28% or
higher federal income tax brackets, these gains will be taxed at a maximum rate
of 20%. For investors who are in the 15% federal income tax bracket, these
gains will be taxed at a maximum rate of 10%. Capital gain distributions will
qualify for these new maximum tax rates, depending on when a Fund's securities
were sold and how long they were held by that Fund before they were sold. The
holding periods for which the new rates apply were revised by the Internal
Revenue Service Restructuring and Reform Act of 1998. Investors who want more
information on holding periods and other qualifying rules relating to these new
rates should review the expanded discussion in Part B, or contact their own tax
advisers.

Income Funds, Inc. will advise you in its annual information reporting at
calendar year end of the amount of its capital gain distributions which will
qualify for these maximum federal tax rates.
Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders
of record on a specified date in one of those months, but which, for
operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by a Fund and received by
the shareholder on December 31 of the calendar year in which they are declared.

26
<PAGE>

The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may
be realized from an ordinary redemption of shares or an exchange of shares
between the Funds and any other fund available from Delaware Investments. Any
loss incurred on a sale or exchange of Fund shares that had been held for six
months or less will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such shares. All or a portion
of the sales charge incurred in acquiring Fund shares will be excluded from the
federal tax basis of any of such shares sold or exchanged within 90 days of
their purchase (for purposes of determining gain or loss upon the sale of such
shares) if the sale proceeds are reinvested in the Funds or in another fund
available from Delaware Investments of funds and a sales charge that would
otherwise apply to the reinvestment is reduced or eliminated. Any portion of
such sales charge excluded from the tax basis of the shares sold will be added
to the tax basis of the shares acquired in the reinvestment.
The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes
of Shares.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
In addition to the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S.
government securities may be exempt from state personal income taxes. Because
investors' state and local taxes may be different than the federal taxes
described above, investors should consult their own tax advisers.
Each year, Income Funds, Inc. will mail to you information on the tax
status of each Fund's dividends and distributions. Shareholders will also
receive each year information as to the portion of dividend income, if any,
that is derived from U.S. government securities that are exempt from state
income tax. Of course, shareholders who are not subject to tax on their income
would not be required to pay tax on amounts distributed to them by a Fund.
Income Funds, Inc. is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Investment Application your
proper Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
See Taxes in Part B for additional information on tax matters relating to
each Fund and its shareholders.

27
<PAGE>

Calculation of Offering Price and Net Asset Value Per Share
The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Income Fund, Inc.'s
Board of Directors. Equity securities for which marked quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Income Funds, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while Class
B Shares and Class C Shares are purchased at the NAV per share. The offering
price per share of Class A Shares consists of the NAV per share next computed
after the order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of regular trading
on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when
the Exchange is open.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in that Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on
a pro-rata basis by each outstanding share of a class, based on each class'
percentage in that Fund represented by the value of shares of such classes,
except that Institutional Shares of each Fund will not incur any of the
expenses under Income Funds, Inc.'s 12b-1 Plans and Class A, Class B and Class
C Shares alone will bear the 12b-1 Plan expenses payable under their respective
12b-1 Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the NAV of each class of a Fund will vary.

28
<PAGE>

Management of the Funds

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

Investment Manager
The Manager furnishes investment management services to each Fund.

The Manager and its predecessors have been managing the funds in Delaware
Investments since 1938. On July 31, 1998, the Manager and its affiliates within
Delaware Investments, including Delaware International Advisers Ltd., were
managing in the aggregate more than $43 billion in assets in the various
institutional or separately managed (approximately $25,873,990,000) and
investment company (approximately $17,929,500,000) accounts.
The Manager is a series of Delaware Management Business Trust. The Manager
is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
("DMH"). DMH is, in turn, a wholly owned subsidiary of Lincoln National
Corporation ("Lincoln National") and is subject to the ultimate control of
Lincoln National. Lincoln National, with headquarters in Fort Wayne, Indiana,
is a diversified organization with operations in many aspects of the financial
services industry, including insurance and investment management.

The Manager manages each Fund's portfolio and makes investment decisions
for each Fund which are implemented by the Fund's Trading Department. The
Manager also administers Income Funds, Inc.'s affairs and pays the salaries of
all the directors, officers and employees of Income Funds, Inc. who are
affiliated with the Manager. For these services, the Manager is paid an annual
fee equal to for Corporate Bond Fund: 0.50% on the first $500 million of
average daily net assets; 0.475% on the next $500 million; 0.45% on the next
$1.5 billion; and 0.425% on the average daily net assets in excess of $2.5
billion and for Extended Duration Bond Fund: 0.55% on the first $500 million of
average daily net assets; 0.50% on the next $500 million; 0.45% on the next
$1.5 billion; and 0.425% on the average daily net assets in excess of $2.5
billion. The directors of Income Funds, Inc. annually review fees paid to the
Manager.
The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Funds and to pay certain expenses of the
Funds to the extent necessary to ensure that the Total Operating Expenses of
each Class of the Funds, excluding each such Class' 12b-1 fees, do not exceed,
on an annual basis, 0.55% of respective average daily net assets from the
commencement of operations through March 31, 1999.

Gary Reed has had primary responsibility for making day-to-day investment
decisions for the Funds since their inception. He holds an AB in Economics from
the University of Chicago and an MA in Economics from Columbia University. He
began his career in 1978 with the Equitable Life Assurance Company in New York
City, where he specialized in credit analysis. Prior to joining Delaware
Investments in 1989, Mr. Reed was Vice President and Manager of the
fixed-income department at Irving Trust Company in New York. Mr. Reed has
managed both discretionary and structured fixed-income portfolios and is
experienced with a broad range of corporate fixed-income securities.
Additionally, he has developed investment programs for decommissioning trust
funds and supervised their management.

The Manager may use its own resources to engage in activities that may
promote the sale of the Funds, including payments to third parties who provide
shareholder support servicing and/or distribution assistance.

Portfolio Trading Practices

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

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

29
<PAGE>

Performance Information
From time to time, each Fund may quote yield or total return performance
of the Classes in advertising and other types of literature.
The current yield for each Class will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.
Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions at net asset value and: (i) in the case
of Class A Shares, the impact of the maximum front-end sales charge at the
beginning of each specified period; and (ii) in the case of Class B Shares and
Class C Shares, the deduction of any applicable CDSC at the end of the relevant
period. Each presentation will include the average annual total return for
one-, five- and ten-year (or life-of-fund, if applicable) periods. Each Fund
may also advertise aggregate and average total return information concerning a
Class over additional periods of time. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC. In this case, such total return
information would be more favorable than total return information that includes
the deductions of the maximum front-end sales charge or any applicable CDSC.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

Distribution (12b-1) and Service

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for each Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated as of September 14, 1998.

Income Funds, Inc. has adopted a separate distribution plan under Rule
12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of the
Funds (the "Plans"). The Plans permit the Fund to which the Plan relates to pay
the Distributor from the assets of the respective Classes a monthly fee for the
Distributor's services and expenses in distributing and promoting sales
of shares.
These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special
promotions for specified periods of time, and paying distribution and
maintenance fees to brokers, dealers and others. In connection with the
promotion of shares of the Classes, the Distributor may, from time to time, pay
to participate in dealer-sponsored seminars and conferences, and reimburse
dealers for expenses incurred in connection with preapproved seminars,
conferences, and advertising. The Distributor may pay or allow additional
promotional incentives to dealers as part of preapproved sales contests and/or
to dealers who provide extra training and information concerning a Class and
increase sales of the Class. In addition, each Fund may make payments from the
12b-1 Plan fees of its respective Classes directly to others, such as banks,
who aid in the distribution of Class shares or provide services in respect of a
Class, pursuant to service agreements with Income Funds, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and Class C
Shares of the Funds are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.
The aggregate fees paid by a Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of the Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of the
average daily net assets of that Fund's Class B Shares and Class C Shares in
any year. The Class A, Class B and Class C Shares will not incur any
distribution expenses beyond these limits, which may not be increased without
shareholder approval.

<PAGE>

Although the maximum fee payable under the Plan relating to Class A Shares
is 0.30% of average daily net assets, the Board of Directors has currently set
the annual fee for the Class at 0.25% of the average daily net assets. The
Board of Directors may increase the fee to the full 0.30% on all Class A
Shares' assets at any time.
While payments, if any, pursuant to the Plans may not exceed 0.30%
annually with respect to Class A Shares, and 1% annually with respect to each
of the Class B Shares and Class C Shares, the Plans do not limit fees to
amounts actually expended by the Distributor. It is therefore possible that the
Distributor may realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will likely equal
or exceed payments to it under the Plans. The Distributor may, however incur
such additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes. The monthly
fees paid to the Distributor under the Plans are subject to the review and
approval of Income Funds, Inc.'s unaffiliated directors, who may reduce the
fees or terminate the Plans at any time.
The Plans do not apply to a Fund's Institutional Shares. Those shares are
not included in calculating the Plans' fees, and the Plans are not used to
assist in the distribution and marketing the Funds' Institutional Shares.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Funds
pursuant to an agreement dated as of September 14, 1998. The Transfer Agent
also provides accounting services to each Fund pursuant to the terms of a
separate Fund Accounting Agreement.

30
<PAGE>

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

* * *

As with other mutual funds, financial and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Income Funds, Inc. is taking steps
to obtain satisfactory assurances that the Funds' major service providers are
taking steps reasonably designed to address the Year 2000 Problem with respect
to the computer systems that such service providers use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of the Funds.
Several European countries are participating in the European Economic and
Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. If a Fund is invested in securities of
participating countries it could be adversely affected if the computer systems
used by its major service providers are not properly prepared to handle the
implementation of this single currency or the adoption of the Euro by
additional countries in the future. Income Funds, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of Funds are
taking steps reasonably designed to address these matters with respect to the
computer systems that such service providers use. There can be no assurances
that these steps will be sufficient to avoid any adverse impact on the business
of the Funds.

Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The ratios of expenses to
average daily net assets are expected to be as follows:

Class A Class B Class C
Shares Shares Shares
--------- --------- ----------
Corporate Bond Fund ................. 0.80% 1.55% 1.55%
Extended Duration Bond Fund ......... 0.80% 1.55% 1.55%

The foregoing ratios reflect the voluntary waivers of fees by the Manager
as well as 12b-1 Plan expenses as described above. These ratios would be higher
if the waivers of fees and payments of expenses were not in effect. See Summary
of Expenses.

Shares
Income Funds, Inc. is an open-end management investment company. Each
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1970. In addition to the Funds, Income Funds, Inc. presently
offers three other series of shares, the High-Yield Opportunities Fund series,
the Delchester Fund series and the Strategic Income Fund series.
Each Fund reserves the right to operate in a "master-feeder" structure,
that is, to invest its assets in another mutual fund with the same investment
objective and substantially similar investment policies as those of the Fund.
Each Fund has no present intention to operate in a master-feeder structure;
however, should the Board of Directors approve the implementation of a
master-feeder structure for a Fund, shareholders will be notified prior to the
implementation of the new structure.
Fund shares have a par value of $1.00, equal voting rights, except as
noted below, and are equal in all other respects.
Income Funds, Inc.'s shares have noncumulative voting rights which means
that the holders of more than 50% of Income Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Maryland law, Income Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act.
In addition to Class A Shares, Class B Shares and Class C Shares, each
Fund also offers Institutional Shares. Shares of each class of a Fund represent
proportionate interests in the assets of that Fund and have the same voting and
other rights and preferences as the other classes of that Fund, except that
Institutional Shares are not subject to, and may not vote on matters affecting,
the Distribution Plans under Rule 12b-1 relating to Class A, Class B and Class
C Shares. Similarly, as a general matter, the shareholders of Class A Shares,
Class B Shares and Class C Shares may vote only on matters affecting the 12b-1
Plan that relates to the class of shares that they hold. However, Class B
Shares of a Fund may vote on any proposal to increase materially the fees to be
paid by a Fund under the Rule 12b-1 Plan relating to Class A Shares.

31
<PAGE>

Other Investment Policies and Risk Considerations

High-Yield, High Risk Securities

Each Fund may invest up to 20% of its net assets in securities rated BB by
S&P or Ba by Moody's, or similarly rated by another nationally-recognized
statistical rating organization or, if unrated (which may be more speculative
in nature than rated bonds), judged to be of comparable quality by the Manager.
If a corporate bond held by a Fund drops below these levels, the Fund will
commence with an orderly sale of the security in a manner devised to minimize
any adverse affect on the Fund. If a sale of the security is not practicable
for any reason, the Fund will pursue other available measures reasonably
anticipated by the Manager to facilitate repayment of the bond. See Appendix
A--Ratings in this Prospectus for more rating information. The discussion in
this section supplements the description of the risks of high-yield securities
found earlier in this Prospectus under Investment Objectives and Policies and
investors should refer to those sections for a further discussion of the risks
of high-yield bonds.

Fixed-income securities of this type are considered to be of poor standing
and predominantly speculative. Such securities are subject to a substantial
degree of credit risk. In the past, the high-yields from these bonds have more
than compensated for their higher default rates. There can be no assurance,
however, that yields will continue to offset default rates on these bonds in
the future. The Manager intends to maintain an adequately diversified portfolio
of these bonds. While diversification can help to reduce the effect of an
individual default on the Funds, there can be no assurance that diversification
will protect a Fund from widespread bond defaults brought about by a sustained
economic downturn.
Medium and low-grade bonds held by the Funds may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also, these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.

The economy and interest rates may affect these high-yield, high risk
securities differently from other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any
security and in the ability of an issuer to make payments of interest and
principal will also ordinarily have a more dramatic effect on the values of
these investments than on the values of higher rated securities. Such changes
in value will not affect cash income derived from these securities, unless the
issuers fail to pay interest or dividends when due. Such changes will, however,
affect each Fund's net asset value per share.

Zero-Coupon Bonds and Pay-In-Kind Bonds
Each Fund may purchase zero-coupon bonds and pay-in-kind ("PIK") bonds. A
zero-coupon bond has no cash coupon payments. Instead, the issuer sells the
security at a substantial discount from its maturity value. The interest
received by the investor from holding this security to maturity is the
difference between the maturity value and the purchase price. The advantage to
the investor is that the reinvestment risk of the income received during the
life of the bond is eliminated. However, zero-coupon bonds, like other bonds,
retain interest rate and credit risk and usually display more price volatility
than securities that pay a cash coupon. Since there are no periodic interest
payments made to the holder of a zero-coupon bond, when interest rates rise,
the value of such a security will fall more dramatically than a bond paying out
interest on a current basis. When interest rates fall, however, zero-coupon
bonds rise more rapidly in value because the bonds have locked in a specific
rate of return which becomes more attractive the further interest rates fall.

32
<PAGE>

PIK bonds are securities that pay interest in either cash or additional
securities, at the issuer's option, for a specified period. PIKs, like
zero-coupon bonds, are designed to give an issuer flexibility in managing cash
flow. PIK bonds can be either senior or subordinated debt and trade flat (i.e.,
without accrued interest). The price of PIK bonds is expected to reflect to the
market value of the underlying debt plus an amount representing accrued
interest since the last payment. PIKs are usually less volatile than
zero-coupon bonds, but more volatile than cash-pay securities. PIK bonds may
provide an attractive yield on a Fund's investment even when the interest paid
is in the form of additional securities of the issuer instead of cash.
Zero-coupon bonds and PIK bonds are generally considered to be more
interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to a Fund. For example, with zero-coupon
bonds, a Fund accrues, and is required to distribute to shareholders, income on
such bonds. However, a Fund may not receive the cash associated with this
income until the bonds are sold or mature. If a Fund did not have sufficient
cash to make the required distribution of accrued income, the Fund could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.

Duration
Most fixed income securities provide interest (coupon) payments in
addition to a final (par) payment at maturity and some also have call
provisions. Depending on the relative magnitude of these payments and the
nature of the call provisions, the market value of fixed income securities may
respond differently to interest rate changes. Traditionally, term to maturity
has been used to measure a fixed income security's sensitivity to interest rate
changes. However, this measure considers only the time until final payment and
takes no account of the pattern of payments prior to maturity.

Duration is a more precise measure of the expected life of a fixed-income
security that combines consideration of yield, coupon interest payments, final
maturity and call features into one measure. Duration takes the length of the
time intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a callable bond, expected
to be received, and weights them by the present values of the cash to be
received at each future point in time. For any fixed-income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other factors being the same, the
lower the stated or coupon rate of interest of a fixed-income security, the
longer the duration of the security; conversely, the higher the stated or
coupon rate of interest of a fixed- income security, the shorter the duration
of the security.
The average duration of a Fund's portfolio provides a measure of a Fund's
interest-rate sensitivity. In general, the longer a Fund's duration, the more
sensitive the Fund is to shifts in interest rates. The relationship between
funds with different durations is straightforward: A fund with a duration of 10
years would be expected to be about twice as volatile as a fund with a
five-year duration. Duration also gives an general indication of how a fund's
NAV will change in response to small interest rate changes. The NAV of a fund
with a 10-year duration would be expected to fall by approximately 10% if
interest rates rose by one percentage point or rise by approximately 10% if
interest rates fell by one percentage point. In addition to a fund's duration,
the size of the interest rate change, the composition and credit quality of its
portfolio and other factors would impact the actual change to the fund's NAV.

33
<PAGE>

Foreign Investment Information
Each Fund may invest up to 15% of its total assets in securities of
foreign issuers, including Yankee Bonds. Investments in obligations of foreign
issuers involve somewhat different investment risks than those affecting
obligations of United States issuers. There is limited publicly available
information with respect to foreign issuers, and foreign issuers are not
subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. There is
also less government supervision and regulation of foreign securities
exchanges, brokers and listed companies than in the United States and it is
more difficult to enforce legal rights outside of the United States. Many
foreign securities markets have substantially less volume than U.S. national
securities exchanges, and securities of some foreign issuers are less liquid
and more volatile than securities of comparable domestic issuers. Settlement
practices of certain foreign countries may include delays and may otherwise
differ from those customary in U.S. markets. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States. It is also expected that the expenses for custodial
arrangements of each Fund's foreign securities will be somewhat greater than
the expenses for the custodial arrangements for U.S. securities of equal value.
Dividends and interest paid by foreign issuers may be subject to withholding
and other foreign taxes. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income a Fund receives from the companies comprising the Fund's
investments. See Taxes. Additional risks include future political and economic
developments, the possibility that a foreign jurisdiction might impose or
change withholding taxes on income payable with respect to foreign securities,
possible seizure, nationalization or expropriation of the foreign issuer or
foreign deposits and the possible adoption of foreign government restrictions
such as exchange controls. Also, because stocks of foreign companies are
normally denominated in foreign currencies, a Fund may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations, and
may incur costs in connection with conversions between various currencies.
The risks noted above often are heightened for investments in emerging or
developing countries. Compared to the United States and other developed
countries, emerging or developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. Prices on these exchanges tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Further, investments by foreign investors are subject to a
variety of restrictions in many emerging or developing countries. These
restrictions may take the form of prior governmental approval, limits on the
amount or type of securities held by foreigners, and limits on the type of
companies in which foreigners may invest. Additional restrictions may be
imposed at any time by these or other countries in which the Funds invest. In
addition, the repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain regulations,
including in some cases the need for certain government consents. Although
these restrictions may in the future make it undesirable to invest in emerging
or developing countries, the Manager does not believe that any current
repatriation restrictions would affect each Fund's decision to invest in such
countries.

34
<PAGE>

U.S. Government Securities
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by federal agencies and U.S.
government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, investors in such securities
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the United States itself in the event the agency or instrumentality
does not meet its commitment. Agencies which are backed by the full faith and
credit of the United States include the Export-Import Bank, Farmers Home
Administration, Federal Financing Bank, and others. Certain agencies and
instrumentalities, such as the Government National Mortgage Association
("GNMA"), are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service its debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Fannie Mae (formerly, the Federal National Mortgage Association), are
not guaranteed by the United States, but those institutions are protected by
the discretionary authority for the U.S. Treasury to purchase certain amounts
of their securities to assist the institutions in meeting their debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System, Tennessee Valley Authority and the Federal Home Loan Mortgage
Corporation, are federally chartered institutions under U.S. government
supervision, but their debt securities are backed only by the creditworthiness
of those institutions, not the U.S. government.
An instrumentality of a U.S. government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks and Fannie Mae.

Short-Term Investments
The short-term investments in which each Fund may invest are:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by the
Funds, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of the total assets of a Fund. Certificates of deposit
are negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A Fund will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion or, in the case of a bank
which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating
by a nationally-recognized statistical rating organization;
(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
the Manager;
(3) Short-term corporate obligations with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by the
Manager;
(4) U.S. government securities (see U.S. Government Securities, above);
and
(5) Repurchase agreements collateralized by securities listed above.

35
<PAGE>

Repurchase Agreements

In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., a Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time
and set price, thereby determining the yield during the purchaser's holding
period. Generally, repurchase agreements are of short duration, often less than
one week but on occasion for longer periods. Not more than 15% of a Fund's
assets may be invested in illiquid securities, of which no more than 10% may be
invested in repurchase agreements of over seven days' maturity. Should an
issuer of a repurchase agreement fail to repurchase the underlying security,
the loss to a Fund, if any, would be the difference between the repurchase
price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which the Manager under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, each Fund must have collateral of
at least 102% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.

Restricted/Illiquid Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the 1933 Act. Rule 144A exempts many privately placed and
legally restricted securities from the registration requirements of the 1933
Act and permits such securities to be freely traded among certain institutional
buyers such as the Funds.
Each Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.
While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day functions of determining whether or not individual Rule
144A Securities are liquid for purposes of a Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed a Fund's 15% limit on investment in such
securities, the Manager will determine what action shall be
taken to ensure that the Fund continues to adhere to such limitation.

Unseasoned Companies
Each Fund may invest in relatively new or unseasoned companies which are
in their early stages of development, or small companies positioned in new and
emerging industries where the opportunity for rapid growth is expected to be
above average. Securities of unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which each
Fund may invest may have relatively small revenues, limited product lines, and
may have a small share of the market for their products or services. Small
companies may lack depth of management, they may be unable to internally
generate funds necessary for growth or potential development or to generate
such funds through external financing or favorable terms, or they may be
developing or marketing new products or services for which markets are not yet
established and may never become established. Due these and other factors,
small companies may suffer significant losses as well as realize substantial
growth, and investments in such companies tend to be volatile and are therefore
speculative.

Borrowing from Banks
Each Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. A Fund will not borrow money in excess
of one-third of the value of its net assets. Each Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of a Fund's
net assets, asset coverage of at least 300% is required. In the event that such
asset coverage shall at any time fall below 300%, a Fund shall, within three
days thereafter (not including Sundays or holidays, or such longer period as
the Securities and Exchange Commission may prescribe by rules and regulations),
reduce the amount of its borrowings to such an extent that the asset coverage
of such borrowings shall be at least 300%. Each Fund will not pledge more than
10% of its net assets, or issue senior securities as defined in the 1940 Act,
except for notes to banks. Investment securities will not be purchased by a
Fund while the Fund has an outstanding borrowing.

36
<PAGE>

Appendix A -- Ratings

Each Fund's assets may be invested in corporate bonds that may be rated BB
by S&P or Ba by Moody's, or similarly rated by another nationally-recognized
statistical rating organization or that may be unrated. These credit ratings
evaluate only the safety of principal and interest and do not consider the
market value risk associated with high-yield securities.

General Rating Information

Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal
and interest; AA--also qualify as high grade obligations, and in the majority
of instances differ from AAA issues only in a small degree; A--strong ability
to pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest
and repay principal; BB, B, CCC, CC-- regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.

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

37
<PAGE>

Delaware Investments offer funds
with a wide range of investment objectives.
Stock funds, income funds, national and
state-specific tax-exempt funds, money market
funds, global and international funds and
closed-end funds give investors the ability to
create a portfolio that fits their personal
financial goals. For more information,
contact your financial adviser or call
Delaware Investments at 800-523-1918.

Investment Manager
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

National Distributor
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

Shareholder Servicing,
Dividend Disbursing,
Accounting Services
and Transfer Agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

Legal Counsel
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

Independent Auditors
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

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

DELAWARE
INVESTMENTS
- -----------
Philadelphia o London

www.delawarefunds.com

[Recycle Printed in the U.S.A. on recycled paper.
Logo] P-460[--] PP9/98

<PAGE>

September 14, 1998

Corporate Bond Fund Institutional Class
Extended Duration Bond Fund Institutional Class

Supplement to Prospectus dated September 14, 1998

The following supplements the categories of eligible purchasers of Institutional
Class shares in the section of the Prospectus entitled Classes of Shares:

Shares of the Classes are available for purchase by clients of brokers or
dealers, if such broker or dealer has entered into an agreement with the
Distributor providing specifically for the purchase of shares of the Classes in
connection with special investment products, such as wrap accounts or similar
fee based programs. Investors may be charged a fee when effecting transactions
in shares of the Classes through a broker or agent that offers these special
products.

<PAGE>

CORPORATE BOND FUND
EXTENDED DURATION BOND FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES SEPTEMBER 14, 1998

-------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103

For more information about Corporate Bond Fund Institutional Class or
Extended Duration Bond Fund Institutional Class call Delaware Investments at
800-828-5052.

This Prospectus describes shares of Delaware Corporate Bond Fund series
and Extended Duration Bond Fund series (together, the "Funds") of Delaware
Group Income Funds, Inc. ("Income Funds, Inc."), a professionally-managed
mutual fund of the series type. The investment objective of each Fund is to
seek to provide investors with total return.

Each Fund offers an Institutional Class, which is referred to individually
as a "Class" and together as the "Classes."

This Prospectus sets forth information that you should read and consider
before you invest. Please retain it for future reference. The Funds' Statement
of Additional Information ("Part B" of Income Funds, Inc.'s registration
statement) dated September 14, 1998, as it may be amended from time to time,
contains additional information about the Funds and has been filed with the
Securities and Exchange Commission (the "SEC"). Part B is incorporated by
reference into this Prospectus and is available, without charge, by writing to
Delaware Distributors, L.P. at the above address or by calling the above
telephone numbers. The SEC also maintains a Web site (http://www.sec.gov) that
contains Part B, material incorporated by reference into Income Funds, Inc.'s
registration statement, and other information regarding registrants that
electronically file with the SEC. The Funds' financial statements, when
available, will appear in their Annual Report, which will accompany any
response to requests for Part B.

Each Fund also offers Class A Shares, Class B Shares and Class C Shares.
Shares of these classes are subject to sales charges and other expenses, which
may affect their performance. A prospectus for these classes can be obtained by
writing to Delaware Distributors, L.P. at the above address or by calling
800-523-1918.

TABLE OF CONTENTS
Cover Page........................................................ 1
Synopsis.......................................................... 2
Summary of Expenses............................................... 3
Investment Objectives and Policies................................ 4
Suitability..................................................... 4
Investment Strategy............................................. 4
Risk Factors...................................................... 5
Classes of Shares................................................. 6
How to Buy Shares................................................. 7
Redemption and Exchange........................................... 8
Dividends and Distributions....................................... 10
Taxes............................................................. 11
Calculation of Net Asset Value Per Share.......................... 12
Management of the Funds........................................... 13
Other Investment Policies and Risk Considerations................. 16
Appendix A--Ratings............................................... 22

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, ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
SHARES OF THE FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.

<PAGE>

SYNOPSIS
Investment Objectives
The investment objective of each Fund is to seek to provide investors
with total return. Each Fund seeks to achieve its objective by investing
primarily in corporate bonds rated at least BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or
similarly rated by another nationally-recognized statistical rating
organization, or, if unrated (which may be more speculative in nature than
rated bonds), judged to be of comparable quality by the Manager (as defined
below). The average duration of the Corporate Bond Fund is expected to be
between 4 and 7 years and that of the Extended Duration Bond Fund is expected
to be between 8 and 11 years. Each Fund may also invest in U.S. and foreign
government securities and commercial paper. For further details, see
Investment Objectives and Policies, Risk Factors and Other Investment Policies
and Risk Considerations.

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

Purchase Price
Shares of the Class for each Fund offered by this Prospectus are available
at net asset value, without a front-end or contingent deferred sales charge,
and are not subject to distribution fees under a Rule 12b-1 distribution plan.
See Classes of Shares.

Redemption and Exchange
Shares of the Class of each Fund are redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
See Redemption and Exchange.

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

<PAGE>
SUMMARY OF EXPENSES

Corporate Extended
Bond Duration
Fund Fund
Institutional Institutional
Shareholder Transaction Expenses Class Class
- ----------------------------------------------------------------------------
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price) .................................. None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) ...................... None None
Exchange Fees(1) .......................... None None

Corporate Extended
Bond Duration
Annual Operating Expenses Fund Fund
(as a percentage of Institutional Institutional
average daily net assets) Class Class
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees (after voluntary waivers). 0.04%(2) 0.06%(2)
12b-1 Fees ................................ None None
Other Operating Expenses .................. 0.51%(2) 0.49%(2)
------ ------
Total Operating Expenses (after
voluntary waivers) .................. 0.55%(2) 0.55%(2)
====== ======

</TABLE>

(1) Exchanges are subject to the requirements of each Fund and a front-end sales
charge may apply.
(2) Total Operating Expenses and Other Operating Expenses for each Class are
based on estimated amounts for the first full fiscal year of the Classes, after
giving effect to the voluntary expense waivers and payments. The Manager has
elected voluntarily to waive that portion, if any, of the annual management
fees payable by each Fund and to pay each Fund's expenses to the extent
necessary to ensure that the "Total Operating Expenses" of a Fund do not exceed
0.55% for each Fund on an annualized basis from the commencement of operations
through March 31, 1999. If the voluntary fee waivers and expense payments by
the Manager through March 31, 1999 were not in effect, it is estimated that for
the first full year, the Total Operating Expenses, as a percentage of average
daily net assets, would be 1.01% for the Corporate Bond Fund, including other
operating expenses of 0.51% and management fees of 0.50%; and 1.04% for
Extended Duration Bond Fund, including other operating expenses of 0.49% and
management fees of 0.55%. See Management of the Funds.

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

The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, and (2) redemption at the end of each time period. The Funds charge
no redemption fees. The following example assumes the voluntary waiver of fees
by the Manager as discussed in this Prospectus.

1 year 3 years
--------- ----------
Corporate Bond Fund Institutional Class $6 $18

1 year 3 years
--------- ----------
Extended Duration Bond Fund Institutional Class $6 $18

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

The purpose of the above tables is to assist investors in understanding
the various costs and expenses they will bear directly or indirectly in owning
shares of a Fund.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to seek total return. Each Fund
seeks to achieve its objective by investing primarily in corporate bonds rated
BBB or higher by S&P or Baa or higher by Moody's, or similarly rated by another
nationally-recognized statistical rating organization or, if unrated (which may
be more speculative in nature than rated bonds), judged to be of comparable
quality by the Manager. See Appendix A -- Ratings for more rating information.
Each Fund's investment objective is non-fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to a material change in a
Fund's objective.

SUITABILITY
Each Fund may be suitable for the investor interested in total return and
the Manager's primary focus in selecting securities for each Fund will be total
return. Investors in each Fund should be willing to accept the risks associated
with investments in fixed-income securities.
The net asset value per share of each Class may fluctuate in response to
the condition of individual companies and general market and economic
conditions and, as a result, the Funds are not appropriate for a short-term
investor. The Funds cannot assure a specific rate of return or yield, or that
principal will be protected. However, through the cautious selection and
supervision of its portfolio, the Manager will strive to achieve each Fund's
objective.
Naturally, the Funds cannot assure a specific rate of return or that
principal will be protected. The value of each Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, of course, decline. For this reason,
neither Fund is appropriate for short-term investors. However, through the
cautious selection and supervision of its portfolio, each Fund will strive to
achieve its objective set forth above.
Investors should not consider a purchase of Fund shares as equivalent to a
complete investment program. Delaware Investments offers a family of funds,
generally available through registered investment dealers, which may be used
together to create a more complete investment program.

Ownership of Fund shares can reduce the bookkeeping and administrative
inconvenience which is typically connected with direct purchases of the types
of securities in which each Fund invests.

INVESTMENT STRATEGY
Each Fund will invest at least 65% of its assets at the time of purchase
in investment grade corporate bonds, that is corporate bonds rated BBB or
higher by S&P or Baa or higher by Moody's, or similarly rated by another
nationally-recognized statistical rating organization, or if unrated, judged to
be of comparable quality by the Manager.
The Corporate Bond Fund will seek to maintain an average duration of
between 4 and 7 years and the Extended Duration Bond Fund will seek to maintain
an average duration of between 8 and 11 years. Duration is a measure of the
expected life of a fixed-income security on a present value basis that was
developed as a more precise alternative to the concept of term-to-maturity. See
Other Investment Policies and Risk Considerations for a discussion of duration.
Each Fund may also invest in securities of, or guaranteed by, the U.S. and
foreign governments, their agencies or instrumentalities and commercial paper
of companies having, at the time of purchase, an issue of outstanding debt
securities rated as described above or commercial paper rated A-1 or A-2 by S&P
or rated P-1 or P-2 by Moody's or, if unrated, judged to be of comparable
quality by the Manager.
Each Fund may acquire zero-coupon bonds and, to a lesser extent,
pay-in-kind (PIK) bonds. See Zero-Coupon Bonds and Pay-In-Kind Bonds under
Other Investment Policies and Risk Considerations. Each Fund may also invest in
other types of income-producing securities, including common stocks and
preferred stocks, some of which may have convertible features or attached
warrants and which may be speculative. See Convertible, Debt and
Non-Traditional Equity Securities under Other Investment Policies and Risk
Considerations.
Each Fund may purchase privately-placed debt and other securities the
resale of which is restricted under applicable securities laws. Such securities
may be less liquid than securities that are not subject to resale restrictions.
Each Fund will not purchase illiquid assets, if more than 15% of its net assets
would consist of such illiquid securities. See Restricted/Illiquid Securities
under Other Investment Policies and Risk Considerations.
Each Fund may invest up to 15% of its total assets in securities of
issuers domiciled in foreign countries. See Foreign Investment Information
under Other Investment Policies and Risk Considerations.

4
<PAGE>

<PAGE>

CLASSES OF SHARES

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

Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees considering purchasing shares of the Class
as part of their retirement program should contact their employer for details.

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

Class A Shares, Class B Shares and Class C Shares
In addition to offering Institutional Class shares, each Fund also offers
Class A Shares, Class B Shares and Class C Shares, which are described in a
separate prospectus. The Class A, Class B and Class C Shares of each Fund may
be purchased through authorized investment dealers or directly by contacting
the Funds or their Distributor. Class A Shares, Class B Shares and Class C
Shares of each Fund may have different sales charges and other expenses which
may affect performance. To obtain a prospectus relating to such classes,
contact the Distributor by writing to the address or by calling the phone
numbers listed on page 1 of this Prospectus.

<PAGE>

HOW TO BUY SHARES

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

Investing Directly by Mail

1. Initial Purchases -- An Investment Application, or in the case of a
retirement plan account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to the specific Fund and Class
selected, to Delaware Investments at 1818 Market Street, Philadelphia, PA
19103.

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

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

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

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

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

Purchase Price and Effective Date
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.
The effective date of a purchase made through an investment dealer is the
date the order is received by the appropriate Fund, its agent or designee. The
effective date of a direct purchase is the day your wire, electronic transfer
or check is received, unless it is received after the time the share price is
determined, as noted above. Purchase orders received after such time will be
effective the next business day.

The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a purchase
is canceled because your check is returned unpaid, you are responsible for any
loss incurred. Each Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making future purchases in
any of the funds available from Delaware Investments. Each Fund reserves the
right to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of
redemptions.

<PAGE>

REDEMPTION AND EXCHANGE

Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.
Your shares will be redeemed or exchanged based on the net asset value
next determined after a Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined, as noted above, will be processed on the
next business day. See Purchase Price and Effective Date under How to Buy
Shares. Except as otherwise noted below, for a redemption request to be in
"good order," you must provide your Class account number, account registration,
and the total number of shares or dollar amount of the transaction. With regard
to exchanges, you must also provide the name of the fund you want to receive
the proceeds. Exchange instructions and redemption requests must be signed by
the record owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Funds at 800-828-5052. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.

Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a
check was tendered as payment, but a Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
Shares of a Class may be exchanged into any other Delaware Investments
mutual fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and
(2) the shares of the fund being acquired are in a state where that fund is
registered. If exchanges are made into other shares that are eligible for
purchase only by those permitted to purchase shares of the Class, such exchange
will be exchanged at net asset value. Shares of the Classes may not be
exchanged into Class B Shares or Class C Shares of any of the funds available
from Delaware Investments. Each Fund may suspend, terminate or amend the terms
of the exchange privilege upon 60 days' written notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by a Fund or the Distributor for redeeming or exchanging your shares,
although in the case of an exchange, a sales charge may apply. You may also
have your investment dealer arrange to have your shares redeemed or exchanged.
Your investment dealer may charge for
this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by a Fund or its agent.

<PAGE>

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

For redemptions of more than $50,000, or when the proceeds are not sent
to the shareholder(s) at the address of record, each Fund requires a signature
by all owners of the account and a signature guarantee for each owner. A
signature guarantee can be obtained from a commercial bank, a trust company, a
member firm of a domestic stock exchange or a member of a securities transfer
association medallion program. A signature guarantee cannot be provided by a
notary public. A signature guarantee is designed to protect the shareholders,
Income Funds, Inc. and its agents from fraud. Each Fund reserves the right to
reject a signature guarantee supplied by an institution based on its
creditworthiness. Each Fund may require further documentation from
corporations, executors, retirement plans, administrators, trustees or
guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.

Telephone Redemption and Exchange

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

The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are
automatically provided unless you notify your Fund in writing that you do not
wish to have such services available with respect to your account. Each Fund
reserves the right to modify, terminate or suspend these procedures upon 60
days' written notice to shareholders. It may be difficult to reach the Funds by
telephone during periods when market or economic conditions lead to an
unusually large volume of telephone requests.
Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone
are genuine (including verification of a form of personal identification) as,
if it does not, that Fund or the Transfer Agent may be liable for any losses
due to unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being
exchanged.

9
<PAGE>

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

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

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

DIVIDENDS AND DISTRIBUTIONS

Each Fund declares a dividend to all shareholders of record at the time
the offering price of shares is determined. See Purchase Price and Effective
Date under How to Buy Shares. Thus, when redeeming shares, dividends continue
to be credited up to and including the date of redemption.
Purchases of Fund shares by wire begin earning dividends when converted
into Federal Funds and available for investment, normally the next business day
after receipt. However, if a Fund is given prior notice of Federal Funds wire
and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning
dividends on the date the wire is received. Purchases by check earn dividends
upon conversion to Federal Funds, normally one business day after receipt.
Each class of a Fund will share proportionately in the investment income
and expenses of that Fund, except that the Classes will not incur distribution
fees under the Rule 12b-1 Plans which apply to the Class A Shares, Class B
Shares and Class C Shares of the Funds.
Each Fund's dividends are expected to be declared daily and paid monthly.
Distributions from net realized securities profits, if any, will be distributed
twice a year. The first payment normally would be made during the first quarter
of the next fiscal year. The second payment would be made near the end of the
calendar year to comply with certain requirements of the Code. Both dividends
and distributions are automatically reinvested in your account at net
asset value.

<PAGE>

TAXES

The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in a Fund.
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the Code.
Because many of these changes are complex, and only indirectly affect the Funds
and their distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As such, each Fund will not be subject to federal
income tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and by satisfying certain other requirements relating to
the sources of its income and diversification of its assets.
Each Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, even though received in additional shares.
It is expected that only a nominal portion of a Fund's dividends will be
eligible for the dividends-received deduction for corporations.
Distributions paid by a Fund from long-term capital gains, received in
additional shares, are taxable to those investors who are subject to income
taxes as long-term capital gains, regardless of the length of time an investor
has owned shares in the Fund. The Funds do not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a by-product
of Fund management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in a Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of the
investment will be returned as a taxable distribution.

Treatment of Capital Gain Distributions under the Taxpayer Relief Act of 1997

11
<PAGE>

In addition to the federal taxes described above, shareholders may or may
not be subject to various state and local taxes. For example, distributions of
interest income and capital gains realized from certain types of U.S.
government securities may be exempt from state personal income taxes. Because
investors' state and local taxes may be different than the federal taxes
described above, investors should consult their own tax advisers.
Each year, Income Funds, Inc. will mail to you information on the tax
status of each Fund's dividends and distributions. Shareholders will also
receive each year information as to the portion of dividend income, if any,
that is derived from U.S. government securities that are exempt from state
income tax. Of course, shareholders who are not subject to tax on their income
would not be required to pay tax on amounts distributed to them by a Fund.
Income Funds, Inc. is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Investment Application your
proper Taxpayer Identification Number and by certifying that you are not
subject to backup withholding.
See Taxes in Part B for additional information on tax matters relating to
a Fund and its shareholders.

CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of a Class is the net asset value
("NAV") per share of the Class shares next computed after the order is
received. The NAV is computed as of the close of regular trading on the New
York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the
Exchange is open.
The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Income Fund, Inc.'s
Board of Directors. Equity securities for which market quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Income Funds, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on
a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under the Income
Funds, Inc.'s 12b-1 Plans and the Class A Shares, Class B Shares and Class C
Shares of each Fund alone will bear the 12b-1 Plan fees payable under their
respective Plans.

<PAGE>

MANAGEMENT OF THE FUNDS

Investment Manager
The Manager furnishes investment management services to the Funds.

The Manager and its predecessors have been managing the funds in Delaware
Investments since 1938. On July 31, 1998, the Manager and its affiliates within
Delaware Investments, including Delaware International Advisers Ltd., were
managing in the aggregate more than $43 billion in assets in the various
institutional or separately managed (approximately $25,873,990,000) and
investment company (approximately $17,929,500,000) accounts.
The Manager is a series of Delaware Management Business Trust. The Manager
is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.
("DMH"). DMH is, in turn, a wholly owned subsidiary of Lincoln National
Corporation ("Lincoln National") and is subject to the ultimate control of
Lincoln National. Lincoln National, with headquarters in Fort Wayne, Indiana,
is a diversified organization with operations in many aspects of the
financial services industry, including insurance and investment management.

The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Funds and to pay certain expenses of the
Funds to the extent necessary to ensure that the Total Operating Expenses of
each Class do not exceed, on an annual basis, 0.55% of respective average daily
net assets from the commencement of operations through March 31, 1999.

Gary Reed has had primary responsibility for making day-to-day investment
decisions for the Funds since their inception. He holds an AB in Economics
from the University of Chicago and an MA in Economics from Columbia
University. He began his career in 1978 with the Equitable Life Assurance
Company in New York City, where he specialized in credit analysis. Prior to
joining the Delaware Investments in 1989, Mr. Reed was Vice President and
Manager of the fixed-income department at Irving Trust Company in New York.
Mr. Reed has managed both discretionary and structured fixed-income portfolios
and is experienced with a broad range of corporate fixed-income securities.
Additionally, he has developed investment programs for decommissioning trust
funds and supervised their management.

Portfolio Trading Practices

<PAGE>

Performance Information
From time to time, each Fund may quote yield or total return performance
of its Class in advertising and other types of literature.
The current yield for the Class of a Fund will be calculated by dividing
the annualized net investment income earned by the Class during a recent 30-day
period by the net asset value per share on the last day of the period. The
yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period.
Total return will be based on a hypothetical $1,000 investment, reflecting
the reinvestment of all distributions. Each presentation will include the
average annual total return for one-, five- and ten-year (or life-of-fund, if
applicable) periods. Each Fund may also advertise aggregate and average total
return information concerning its Class over additional periods of time.
Because securities prices fluctuate, investment results of the Classes
will fluctuate over time. Past performance should not be considered as a
representation of future results.

Distribution and Service

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a separate Distribution Agreement with
Income Funds, Inc. dated as of September 14, 1998. The Distributor bears all of
the costs of promotion and distribution.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for Income Funds,
Inc. under an amended and restated agreement dated as of September 14, 1998.
The Transfer Agent also provides accounting services to the Funds pursuant to
the terms of a separate Fund Accounting Agreement. Certain recordkeeping
services and other shareholder services that otherwise would be performed by
the Transfer Agent may be performed by certain other entities and the Transfer
Agent may elect to enter into an agreement to pay such other entities for their
services. In addition, participant account maintenance fees may be assessed for
certain recordkeeping provided as part of retirement plan and administration
service packages. These fees are based on the number of participants in the
plan and the various services selected. Fees will be quoted upon request and
are subject to change.
The directors of Income Funds, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

* * *
As with other mutual funds, financial and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Income Funds, Inc. is taking steps
to obtain satisfactory assurances that the Funds' major service providers are
taking steps reasonably designed to address the Year 2000 Problem with respect
to the computer systems that such service providers use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of the Funds.

<PAGE>

Several European countries are participating in the European Economic and
Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. If a Fund is invested in securities of
participating countries it could be adversely affected if the computer systems
used by its major service providers are not properly prepared to handle the
implementation of this single currency or the adoption of the Euro by
additional countries in the future. Income Funds, Inc. is taking steps to
obtain satisfactory assurances that the major service providers of Funds are
taking steps reasonably designed to address these matters with respect to the
computer systems that such service providers use. There can be no assurances
that these steps will be sufficient to avoid any adverse impact on the business
of the Funds.

Expenses

Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The ratio of operating
expenses to average daily net assets for each Class is expected to equal 0.55%
on an annual basis. The ratio for each Class reflects the voluntary waiver of
fees by the Manager as described above.

Shares
Income Funds, Inc. is an open-end management investment company. Each
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Income Funds, Inc. was organized as a Maryland
corporation on March 4, 1983 and was previously organized as a Delaware
corporation in 1970. In addition to the Funds, Income Funds, Inc. presently
offers three other series of shares, the High-Yield Opportunities Fund series,
the Delchester Fund series and the Strategic Income Fund series.
Each Fund reserves the right to operate in a "master-feeder" structure,
that is, to invest its assets in another mutual fund with the same investment
objective and substantially similar investment policies as those of the Fund.
Each Fund has no present intention to operate in a master-feeder structure;
however, should the Board of Directors approve the implementation of a
master-feeder structure for a Fund, shareholders will be notified prior to the
implementation of the new structure.
Fund shares have a par value of $1.00, equal voting rights, except as
noted below, and are equal in all other respects.
Income Funds, Inc.'s shares have noncumulative voting rights which means
that the holders of more than 50% of Income Funds, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Maryland law, Income Funds, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act.
Each Fund also offers Class A Shares, Class B Shares and Class C Shares.
Shares of those classes represent proportionate interests in the assets of the
respective Fund and have the same voting and other rights and preferences as
the Class, except that shares of the Class are not subject to, and may not vote
on matters affecting, the Distribution Plans under Rule 12b-1 relating to the
Class A Shares, Class B Shares and Class C Shares of the Funds.

<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
High-Yield, High Risk Securities

<PAGE>

PIK bonds are securities that pay interest in either cash or additional
securities, at the issuer's option, for a specified period. PIKs, like
zero-coupon bonds, are designed to give an issuer flexibility in managing cash
flow. PIK bonds can be either senior or subordinated debt and trade flat (i.e.,
without accrued interest). The price of PIK bonds is expected to reflect to the
market value of the underlying debt plus an amount representing accrued
interest since the last payment. PIKs are usually less volatile than
zero-coupon bonds, but more volatile than cash-pay securities. PIK bonds may
provide an attractive yield on a Fund's investment even when the interest paid
is in the form of additional securities of the issuer instead of cash.
Zero-coupon bonds and PIK bonds are generally considered to be more
interest-sensitive than income bearing bonds, to be more speculative than
interest-bearing bonds, and to have certain tax consequences which could, under
certain circumstances, be adverse to a Fund. For example, with zero-coupon
bonds, a Fund accrues, and is required to distribute to shareholders, income on
such bonds, However, a Fund may not receive the cash associated with this
income until the bonds are sold or mature. If a Fund did not have sufficient
cash to make the required distribution of accrued income, the Fund could be
required to sell other securities in its portfolio or to borrow to generate the
cash required.

Duration
Most fixed income securities provide interest (coupon) payments in
addition to a final (par) payment at maturity and some also have call
provisions. Depending on the relative magnitude of these payments and the
nature of the call provisions, the market value of fixed income securities may
respond differently to interest rate changes. Traditionally, term to maturity
has been used to measure a fixed-income security's sensitivity to interest rate
changes. However, this measure considers only the time until final payment and
takes no account of the pattern of payments prior to maturity.

Duration is a more precise measure of the expected life of a fixed income
security that combines consideration of yield, coupon interest payments, final
maturity and call features into one measure. Duration takes the length of the
time intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a callable bond, expected
to be received, and weights them by the present values of the cash to be
received at each future point in time. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other factors being the same, the
lower the stated or coupon rate of interest of a fixed- income security, the
longer the duration of the security; conversely, the higher the stated or
coupon rate of interest of a fixed-income security, the shorter the duration of
the security.
The average duration of a Fund's portfolio provides a measure of a Fund's
interest-rate sensitivity. In general, the longer a Fund's duration, the more
sensitive the Fund is to shifts in interest rates. The relationship between
funds with different durations is straightforward: A fund with a duration of 10
years would be expected to be about twice as volatile as a fund with a
five-year duration. Duration also gives an general indication of how a fund's
NAV will change in response to small interest rate changes. The NAV of a fund
with a ten-year duration would be expected to fall by approximately 10% if
interest rates rose by one percentage point or rise by approximately 10% if
interest rates fell by one percentage point. In addition to a fund's duration,
the size of the interest rate change, the composition and credit quality of its
portfolio and other factors would impact the actual change to the fund's NAV.

<PAGE>

The risks noted above often are heightened for investments in emerging or
developing countries. Compared to the United States and other developed
countries, emerging or developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities. Prices on these exchanges tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Further, investments by foreign investors are subject to a
variety of restrictions in many emerging or developing countries. These
restrictions may take the form of prior governmental approval, limits on the
amount or type of securities held by foreigners, and limits on the type of
companies in which foreigners may invest. Additional restrictions may be
imposed at any time by these or other countries in which the Funds invest. In
addition, the repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain regulations,
including in some cases the need for certain government consents. Although
these restrictions may in the future make it undesirable to invest in emerging
or developing countries, the Manager does not believe that any current
repatriation restrictions would affect each Fund's decision to invest in such
countries.

<PAGE>

Repurchase Agreements

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed a Fund's 15% limit on investment in such
securities, the Manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.

<PAGE>

APPENDIX A--RATINGS

General Rating Information

Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--
considered as medium grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time;
Ba--judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.

<PAGE>

[GRAPHIC OMITTED]

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

Investment Manager
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

National Distributor
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

Shareholder Servicing,
Dividend Disbursing,
Accounting Services
and Transfer Agent
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

Legal Counsel
Stradley, Ronon, Stevens
& Young, LLP
One Commerce Square
Philadelphia, PA 19103

Independent Auditors
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

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

www.delawarefunds.com

[Recycle Printed in the U.S.A. on recycled paper.
Logo] P-463[- -] PP9/98

<PAGE>

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

CORPORATE
BOND FUND
INSTITUTIONAL

EXTENDED
DURATION
BOND FUND
INSTITUTIONAL

----------------------------
P r o s p e c t u s

September 14, 1998

DELAWARE
INVESTMENTS
- -----------
Philadelphia o London

<PAGE>

Delaware Investments offers funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
funds, money market funds, global and international funds and closed-end funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes should
contact their financial adviser or call Delaware Investments at 800-523-1918,
and shareholders of the Institutional Class should contact Delaware Investments
at 800-828-5052.

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

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

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

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

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

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

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

DELAWARE GROUP INCOME FUNDS, INC.

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

CORPORATE BOND FUND

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

EXTENDED DURATION BOND FUND

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

PART B

STATEMENT OF
ADDITIONAL INFORMATION

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

SEPTEMBER 14, 1998

[GRAPHIC OMITTED]
<PAGE>

- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 14, 1998
- --------------------------------------------------------------------------------

DELAWARE GROUP INCOME FUNDS, INC.

- --------------------------------------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
For more information about the Institutional Class of Corporate Bond Fund,
and Extended Duration Bond Fund: 800-828-5052

For Prospectus and Performance of Class A Shares, Class B Shares and
Class C Shares of Corporate Bond Fund,
and Extended Duration Bond Fund: 800-523-1918

Information on Existing Accounts of Class A Shares, Class B Shares and
Class C Shares of Corporate Bond Fund,
and Extended Duration Bond Fund: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Cover Page
- --------------------------------------------------------------------------------
Investment Objectives and Policies
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price and
Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Repurchase
- --------------------------------------------------------------------------------
Dividends and Realized Securities
Profits Distributions
- --------------------------------------------------------------------------------
Taxes
- --------------------------------------------------------------------------------
Investment Management Agreements
- --------------------------------------------------------------------------------
Officers and Directors
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Appendix A--IRA Information
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------

-3-

<PAGE>

Delaware Group Income Funds, Inc. ("Income Funds, Inc.") is a
professionally-managed mutual fund of the series type which currently offers
five series of shares: the Delchester Fund series, the Strategic Income Fund
series, the High-Yield Opportunities Fund series, the Corporate Bond Fund series
and the Extended Duration Bond Fund series. This Statement of Additional
Information relates to the Corporate Bond Fund and the Extended Duration Bond
Fund only (individually, a "Fund" and collectively, the "Funds").

Each Fund offers three retail classes: Corporate Bond Fund A Class and
Extended Duration Bond Fund A Class (the "Class A Shares"); Corporate Bond Fund
B Class and Extended Duration Bond Fund B Class (the "Class B Shares"); and
Corporate Bond Fund C Class and Extended Duration Bond Fund C Class (the "Class
C Shares"). Class A Shares, Class B Shares and Class C Shares are collectively
referred to as the "Fund Classes." Each Fund also offers an institutional class:
Corporate Bond Fund Institutional Class and Extended Duration Institutional
Class (collectively, the "Institutional Classes").

Class B Shares, Class C Shares and Institutional Class shares of each
Fund may be purchased at a price equal to the next determined net asset value
per share. Class A Shares may be purchased at the public offering price, which
is equal to the next determined net asset value per share, plus a front-end
sales charge. Class A Shares are subject to a maximum front-end sales charge of
4.75% and annual 12b-1 Plan expenses which for Class A Shares of each Fund may
not exceed 0.30% and have currently been fixed by the Board at 0.25%. Class B
Shares are subject to a contingent deferred sales charge ("CDSC") which may be
imposed on redemptions made within six years of purchase and annual 12b-1 Plan
expenses of up to 1% which are assessed against Class B Shares for approximately
eight years after purchase. See Automatic Conversion of Class B Shares under
Classes of Shares in the Prospectuses for the Fund Classes. Class C Shares are
subject to a CDSC which may be imposed on redemptions made within 12 months of
purchase and annual 12b-1 Plan expenses of up to 1%, which are assessed against
Class C Shares for the life of the investment.

This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses for
Corporate Bond Fund and Extended Duration Bond Fund, each dated September 14,
1998, as they may be amended from time to time. Part B should be read in
conjunction with the respective class' Prospectus. Part B is not itself a
prospectus but is, in its entirety, incorporated by reference into each class'
Prospectus. A Prospectus for each class may be obtained by writing or calling
your investment dealer or by contacting Income Funds, Inc.'s national
distributor, Delaware Distributors, L.P. (the "Distributor"), 1818 Market
Street, Philadelphia, PA 19103.

All references to "shares" in this Part B refer to all classes of
shares of Income Funds, Inc., except where noted.

-4-

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

Corporate Bond Fund and Extended Duration Bond Fund

The types of securities in which each Fund invests are subject to price
fluctuations particularly due to changes in interest rates and economic
conditions. Management will seek to achieve each Fund's objective by investing
in investment grade corporate bonds. Each Fund may also invest in corporate
bonds rated BB by S&P or Ba by Moody's or similarly rated by other rating
agencies, and in unrated bonds judged to be of comparable quality by Delaware
Management Company (the "Manager"). Unrated bonds may be more speculative in
nature than rated bonds.

Appendix A - Ratings in the Funds' Prospectuses describes the ratings
of S&P and Moody's.

Duration
Most debt obligations provide interest (coupon) payments in addition to
a final (par) payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates. Traditionally, a debt
security's term-to-maturity has been used as a proxy for the sensitivity of the
security's price to changes in interest rates (which is the interest rate risk
or volatility of the security). However, term-to-maturity measures only the time
until a debt security provides its final payment, taking no account of the
pattern of the security's payments prior to maturity.

Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of
term-to-maturity. Duration incorporates a bond's yield, coupon interest
payments, final maturity and call features into one measure. Duration is one of
the fundamental tools used by the Manager in the selection of fixed income
securities. Duration is a measure of the expected life of a fixed income
security on a present value basis. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable bond, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any fixed income security with interest payments
occurring prior to the payment of principal, duration is always less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a fixed income security, the longer the duration of
the security; conversely, the higher the stated or coupon rate of interest of a
fixed income security, the shorter the duration of the security.

There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other

-5-

<PAGE>

similar situations, the Manager will use sophisticated analytical techniques
that incorporate the economic life of a security into the determination of its
interest rate exposure.

Foreign and Emerging Markets Securities
Investors should recognize that investing in foreign issuers, including
issuers located in emerging market countries, involves certain considerations,
including those set forth in the Funds' Prospectuses, which are not typically
associated with investing in United States issuers. Since the stocks of foreign
companies are frequently denominated in foreign currencies, a Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies.

As disclosed in the Funds' Prospectuses, there are a number of risks
involved in investing in foreign securities. For example, the assets and profits
appearing on the financial statements of a developing or emerging country issuer
may not reflect its financial position or results of operations in the way they
would be reflected had the financial statements been prepared in accordance with
United States generally accepted accounting principles. Also, for an issuer that
keeps accounting records in local currency, inflation accounting rules may
require for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express items
in terms of currency or constant purchasing power. Inflation accounting may
indirectly generate losses on profits.

There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by the Funds. Payment of
such interest equalization tax, if imposed, would reduce a Fund's rate of return
on its investment. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on such
investments as compared to dividends paid to a Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than
any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from certain
identified forward contracts, futures contracts and options that are capital
assets in the hands of the taxpayer and which are not part of a straddle.
Certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Internal Revenue Code of
1986, as amended (the "Code"), and the Treasury Regulations) will be integrated
and treated as a single transaction or otherwise treated consistently for
purposes of the Code. The income tax effects of integrating and treating a
transaction as a single transaction are generally to create a synthetic debt
instrument that is subject to the original discount provisions. It is
anticipated that some of the non-U.S. dollar denominated investments and foreign
currency contracts a Fund may make or enter into will be subject to the special
currency rules described above.

Investments and opportunities for investments by foreign investors in
emerging market countries are subject to a variety of national policies and
restrictions. These restrictions may take the form of prior

-6-

<PAGE>

governmental approval, limits on the amount or type of securities held by
foreigners, limits on the types of companies in which foreigners may invest and
prohibitions on foreign investments in issuers or industries deemed sensitive to
national interests. Additional restrictions may be imposed at any time by these
or other countries in which each Fund invests.

Zero Coupon and Pay-In-Kind Bonds
The credit risk factors pertaining to lower rated securities also apply
to lower rated zero coupon, deferred interest and pay-in-kind bonds. These bonds
carry an additional risk in that, unlike bonds that pay interest throughout the
period to maturity, each Fund will realize no cash until the cash payment date
and, if the issuer defaults, a Fund may obtain no return at all on its
investment. Zero coupon, deferred interest and pay-in- kind bonds involve
additional special considerations.

Zero coupon or deferred interest securities are debt obligations that
do not entitle the holder to any periodic payments of interest prior to maturity
or a specified date when the securities begin paying current interest (the "cash
payment date") and therefore are generally issued and traded at a discount from
their face amounts or par value. The discount varies depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, typically
decreases as the final maturity or cash payment date of the security approaches.
The market prices of zero coupon securities are generally more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero coupon
or deferred interest securities having similar maturities and credit quality.
Current federal income tax law requires that a holder of a zero coupon security
report as income each year the portion of the original issue discount on the
security that accrues that year, even though the holder receives no cash
payments of interest during the year.

Pay-in-kind bonds are securities that pay interest through the issuance
of additional bonds. A Fund will be deemed to receive interest over the life of
these bonds and be treated as if interest were paid on a current basis for
federal income tax purposes, although no cash interest payments are received by
the Fund until the cash payment date or until the bonds mature. Accordingly,
during periods when a Fund receive no cash interest payments on its zero coupon
securities or deferred interest or pay-in-kind bonds, it may be required to
dispose of portfolio securities to meet the distribution requirements and these
sales may be subject to the risk factors discussed above. The Funds are not
limited in the amount of its assets that may be invested in these types of
securities.

Convertible, Debt And Non-Traditional Equity Securities
From time to time, a portion of a Fund's assets may be invested in
convertible and debt securities of issuers in any industry. A convertible
security is a security which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible and debt securities are senior to common
stocks in a corporation's capital structure, although convertible securities are
usually subordinated to similar nonconvertible securities. Convertible and debt
securities provide a fixed-income stream and the opportunity, through its
conversion feature, to participate in the capital appreciation resulting from a
market price advance in the convertible security's underlying common stock. Just
as with debt securities, convertible securities tend to increase in market value
when interest rates decline and tend to decrease in value when interest rates
rise. However, the price of a convertible security is also influenced by the
market value of the security's underlying common stock and tends to increase as
the market value of the underlying stock rises, whereas it tends to decrease as
the market value of the underlying stock declines. Convertible and debt
securities acquired by a Fund may be rated below investment grade, or

-7-

<PAGE>

unrated. These lower rated convertible and debt securities are subject to credit
risk considerations substantially similar to such considerations affecting high
risk, high-yield bonds, commonly referred to as "junk bonds."

Each Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stock
("PERCS"), which provide an investor, such as a Fund, with the opportunity to
earn higher dividend income than is available on a company's common stock. A
PERCS is a preferred stock which generally features a mandatory conversion date,
as well as a capital appreciation limit which is usually expressed in terms of a
stated price. Upon the conversion date, most PERCS convert into common stock of
the issuer (PERCS are generally not convertible into cash at maturity). Under a
typical arrangement, if after a predetermined number of years the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, each PERCS would convert to one share of common stock. If, however, the
issuer's common stock is trading at a price above that set by the capital
appreciation limit, the holder of the PERCS would receive less than one full
share of common stock. The amount of that fractional share of common stock
received by the PERCS holder is determined by dividing the price set by the
capital appreciation limit of the PERCS by the market price of the issuer's
common stock. PERCS can be called at any time prior to maturity, and hence do
not provide call protection. However, if called early, the issuer may pay a call
premium over the market price to the investor. This call premium declines at a
preset rate daily, up to the maturity date of the PERCS.

Each Fund may also invest in other enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.

When-Issued And Delayed Delivery Securities
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. Each Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time a Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.

Borrowing From Banks
A Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. A Fund will not borrow money in excess of
one-third of the value of its net assets. Each Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of a Fund's
net assets, asset coverage of at least 300% is

-8-

<PAGE>

required. In the event that such asset coverage shall at any time fall below
300%, the Fund shall, within three days thereafter (not including Sundays or
holidays, or such longer period as the Securities and Exchange Commission may
prescribe by rules and regulations), reduce the amount of its borrowings to such
an extent that the asset coverage of such borrowings shall be at least 300%. A
Fund will not pledge more than 10% of its net assets, or issue senior securities
as defined in the 1940 Act, except for notes to banks. Investment securities
will not be purchased while a Fund has an outstanding borrowing.

High-Yield, High Risk Securities
Investing in so-called "high-yield" or "high risk" securities entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investment grade securities, and which should be
considered by investors contemplating an investment in the Funds. Such
securities are sometimes issued by companies whose earnings at the time of
issuance are less than the projected debt service on the high-yield securities.
The risks include the following:

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

The Funds will not purchase securities rated below BB by S&P or Ba by
Moody's. The Funds will not invest more than 20% of its assets in such
securities.

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

-9-

<PAGE>

C. Legislative and Regulatory Action and Proposals--There are a variety
of legislative actions which have been taken or which are considered from time
to time by the United States Congress which could adversely affect the market
for high-yield bonds. For example, Congressional legislation limited the
deductibility of interest paid on certain high-yield bonds used to finance
corporate acquisitions. Also, Congressional legislation has, with some
exceptions, generally prohibited federally-insured savings and loan institutions
from investing in high-yield securities. Regulatory actions have also affected
the high-yield market. For example, many insurance companies have restricted or
eliminated their purchases of high-yield bonds as a result of, among other
factors, actions taken by the National Association of Insurance Commissioners.
If similar legislative and regulatory actions are taken in the future, they
could result in further tightening of the secondary market for high-yield issues
and could reduce the number of new high-yield securities being issued.

Restricted Securities
The Funds may purchase privately-placed debt and other securities whose
resale is restricted under applicable securities laws. Such restricted
securities generally offer a higher return than comparable registered securities
but involve some additional risk since they can be resold only in
privately-negotiated transactions or after registration under applicable
securities laws. The registration process may involve delays which could result
in the Funds obtaining a less favorable price on a resale. Each Fund will not
purchase illiquid assets if more than 15% of its respective net assets would
then consist of such illiquid securities.

Repurchase Agreements
The Funds are permitted to invest in repurchase agreements, but they
normally so only to invest cash balances. A repurchase agreement is a short-term
investment by which the purchaser acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the purchaser's holding period. Should an
issuer of a repurchase agreement fail to repurchase the underlying security, the
loss to a Fund, if any, would be the difference between the repurchase price and
the market value of the security. Each Fund will limit its investments in
repurchase agreements to those which the Manager, under the guidelines of the
Board of Directors, determines present minimal credit risks and which are of
high quality. In addition, each Fund must have collateral of at least 102% of
the repurchase price, including the portion representing the Fund's yield under
such agreements, which is monitored on a daily basis.

The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the Investment
Company Act of 1940 (the "1940 Act") to allow the such funds jointly to invest
cash balances. The Funds may invest cash balances in a joint repurchase
agreement in accordance with the terms of the Order and subject generally to the
conditions described above.

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

It is the understanding of the Manager that the staff of the Securities
and Exchange Commission (the "SEC" or the "Commission") permits portfolio
lending by registered investment companies if certain conditions are met. These
conditions are as follows: 1) each transaction must have 100% collateral in the
form of cash, short-term U.S. government securities, or irrevocable letters of
credit payable by banks acceptable to the Fund involved from the borrower; 2)
this collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; 3) the Fund must be able to terminate any loan after notice, at any time;
4) the Fund must receive reasonable interest on any loan, and any

-10-

<PAGE>

dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; 5) the Fund may pay reasonable
custodian fees in connection with the loan; 6) the voting rights on the lent
securities may pass to the borrower; however, if the directors of Income Funds,
Inc. know that a material event will occur affecting an investment loan, they
must either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the directors to vote the
proxy.

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

Investment Restrictions

Corporate Bond Fund and Extended Duration Bond Fund
Each Fund has the following investment restrictions which may not be
amended without approval of a majority of the outstanding voting securities,
which is the lesser of more than 50% of the outstanding voting securities of the
Fund, or 67% of the voting securities of that Fund present at a shareholder
meeting if 50% or more of the voting securities are present in person or
represented by proxy. The percentage limitations contained in the restrictions
and policies set forth herein apply at the time a Fund purchases securities.

A Fund shall not:

1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit a Fund from investing in obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or in
certificates of deposit.

2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.

3. Underwrite the securities of other issuers, except that a Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent a Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.

5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent a Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.

-11-

<PAGE>

6. Make loans, provided that this restriction does not prevent a Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.

In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, each Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of
Directors without shareholder approval.

1. Each Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, a Fund may not operate as a "fund of funds" which
invests primarily in the shares of other investment companies as permitted by
Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."

2. Neither Fund may invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which a Fund has valued
the investment.

Concentration

In applying a Fund's policy on concentration; (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.

-12-
<PAGE>

PERFORMANCE INFORMATION

From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life-of-fund, if applicable) periods. Each
Fund may also advertise aggregate and average total return information of its
Classes over additional periods of time.

In presenting performance information for Class A Shares, the Limited
CDSC applicable to only certain redemptions of those shares will not be deducted
from any computation of total return. See the Prospectus for the Fund Classes
for a description of the Limited CDSC and the limited instances in which it
applies. All references to a CDSC in this Performance Information section will
apply to Class B Shares or Class C Shares of the Funds.

The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:

n
P(1 + T) = ERV

Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the
maximum front-end sales charge is deducted;

T = average annual total return;

n = number of years; and

ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the deduction
of the applicable CDSC, if any, with respect to Class
B Shares and Class C Shares.

Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.

As stated in the Funds' Prospectuses, each Fund may also quote the
current yield of each of its Classes in advertisements and investor
communications.

-13-
<PAGE>

The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:

a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and

d = the maximum offering price per share on the last
day of the period.

The above formula will be used in calculating quotations of yield for
each Class of the Funds, based on specified 30-day periods identified in
advertising by the Funds. Yield calculations assume the maximum front-end sales
charge, if any, and do not reflect the deduction of any contingent deferred
sales charge. Actual yield on Class A Shares may be affected by variations in
sales charges on investments. Past performance, such as is reflected in quoted
yields, should not be considered as a representation of the results which may be
realized from an investment in any class of Income Funds, Inc. in the future.

Investors should note that the income earned and dividends paid by the
Funds will vary with the fluctuation of interest rates and performance of the
portfolio to the extent of the Funds' investments in debt securities. The net
asset values of the Funds may change. Unlike money market funds, the Funds
invest in longer-term securities that fluctuate in value and do so in a manner
inversely correlated with changing interest rates. The Funds' net asset values
will tend to rise when interest rates fall. Conversely, the Funds' net asset
values will tend to fall as interest rates rise. Normally, fluctuations in
interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held by the Funds will vary from day to day and
investors should consider the volatility of the Funds' net asset values as well
as their yields before making a decision to invest.

From time to time, each Fund may quote actual total return and/or yield
performance for its Classes in advertising and other types of literature. This
information may be compared to that of other mutual funds with similar
investment objectives and to stock, bond an other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund (or Class) may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. or the performance of unmanaged
indices compiled or maintained by statistical research firms such as Lehman
Brothers or Salomon Brothers, Inc.

Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The total
return performance reported for these indices will reflect the reinvestment of
all

-14-

<PAGE>

distributions on a quarterly basis and market price fluctuations. The
indices do not take into account any sales charge or other fees. A direct
investment in an unmanaged index is not possible.

Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well as
unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations. In addition, the performance of multiple
indices compiled and maintained by these firms may be combined to create a
blended performance result for comparative purposes. Generally, the indices
selected will be representative of the types of securities in which a Fund may
invest and the assumptions that were used in calculating the blended performance
will be described.

Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. The Consumer Price Index, as
prepared by the U.S. Bureau of Labor Statistics, is the most commonly used
measure of inflation. It indicates the cost fluctuations of a representative
group of consumer goods. It does not represent a return from an investment.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. Each Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of a Fund. Each Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.

The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments or global or international investments), economic and
political conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills. From time to time advertisements, sales literature, communications to
shareholders or other materials may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. In
addition, selected indices may be used to illustrate historic performance of
selected asset classes. The Funds may also include in advertisements, sales
literature, communications to shareholders or other materials, charts, graphs or
drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, domestic and
international stocks, and/or bonds, treasury bills and shares of a Fund. In
addition, advertisements, sales literature, communications to shareholders or
other materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund

-15-
<PAGE>

and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning (such as information on Roth IRAs and Educational IRAs) and investment
alternatives to certificates of deposit and other financial instruments. Such
sales literature, communications to shareholders or other materials may include
symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.

Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other Funds, products, and services.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. A Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include information
regarding the background and experience of its portfolio managers.

Total return performance for each Class of the Funds will reflect the
appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period, and, in the case
of Class A Shares, the impact of the maximum front-end sales charge, if any,
paid on the illustrated investment amount, annualized. Performance of Class A
Shares may also be shown without reflecting the impact of any front-end sales
charge. The performance of Class B Shares and Class C Shares will be calculated
both with the applicable CDSC included and excluded. The results will not
reflect any income taxes, if applicable, payable by shareholders on the
reinvested distributions included in the calculations. The net asset values of
the Funds fluctuate so shares, when redeemed, may be worth more or less than the
original investment, and the Funds' results should not be considered a guarantee
of future performance.

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for Income Funds, Inc. and other mutual funds in the
Delaware Investments family, will provide general information about investment
alternatives and scenarios that will allow investors to assess their personal
goals. This information will include general material about investing as well as
materials reinforcing various industry-accepted principles of prudent and
responsible personal financial planning. One typical way of addressing these
issues is to compare an individual's goals and the length of time the individual
has to attain these goals to his or her risk threshold. In addition, the
Distributor will provide information that discusses the Manager's and, in the
case of Strategic Income Fund, the Sub-Adviser's, overriding investment
philosophy and how that philosophy impacts the Funds', and other Delaware
Investments funds', investment disciplines employed in seeking their objectives.
The Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager and the Sub-Adviser, including
the number of such clients serviced by the Manager and the Sub- Adviser.

Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular

-16-
<PAGE>

interval--for example, monthly or quarterly--as long as you stick to your
regular schedule. Dollar-cost averaging looks simple and it is, but there are
important things to remember.

Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments offers three services -- Automatic Investing Plan, Direct Deposit
Purchase Plan and the Wealth Builder Option -- that can help to keep your
regular investment program on track. See Investing by Electronic Fund Transfer -
Direct Deposit Purchase Plan and Automatic Investing Plan under Investment Plans
and Wealth Builder Option under Investment Plans for a complete description of
these services, including restrictions or limitations.

The example below illustrates how dollar-cost averaging can work.
Dollar-cost averaging can be appropriate for investments in shares of funds that
tend to fluctuate in value. Please obtain the prospectus of any fund in the
Delaware Investments family in which you plan to invest through a dollar-cost
averaging program. The prospectus contains additional information, including
charges and expenses. Please read it carefully before you invest or send money.

Number
Investment Price Per of Shares
Amount Share Purchased

Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10

---------------------------------------------------------------
$400 $37.50 48

Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)

This example is for illustration purposes only. It is not intended to
represent the actual performance of any stock or bond fund in the Delaware
Investments family.

THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.

-17-
<PAGE>

TRADING PRACTICES AND BROKERAGE

Each Fund selects banks, brokers or dealers to execute transactions for
the purchase or sale of portfolio securities on the basis of the Fund's judgment
of the professional capability of such banks, brokers or dealers to provide the
service. The primary consideration is to have banks, brokers or dealers execute
transactions at best price and execution. Best price and execution refers to
many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. In most instances,
trades of fixed-income securities are made on a net basis where the Funds either
buy the securities directly from the dealer or sell them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission. When a commission is paid, the Fund involved pays reasonably
competitive brokerage commission rates based upon the professional knowledge of
the Manager as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, a Fund pays a minimal share transaction
cost when the transaction presents no difficulty.

The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making processes with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.

As provided in the Securities Exchange Act of 1934 (the "1934 Act") and
the Funds' Investment Management Agreements higher commissions are permitted to
be paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Funds believe that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Funds and to other funds in the Delaware
Investments family. Subject to best price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.

-18-
<PAGE>

The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Income Funds,
Inc.'s Board of Directors that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.

Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Funds may place orders with broker/dealers that have agreed to
defray certain expenses of the funds in the Delaware family such as custodian
fees, and may, at the request of the Distributor, give consideration to sales of
shares of such funds as a factor in the selection of brokers and dealers to
execute the Funds' portfolio transactions.

Portfolio Turnover

The rate of portfolio turnover will not be a limiting factor when
portfolio changes are deemed appropriate. Given each Fund's investment objective
and current market conditions, its annual portfolio turnover rate is expected to
be 100%. A turnover rate of 100% occurs, for example, when all the investments
in a Fund's portfolio at the beginning of the year were replaced by the end of
the year.

The degree of portfolio activity may affect taxes payable by the Funds'
shareholders. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were replaced by
the end of the year. In investing for total return, the Funds may hold
securities for any period of time. To the extent a Fund realizes gains on
securities held for less than six months, such gains are taxable to the
shareholder or to the Fund at ordinary income tax rates. The turnover rates also
may be affected by cash requirements from redemptions and repurchases of Fund
shares.

The portfolio turnover rate of each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by the monthly average of the value of the portfolio securities owned by
the Fund during the particular fiscal year, exclusive of securities whose
maturities at the time of acquisition are one year or less.

-19-
<PAGE>

PURCHASING SHARES

The Distributor serves as the national distributor for each Fund's
classes of shares - Class A Shares, Class B Shares, Class C Shares and the
Institutional Class - and has agreed to use its best efforts to sell shares of
each Fund. See the Prospectuses for additional information on how to invest.
Shares of the Funds are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting Income Funds,
Inc. or the Distributor.

The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any fund in the Delaware Investments family, the Manager or any of
the its affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Asset Planner service are
subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected. There are no minimum purchase requirements for the Funds'
Institutional Classes, but certain eligibility requirements must be satisfied.

Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Income Funds, Inc. will reject any purchase
order for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that, absent any applicable fee waiver, Class A Shares are subject
to lower annual 12b-1 Plan expenses than Class B Shares and Class C Shares and
generally are not subject to a CDSC.

Selling dealers are responsible for transmitting orders promptly.
Income Funds, Inc. reserves the right to reject any order for the purchase of
shares of either Fund if in the opinion of management such rejection is in such
Fund's best interests.

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

Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses.

Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which
are higher than those to which Class A Shares are subject and are assessed
against Class B Shares for approximately eight years after purchase. See
Automatic Conversion of Class B Shares under Classes of Shares in the Fund
Classes' Prospectuses.

-20-
<PAGE>

Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.

Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.

Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses under a Fund's 12b-1 Plans.

Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares or in the case of any retirement plan
accounts including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Income Funds, Inc. for any certificate issued. A shareholder may be subject
to fees for replacement of a lost or stolen certificate, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact a Fund for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.

Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and the Class C Shares permit investors to choose the method of purchasing
shares that is most suitable for their needs given the amount of their purchase,
the length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% (no more than 0.25% pursuant to Board action) of the average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in a Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses.

Class A Shares - Corporate Bond Fund and Extended Duration Bond Fund
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases over
a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative in the Fund Classes' Prospectus for a table
illustrating reduced front-end sales charges. See Special Purchase Features -
Class A Shares, below, for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.

Certain dealers who enter into an agreement to provide extra training
and information on Delaware Investments products and services and who increase
sales of the funds in the Delaware Investments family may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and

-21-
<PAGE>

their ability to increase sales. The Distributor should be contacted for further
information on these requirements as well as the basis and circumstances upon
which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.

Dealer's Commission
As described more fully in the Prospectus for the Fund Classes, for
initial purchases of Class A Shares of $1,000,000 or more, a dealer's commission
may be paid by the Distributor to financial advisers through whom such purchases
are effected. See Front-End Sales Charge Alternative - Class A Shares in the
Prospectus for the Fund Classes for the applicable schedule and further details.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge - Class B and
Class C Shares under Redemption and Exchange in the Prospectus for the Fund
Classes for a list of the instances in which the CDSC is waived.

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the Fund.
See Automatic Conversion of Class B Shares under Classes of Shares in the Fund
Classes' Prospectus. Such conversion will constitute a tax-free exchange for
federal income tax purposes. See Taxes in the Prospectus for the Fund Classes.

Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Income Funds, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of each Fund (the "Plans"). Each Plan permits the relevant Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the class of shares to which the Plan applies. The Plans do
not apply to Institutional Classes of shares. Such shares are not included in
calculating the Plans' fees, and the Plans are not used to assist in the
distribution and marketing of shares of the Institutional Classes. Shareholders
of the Institutional Classes may not vote on matters affecting the Plans.

The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares and Class C Shares monthly
fees to the Distributor for its services and expenses in distributing and
promoting sales of shares of such classes. These expenses include, among other
things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.

-22-
<PAGE>

In addition, each Fund may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.

The maximum aggregate fee payable by a Fund under its Plans, and the
Funds' Distribution Agreements, is on an annual basis, up to 0.30% of the Class
A Shares' average daily net assets for the year, and up to 1% (0.25% of which
are service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and Class C Shares' average daily net assets for the year. Income Funds,
Inc.'s Board of Directors may reduce these amounts at any time.

Although the maximum fee payable under the 12b-1 Plans relating to
Class A Shares is 0.30% of average daily net assets of such class, the Board of
Directors has determined that the annual fee, payable on a monthly basis, under
the Plans relating to Class A Shares is 0.25%. While this describes the current
basis for calculating the fees which will be payable under the each Fund's Class
A Share Plan, such Plans permit a full 0.30% on all Class A Shares' assets to be
paid at any time following appropriate Board approval.

All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Fund Classes. Subject to seeking best price and
execution, a Fund may, from time to time, buy or sell portfolio securities from
or to firms which receive payments under the Plans.

From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.

The Plans and the Distribution Agreements, as amended, have all been
approved by the Board of Directors of Income Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Income Funds, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Agreements. Continuation of the Plans and the
Distribution Agreements, as amended, must be approved annually by the Board of
Directors in the same manner as specified above.

Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares of each Fund and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreements, as amended, may be terminated
with respect to a Class at any time without penalty by a majority of those
directors who are not "interested persons" or by a majority vote of the
outstanding voting securities of the relevant Fund Class. Any amendment
materially increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the relevant
Fund Class, as well as by a majority vote of those directors who are not
"interested persons." With respect to each Class A Shares' Plan, any material
increase in the maximum percentage payable thereunder must also be approved by a
majority of the outstanding voting securities of Class B of the same Fund. Also,
any other material amendment to the Plans must be approved by a majority vote of
the directors including a majority of the noninterested directors of Income
Funds, Inc. having no interest in the Plans. In addition, in order for the Plans
to remain effective, the selection and nomination of directors who are not
"interested persons" of Income

-23-
<PAGE>

Funds, Inc. must be effected by the directors who themselves are not "interested
persons" and who have no direct or indirect financial interest in the Plans.
Persons authorized to make payments under the Plans must provide written reports
at least quarterly to the Board of Directors for their review.

Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the funds available from Delaware Investments. In some instances,
these incentives or payments may be offered only to certain dealers who
maintain, have sold or may sell certain amounts of shares. The Distributor may
also pay a portion of the expense of preapproved dealer advertisements promoting
the sale of shares of the funds in the Delaware Investments family.

Special Purchase Features -- Class A Shares

Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.

Current and former officers, directors and employees of Income Funds,
Inc., any other fund in the Delaware Investments family, the Manager, the
Manager's affiliates, or any of the Manager's current affiliates and those that
may in the future be created, legal counsel to the funds, and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares of the Fund and any
of the other funds in the Delaware Investments family, including any fund that
may be created, at the net asset value per share. Family members (regardless of
age) of such persons at their direction, and any employee benefit plan
established by any of the foregoing funds, corporations, counsel or
broker/dealers may also purchase shares at net asset value. Class A Shares may
also be purchased at net asset value by current and former officers, directors
and employees (and members of their families) of the Dougherty Financial Group
LLC.

Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charges has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees that provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of the funds in the
Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager, or any of its affiliates, may purchase
Class A Shares at net asset value. Moreover, purchases may be effected at net
asset value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Such purchasers are required to sign a letter stating that the
purchase is for investment only and that the securities may not be resold except
to the issuer. Such purchasers may also be required to sign or deliver such
other documents as Income Funds, Inc. may reasonably require to establish
eligibility for purchase at net asset value.

-24-
<PAGE>

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

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

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

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

The Funds must be notified in advance that the trade qualifies for
purchase at net asset value.

Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Income Funds, Inc., which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13- month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13- month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of a Fund and of any class of any
of the other mutual funds in the Delaware Investments family (except shares of
any fund in the Delaware Investments family which do not carry a front-end sales
charge or CDSC or Limited CDSC, other than shares of Delaware Group Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a fund in
the Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC) previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter.

-25-
<PAGE>

Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in funds that are available from Delaware Investments that are
offered with a front-end sales charge, CDSC or Limited CDSC for a 13-month
period. The Transfer Agent reserves the right to adjust the signed Letter of
Intention based on this acceptance criteria. The 13-month period will begin on
the date this Letter of Intention is accepted by the Transfer Agent. If actual
investments exceed the anticipated level and equal an amount that would qualify
the plan for further discounts, any front-end sales charges will be
automatically adjusted. In the event this Letter of Intention is not fulfilled
within the 13-month period, the Plan level will be adjusted (without completing
another Letter of Intention) and the employer will be billed for the difference
in front-end sales charges due, based on the plan's assets under management at
that time. Employers may also include the value (at offering price at the level
designated in their Letter of Intention) of all their shares intended for
purchase that are offered with a front-end sales charge, CDSC or Limited CDSC of
any class. Class B Shares and Class C Shares of a Fund and other fund available
from Delaware Investments which offer corresponding classes of shares may also
be aggregated for this purpose.

Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). In addition, assets held by investment advisory clients of the
Manager or its affiliates in a stable value account may be combined with other
holdings of shares of funds in the Delaware Investments family.

The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).

Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other funds in the Delaware
Investments funds which offer such classes (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a Delaware
Investments fund which carried a front-end sales charge, CDSC or Limited CDSC).
If, for example, any such purchaser has previously purchased and still holds
Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $60,000 purchase would currently be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares

-26-
<PAGE>

to determine the applicability of the Right of Accumulation to their particular
circumstances.

12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of the Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Investments family offered with a front-end sales
charge) who redeem such shares have one year from the date of redemption to
reinvest all or part of their redemption proceeds in Class A Shares of that Fund
or in Class A Shares of any of the other funds in the Delaware Investments
family, subject to applicable eligibility and minimum purchase requirements, in
states where shares of such other funds may be sold, at net asset value without
the payment of a front-end sales charge. This privilege does not extend to Class
A Shares where the redemption of the shares triggered the payment of a Limited
CDSC. Persons investing redemption proceeds from direct investments in mutual
funds in the Delaware Investments family offered without a front-end sales
charge will be required to pay the applicable sales charge when purchasing Class
A Shares. The reinvestment privilege does not extend to a redemption of either
Class B Shares or Class C Shares.

Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.

Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectus) in connection with the
features described above.

Group Investment Plans
Group Investment Plans that are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement investment accounts of Delaware Investments if they so notify the
Fund in connection with each purchase. For other retirement plans and special
services, see Retirement Plans for the Fund Classes under Investment Plans.

The Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, or its affiliates and securities dealer firms with
a selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment

-27-
<PAGE>

Advisers, an affiliate of the Manager, or its affiliates and their corporate
sponsors, as well as subsidiaries and related employee benefit plans and
rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 fee; (e) registered
investment advisers investing on behalf of clients that consist solely of
institutions and high net-worth individuals having at least $1,000,000 entrusted
to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services, and (f)
clients of brokers or dealers affiliated with a broker or dealer, if such broker
or dealer has entered into an agreement with the Distributor providing
specifically for the purchase of shares of the Classes in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in shares
of the Classes through a broker or agent that offers these special products.

Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.

-28-
<PAGE>

INVESTMENT PLANS

Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Classes in which an investor has an account (based on the net asset value
in effect on the reinvestment date) and will be credited to the shareholder's
account on that date. A confirmation of each distribution from realized
securities profits, if any, will be mailed to shareholders in the first quarter
of the fiscal year.

Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class shares at the net
asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.

Reinvestment of Dividends in Other Funds in the Delaware Investments Family
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Investments family, including the Funds,
in states where their shares may be sold. Such investments will be at net asset
value at the close of business on the reinvestment date without any front-end
sales charge or service fee. The shareholder must notify the Transfer Agent in
writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment - Dividend Reinvestment
Plan under How to Buy Shares in the Prospectus for the Fund Classes.

Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Investments family may be invested in shares of
the Funds, provided an account has been established. Dividends from Class A
Shares may not be directed to Class B Shares or Class C Shares. Dividends from
Class B Shares may only be directed to other Class B Shares and dividends from
Class C Shares may only be directed to other Class C Shares.

Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private

-29-
<PAGE>

payroll checks, dividends, and disability or pension fund benefits. It also
eliminates lost, stolen and delayed checks.

Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.

* * *

Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.

Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.

Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Income Funds, Inc. for proper
instructions.

Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in the Delaware
Investments family through the Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectus for the Fund Classes.

-30-
<PAGE>

Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectuses. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.

Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation in Wealth Builder at
any time by written notice to the fund from which exchanges are made.

Asset Planner
To invest in the funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete a Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in funds in the Delaware Investments family. With the
help of a financial adviser, you may also design a customized asset allocation
strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange in the
Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes of
Shares in the Prospectus. The minimum initial investment per Strategy is $2,000;
subsequent investments must be at least $100. Individual fund minimums do not
apply to investments made using the Asset Planner service. Class A, Class B and
Class C Shares are available through the Asset Planner service. Generally, only
shares within the same class may be used within the same Strategy. However,
Class A Shares of the Fund and of other funds in the Delaware Investments family
may be used in the same Strategy with consultant class shares that are offered
by certain other Delaware Investments funds.

An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996,

-31-
<PAGE>

the annual maintenance fee is waived until further notice. Investors who utilize
the Asset Planner for an IRA will continue to pay an annual IRA fee of $15 per
Social Security number.

Investors will receive a customized quarterly Strategy Report
summarizing all Asset Planner investment performance and account activity during
the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.

Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.

Retirement Plans for the Fund Classes
An investment in a Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) deferred compensation plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.

Among the retirement plans that Delaware Investments offers, Class B
Shares are available for investment only by Individual Retirement Accounts,
SIMPLE IRAs, Roth IRAs, Education IRAs, Simplified Employee Pension Plans,
Salary Reduction Simplified Employee Pension Plans and 403(b) and 457 Deferred
Compensation Plans. The CDSC may be waived on certain redemptions of Class B
Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge under
Redemption and Exchange in the Prospectus for Class B Shares and Class C Shares
for a list of the instances in which the CDSC is waived.

Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.

Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25 regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.

Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase Institutional Class Shares. For
additional information on any of the Plans and Delaware's retirement services,
call the Shareholder Service Center telephone number.

It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.

Taxable distributions from the retirement plans described below may be
subject to withholding.

-32-
<PAGE>

Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.

Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.

Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.

IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.

Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.

Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.

Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.

Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.

-33-
<PAGE>

A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:

(i) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;

(ii) Substantially equal installment payments for a period certain of
10 or more years;

(iii) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;

(iv) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and

(v) A distribution of after-tax contributions which is not includable
in income.

Roth IRAs

For taxable years beginning after December 31, 1997,
non-deductible contributions of up to $2,000 per year can be made to a new Roth
IRA. As a result of the Internal Revenue Service Restructuring and Reform Act of
1998 (the "1998 Act"), the $2,000 annual limit will not be reduced by any
contributions to a deductible or nondeductible IRA for the same year. The
maximum contribution that can be made to a Roth IRA is phased out for single
filers with AGI between $95,000 and $110,000, and for couples filing jointly
with AGI between $150,000 and $160,000. Qualified distributions from a Roth IRA
would be exempt from federal taxes. Qualified distributions are distributions
(1) made after the five-taxable year period beginning with the first taxable
year for which a contribution was made to a Roth IRA and (2) that are (a) made
on or after the date on which the individual attains age 59 1/2, (b) made to a
beneficiary on or after the death of the individual, (c) attributed to the
individual being disabled, or (d) for a qualified special purpose (e.g., first
time homebuyer expenses).

Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.

Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.

Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can

-34-
<PAGE>

be created for the same beneficiaries, however, the contribution limit of all
contributions for a single beneficiary cannot exceed $500 annually.

This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.

Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.

Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
educations expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.

A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of a Fund.

Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for Class B Shares and Class C Shares.

Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used

-35-
<PAGE>

to pay acquisition costs of a principle residence for the purchase of a
first-time home by the taxpayer, taxpayer's spouse or any child or grandchild of
the taxpayer or the taxpayer's spouse. A qualified first-time homebuyer is
someone who has had no ownership interest in a residence during the past two
years. The aggregate amount of distribution for first-time home purchases cannot
exceed a lifetime cap of $10,000.

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

Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.

Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectus for the Fund Classes.

Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectus for
the Fund Classes.

Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table the Prospectus for the Fund Classes.

-36-
<PAGE>

SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.

SIMPLE 401(k)

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

-37-
<PAGE>

DETERMINING OFFERING PRICE AND NET ASSET VALUE

Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Fund in which shares are being purchased after
receipt of the order by the Fund, its agent or certain other authorized persons.
See Distribution and Service under Investment Management Agreements. Orders for
purchases of Class B Shares, Class C Shares and Institutional Class shares are
effected at the net asset value per share next calculated by the Fund in which
shares are being purchased after receipt of the order by the Fund, its agent or
certain other authorized persons. Selling dealers have the responsibility of
transmitting orders promptly.

The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for the days when the following holidays are
observed: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Funds will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.

An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in each
Fund's financial statements which are incorporated by reference into this Part
B.

Each Fund's net asset value per share is computed by adding the value
of all the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and fees
are accrued daily. In determining a Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for bonds,
are valued at the last sale price on the exchange upon which such securities are
primarily traded. Securities not traded on a particular day, over-the-counter
securities and government and agency securities are valued at the mean value
between bid and asked prices. Money market instruments having a maturity of less
than 60 days are valued at amortized cost. Debt securities (other than
short-term obligations) are valued on the basis of valuations provided by a
pricing service when such prices are believed to reflect the fair value of such
securities. Foreign currencies and the prices of foreign securities denominated
in foreign currencies are translated to U.S. Dollars at the mean between the bid
and offer quotations of such securities based on rates in effect as of the close
of the London Stock Exchange. Use of a pricing service has been approved by the
Board of Directors. Prices provided by a pricing service take into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. If no quotations are available, all other
securities and assets are valued at fair value as determined in good faith and
in a method approved by the Board of Directors.

Each Class of a Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in that Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except

-38-
<PAGE>

that Institutional Classes will not incur any of the expenses under Income
Funds, Inc.'s 12b-1 Plans and Class A, Class B and Class C Shares alone will
bear the 12b-1 Plan expenses payable under their respective Plans. Due to the
specific distribution expenses and other costs that may be allocable to each
Class of a Fund, the dividends paid to each Class of the Fund may vary. The net
asset value per share of each Class of a Fund is expected to be equivalent.

-39-
<PAGE>

REDEMPTION AND REPURCHASE

Any shareholder may require a Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C Shares.
If stock certificates have been issued for shares being redeemed, they must
accompany the written request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the request must be signed by all owners
of the shares or the investment dealer of record, but a signature guarantee is
not required. When the redemption is for more than $50,000, or if payment is
made to someone else or to another address, signatures of all record owners are
required and a signature guarantee may be required. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a securities
transfer association medallion program. A signature guarantee cannot be provided
by a notary public. A signature guarantee is designed to protect the
shareholders, the Fund and its agents from fraud. See Redemption and Exchange in
the Prospectuses. Each Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The Funds may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.

In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund,
its agent or certain other authorized persons (see Distribution and Service
under Investment Management Agreements), subject to any applicable CDSC or
Limited CDSC. This is computed and effective at the time the offering price and
net asset value are determined. See Determining Offering Price and Net Asset
Value. The Funds and the Distributor end their business days at 5 p.m., Eastern
time. This offer is discretionary and may be completely withdrawn without
further notice by the Distributor.

Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.

Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectuses for the Fund Classes. Class B Shares
are subject to a CDSC of: (i) 4% if shares are redeemed within two years of
purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and 0% thereafter. Class C Shares are subject to a CDSC of
1% if shares are redeemed within 12 months following purchase. See Contingent
Deferred Sales Charge - Class B Shares and Class C Shares under Classes of
Shares in the Prospectuses for the Fund Classes. Except for the applicable CDSC
or Limited CDSC and, with respect to the expedited payment by wire described
below for which, in the case of the Fund Classes, there is currently a

-40-
<PAGE>

$7.50 bank wiring cost, neither the Funds nor the Funds' Distributor charges a
fee for redemptions or repurchases, but such fees could be charged at any time
in the future.

Payment for shares redeemed will ordinarily be mailed the next business
day, but no later than seven days, after receipt of a redemption request in good
order by a Fund or certain other authorized persons (see Distribution and
Service under Investment Management Agreements); provided, however, that each
commitment to mail or wire redemption proceeds by a certain time, as described
below, is modified by the qualifications described in the next paragraph.

Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. A Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared. The hold period against a
recent purchase may be up to but not in excess of 15 days, depending upon the
origin of the investment check. Dividends will continue to be earned until the
redemption is processed. This potential delay can be avoided by making
investments by wiring Federal Funds.

If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to the Fund or to the Distributor.

In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.

Payment for shares redeemed or repurchased may be made either in cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Income
Funds, Inc. has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 pursuant to which each Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of such
Fund during any 90-day period for any one shareholder.

The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.

Small Accounts
Before a Fund involuntarily redeems shares from an account that, under
the circumstances listed in the relevant Prospectus, has remained below the
minimum amounts required by the Fund's Prospectuses and sends the proceeds to
the shareholder, the shareholder will be notified in writing that the value of
the shares in the account is less than the minimum required and will be allowed
60 days from the date of notice to make an

-41-
<PAGE>

additional investment to meet the required minimum. See The Conditions of Your
Purchase under How to Buy Shares in the Prospectuses. Any redemption in an
inactive account established with a minimum investment may trigger mandatory
redemption. No CDSC or Limited CDSC will apply to the redemptions described in
this paragraph.

-42-
<PAGE>

* * *

Each Fund has made available certain redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.

Expedited Telephone Redemptions
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523-1918 or,
in the case of shareholders of the Institutional Classes, their Client Services
Representative at 800-828-5052 prior to the time the offering price and net
asset value are determined, as noted above, and have the proceeds mailed to them
at the address of record. Checks payable to the shareholder(s) of record will
normally be mailed the next business day, but no later than seven days, after
the receipt of the redemption request. This option is only available to
individual, joint and individual fiduciary-type accounts.

In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the relevant Fund before the request is received.
Payment will be made by wire or check to the bank account designated on the
authorization form as follows:

1. Payment by Wire: Request that Federal Funds be wired to the bank account
designated on the authorization form. Redemption proceeds will normally be wired
on the next business day following receipt of the redemption request. There is a
$7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A. which will
be deducted from the withdrawal proceeds each time the shareholder requests a
redemption from Class A Shares, Class B Shares and Class C Shares. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account.

2. Payment by Check: Request a check be mailed to the bank account designated on
the authorization form. Redemption proceeds will normally be mailed the next
business day, but no later than seven days, from the date of the telephone
request. This procedure will take longer than the Payment by Wire option (1
above) because of the extra time necessary for the mailing and clearing of the
check after the bank receives it.

Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.

To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.

If expedited payment under these procedures could adversely affect a
Fund, the Fund may take up to seven days to pay the shareholder.

Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable

-43-
<PAGE>

procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.

Systematic Withdrawal Plans
Shareholders of Class A, Class B and Class C Shares who own or purchase
$5,000 or more of shares at the offering price, or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. This $5,000 minimum does not apply for a Fund's prototype
retirement plans. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.

Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may, in time, be depleted, particularly in a declining market.

The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.

Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in funds in the Delaware Investments family
which do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B and Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus for the Fund Classes. Shareholders should consult their
financial advisers to determine whether a Systematic Withdrawal Plan would be
suitable for them.

-44-
<PAGE>

An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Funds reserve the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.

The Systematic Withdrawal Plan is not available for the Institutional
Classes.

-45-
<PAGE>

DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS

Each Fund declare a dividend to shareholders of each Class of the
respective Fund's shares from net investment income on a daily basis. Dividends
are declared each day the respective Fund is open and paid monthly. Net
investment income earned on days when the respective Fund is not open will be
declared as a dividend on the next business day. Purchases of shares of the
respective Fund by wire begin earning dividends when converted into Federal
Funds and are available for investment, normally the next business day after
receipt. However, if the respective Fund is given prior notice of Federal Funds
wire and an acceptable written guarantee of timely receipt from an investor
satisfying the Fund's credit policies, the purchase will start earning dividends
on the date the wire is received. Investors desiring to guarantee wire payments
must have an acceptable financial condition and credit history in the sole
discretion of the respective Fund. Income Funds, Inc. reserves the right to
terminate this option at any time. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.

Each Class of shares of a Fund will share proportionately in the
investment income and expenses of that Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.

Dividends are automatically reinvested in additional shares of the same
Class of the respective Fund at net asset value, unless, in the case of
shareholders of the Fund Classes, an election to receive dividends in cash has
been made. Payment by check of cash dividends will ordinarily be mailed within
three business days after the payable date. Dividend payments of $1.00 or less
will be automatically reinvested, notwithstanding a shareholder's election to
receive dividends in cash. If such a shareholder's dividends increase to greater
than $1.00, the shareholder would have to file a new election in order to begin
receiving dividends in cash again. If a shareholder redeems an entire account,
all dividends accrued to the time of the withdrawal will be paid by separate
check at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above. Any check in payment of dividends
or other distributions which cannot be delivered by the United States Post
Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Fund may deduct from
a shareholder's account the costs of the Fund's effort to locate a shareholder
if a shareholder's mail is returned by the United States Post Office or the Fund
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.

Any distributions from net realized securities profits will be made
twice a year. The first payment would be made during the first quarter of the
next fiscal year. The second payment would be made near the end of the calendar
year to comply with certain requirements of the Code. Such distributions will be
reinvested in shares, unless the shareholders of the Fund Classes elect to
receive them in cash. The Funds will mail a quarterly statement showing the
dividends paid and all the transactions made during the period.

-46-
<PAGE>

TAXES

It is each Fund's policy to pay out substantially all net investment
income and net realized gains to relieve each Fund of federal income tax
liability on that portion of its income paid to shareholders under Subchapter M
of the Code. Each Fund intends to meet these requirements when it commences
operations. The Funds also intend to meet the calendar year distribution
requirements imposed by the Code to avoid the imposition of a 4% excise tax.

The Funds have no fixed policy with regard to distributions of realized
securities profits when such realized securities profits may be offset by
capital losses carried forward. Presently, however, the Funds intend to offset
realized securities profits to the extent of the capital losses carried forward.
The capital loss carryforward expires as follows: 1998--$10,862,000,
1999--$89,261,000, 2002--$3,628,000 and 2003-- $87,594,000.

Distributions of net investment income and short-term realized
securities profits are taxable as ordinary income to shareholders. Since the
major portion of each Fund's investment income is derived from interest rather
than dividends, no portion of such distributions will be eligible for the
dividends-received deduction available to corporations. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains, for
federal income tax purposes, regardless of the length of time an investor has
held such shares, and these gains are currently taxed at long-term capital gain
rates. The tax status of dividends and distributions paid to shareholders will
not be affected by whether they are paid in cash or in additional shares.

Net long-term gain from the sale of securities when realized and
distributed (actually or constructively) is taxable as capital gain. If the net
asset value of shares were reduced below a shareholder's cost by distribution of
gain realized on sale of securities, such distribution would be a return of
investment though taxable as stated above.

Under the Taxpayer Relief Act of 1997 (the "1997 Act"), as revised by
the 1998 Act, a Fund is required to track its sales of portfolio securities and
to report its capital gain distributions to you according to the following
categories of holding periods:

"Mid-term capital gains" or "28 percent rate gain": securities sold by
the Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%.

"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund
after July 28, 1997 that were held for more than 18 months. As revised
by the 1998 Act, this rate applies to securities held for more than 12
months for tax years beginning after December 31, 1997. These gains
will be taxable to individual investors at a maximum rate of 20% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 10% for investors in the 15% federal income tax
bracket.

-47-
<PAGE>

"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares (any loss is disallowed) in order to
qualify such shares as qualified 5-year property as though purchased
after December 31, 2000. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the 5 year
holding period.

Shareholders will be notified annually by Income Funds, Inc. as to the
federal income tax status of dividends and distributions paid by a Fund.

-48-
<PAGE>

INVESTMENT MANAGEMENT AGREEMENTS

The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Funds, subject to the
supervision and direction of Income Funds, Inc.'s Board of Directors.

Each Fund's Investment Management Agreement is dated September 14, 1998
and was approved by the initial shareholder on September 14, 1998. Each
Agreement has an initial term of two years and may be renewed each year only so
long as such renewal and continuance are specifically approved at least annually
by the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund to which the Agreement relates, and only if the terms and
the renewal thereof have been approved by the vote of a majority of the
directors of Income Funds, Inc. who are not parties thereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Each Agreement is terminable without penalty on 60
days' notice by the directors of Income Funds, Inc. or by the Manager. Each
Agreement will terminate automatically in the event of its assignment.

For these services, the Manager is paid an annual fee equal to for
Corporate Bond Fund: 0.50% on the first $500 million of average daily net
assets; 0.475% on the next $500 million; 0.45% on the next $1.5 billion; and
0.425% on the average daily net assets in excess of $2.5 billion and for
Extended Duration Bond Fund: 0.55% on the first $500 million of average daily
net assets; 0.50% on the next $500 million; 0.45% on the next $1.5 billion; and
0.425% on the average daily net assets in excess of $2.5 billion The directors
of Income Funds, Inc. annually review fees paid to the Manager. The Manager pays
the salaries of all directors, officers and employees who are affiliated with
both the Manager and Income Funds, Inc.

The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by each Fund and to pay certain expenses of
each Fund to the extent necessary to ensure that the total operating expenses of
each Class do not exceed 0.55% (exclusive of taxes, interest, brokerage
commissions, extraordinary expenses and 12b-1 expenses) during the commencement
of the public offering of each Fund through March 31, 1999.

Except for those expenses borne by the Manager under the Investment
Management Agreements and the Distributor under the Distribution Agreements, the
Funds are responsible for all of their own expenses. Among others, these include
a Fund's proportionate share of rent and certain other administrative expenses;
the investment management fees; transfer and dividend disbursing agent fees and
costs; custodian expenses; federal and state securities registration fees; proxy
costs; and the costs of preparing prospectuses and reports sent to shareholders.
The ratios for Class A Shares, Class B Shares and Class C Shares reflect the
impact of their respective 12b-1 Plans.

Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of each
Fund's shares under separate Distribution Agreements dated as of

-49-
<PAGE>

September 14, 1998. The Distributor is an affiliate of the Manager and bears all
of the costs of promotion and distribution, except for payments by each Fund on
behalf of its Class A Shares, Class B Shares and Class C Shares under the 12b-1
Plan for each such class. The Distributor is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.

The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the Funds' shareholder servicing, dividend disbursing and transfer agent
pursuant to an Amended and Restated Shareholders Services Agreement dated as of
September 14, 1998. The Transfer Agent also provides accounting services to the
Funds pursuant to the terms of a separate Fund Accounting Agreement. The
Transfer Agent is also an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc.

The Funds have authorized one or more brokers to accept on their behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Funds. For purposes of pricing, the Funds
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.

-50-
<PAGE>

OFFICERS AND DIRECTORS

The business and affairs of Income Funds, Inc. are managed under the
direction of its Board of Directors.

Certain officers and directors of Income Funds, Inc. hold identical
positions in each of the other funds in the Delaware Investments family. On
August 31, 1998, Income Funds, Inc.'s officers and directors owned less than 1%
of the outstanding shares of Class A Shares of Strategic Income Fund,
approximately 1% of the outstanding shares of the Institutional Class of
Delchester Fund and Strategic Income Fund, approximately 2% of the outstanding
shares of the Class A Shares of Delchester Fund; approximately 63% of the
outstanding shares of the Institutional Class of Strategic Income Fund; and none
of the outstanding shares of the Class B Shares and Class C Shares of these
Funds.

As of August 31, 1998, management believes the following accounts held
of record 5% or more of the outstanding shares of a Class of shares of
Delchester Fund. Management does not have knowledge of beneficial owners.

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Delchester Fund B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attention: Fund Administration
4800 Deer Lake Dr East, 2nd Floor
Jacksonville, FL 32246 7,193,083 12.90%

Delchester Fund C Class MLPF&S For the Sole Benefit of
its Customers SEC#97HO2
Attention: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246 1,694,727 21.25%

Delchester Fund Nationwide Life Insurance Co.
Institutional Class National QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218 2,115,882 35.97%

Bear Stearns
For the Exclusive Benefit of
Raymond G. Perelman
Charitable Remainder Unitrust
One Metrotech Center North
Brooklyn, NY 11201 1,022,450 17.38%

</TABLE>

-51-
<PAGE>

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Delchester Fund RS DMC Employee Profit Sharing Plan
Institutional Class Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 690,335 11.73%

Ogden Financial Services Inc.
Attention: George Warren
3411 Silverside Road
103 Springer Building
Wilmington, DE 19810 632,864 10.76%
</TABLE>

As of August 31, 1998, management believes the following accounts held
of record 5% or more of the outstanding shares of a Class of shares of Strategic
Income Fund. Management does not have knowledge of beneficial owners.

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Strategic Income MLPF&S
Fund B Class For the Sole Benefit of its Customers
Attn: Fund Administration SEC#97LM7
4800 Deer Lake Drive E., 2nd Floor
Jacksonville, FL 32246 280,485 9.25%

Strategic Income MLPF&S
Fund C Class For the Sole Benefit of its Customers
Attn: Fund Administration SEC#97LM8
4800 Deer Lake Drive E., 2nd Floor
Jacksonville, FL 32246 368,198 34.01%

Strategic Income Fund Chicago Trust Company
Institutional Class FBO Lincoln National Corporation
Employees Retirement Trust
1000 N. Water Street TR 14
Milwaukee, WI 53202 646,769 93.35%

RS DMC Employee Profit Sharing Plan
Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 40,420 5.83%

</TABLE>

-52-
<PAGE>

As of August 31, 1998, management believes the following accounts held
of record 5% or more of the outstanding shares of a Class of shares of
High-Yield Opportunities Fund. Management does not have knowledge of beneficial
owners.

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>

High-Yield Opportunities Wayne A. Stork
Fund A Class 5727 Twin Silo Road
Doylestown, PA 18901 1,074,398 58.58%

MLPF&S
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Floor
Jacksonville, Fl 32246 167,977 9.15%

Millerbernd Manufacturing Co.
Retirement Account
P.O. Box 98
Winsted, MN 55395 103,326 5.63%

High-Yield Opportunities MLPF&S
Fund B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Floor
Jacksonville, Fl 32246 184,969 53.41%

DMTC C/F The Rollover
IRA of Donald H. Cook
P.O. Box 182
Birchrunville, PA 19421 18,279 5.27%

</TABLE>

-53-
<PAGE>

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>

High-Yield Opportunities MLPF&S
Fund C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Floor
Jacksonville, Fl 32246 48,080 37.68%

Painewebber For the Benefit of
Painewebber CDN FBO
Eugene B. Buerke
P.O. Box 3321
Weehawken, NJ 07087 10,344 8.10%

DMTC C/F The Rollover
IRA of Audrey K. Steiner
4639 Gilbert Grade
Orfino, ID 83544 8,272 6.48%

Dain Rauscher Incorporated FBO
St. Peter's Episcopal Church
Maintenance Fund
320 St. Peter St.
Kerrville, TX 78028 6,901 5.40%

High-Yield Opportunities Chicago Trust Company
Fund Institutional Class FBO Lincoln National Corp
Employee Retirement Plan
c/o Marshall & Ilsley Trust Company
P.O. Box 2977
Milwaukee, WI 53201 653,837 99.99%
</TABLE>

DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc. are direct or indirect, wholly owned
subsidiaries of Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a
merger between DMH and a wholly owned subsidiary of Lincoln National was
completed. DMH and the Manager are indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.

-54-
<PAGE>

*Wayne A. Stork (61)
Chairman and Director and/or Trustee of Equity Funds II, Inc., 33 other
investment companies in the Delaware Investments family and
Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and
Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings
Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Retirement Financial
Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.

*Jeffrey J. Nick (45)

President, Chief Executive Officer and Director of Equity Funds II,
Inc. and 33 other investment companies in the Delaware
Investments family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
President of Lincoln Funds Corporation
Director of Delaware International Advisers Ltd.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln
National UK plc and from 1989 to 1992, he was Senior Vice
President responsible for corporate planning and development
for Lincoln National Corporation.

Richard G. Unruh, Jr. (58)
Executive Vice President of Equity Funds II, Inc., 33 other investment
companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware
Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.

- ----------------------
*Director affiliated with the Funds' investment manager and considered an
"interested person" as defined in the 1940 Act.

-55-
<PAGE>

Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of
Equity Funds II, Inc., 33 other investment companies in the
Delaware Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for Delaware Investments.

David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Equity Funds II, Inc., 33 other investment
companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Founders CBO Corporation, Delaware
Capital Management, Inc., Delaware Management Company (a
series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman,Chief Executive Officer and Director of Delaware Management
Trust Company and Retirement Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various
executive capacities at different times within the Delaware
organization.

Walter P. Babich (70)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
460 North Gulph Road, King of Prussia, PA 19406 Board Chairman, Citadel
Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.

-56-
<PAGE>

John H. Durham (61)
Director and/or Trustee of Equity Funds II, Inc. and 18 other
investment companies in the Delaware Investments family.
120 Gibraltar Road, Horsham, PA 19044
Partner, Complete Care Services
Mr. Durham served as Chairman of the Board of each fund in the
Delaware Investments family from 1986 to 1991; President of
each fund from 1977 to 1990; and Chief Executive Officer of
each fund from 1984 to 1990. Prior to 1992, with respect to
Delaware Management Holdings, Inc., Delaware Management
Company, Delaware Distributors, Inc. and Delaware Service
Company, Inc., Mr. Durham served as a director and in various
executive capacities at different times.

Anthony D. Knerr (59)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.

Ann R. Leven (57)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.

W. Thacher Longstreth (77)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.

Thomas F. Madison (62)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications
Holdings, Inc. since 1996. From February to September 1994,
Mr. Madison served as Vice Chairman--Office of the CEO of The
Minnesota Mutual Life Insurance Company and from 1988 to 1993,
he was President of U.S. WEST Communications--Markets.

-57-
<PAGE>

Charles E. Peck (72)
Director and/or Trustee of Equity Funds II, Inc. and 33 other
investment companies in the Delaware Investments family.
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive
Officer of The Ryland Group, Inc., Columbia, MD.

George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Equity Funds
II, Inc., and 33 other investment companies in the Delaware
Investments family.
Senior Vice President and Secretary of Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp.,
Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc., Founders Holdings, Inc.,
Retirement Financial Services, Inc., Delaware Capital
Management, Inc., Delvoy, Inc. and Delaware Management
Business Trust
Executive Vice President, Secretary and Director of Delaware Management
Trust Company
Senior Vice President and Director of Delaware International Holdings
Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware
organization.

Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of Equity Funds II, Inc.,
33 other investment companies in the Delaware Investments
family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Capital Management, Inc., Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services,
Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various
executive capacities at different times within the Delaware
organization.

-58-
<PAGE>

Michael P. Bishof (36)
Senior Vice President/Treasurer of Equity Funds II, Inc., 33 other
investment companies in the Delaware Investments family and
Founders Holdings, Inc.

Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware Service
Company, Inc.

Senior Vice President and Treasurer/Manager of Investment Accounting
of Delaware Distributors, L.P. and Delaware Investment
Advisers (a series of Delaware Management Business Trust)

Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.

Assistant Treasurer of Founders CBO Corporation

Before joining Delaware Investments in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.

Gary A. Reed (43)
Vice President/Senior Portfolio Manager of the Fund, of nine other
investment companies in the Delaware Investments family, of
Delaware Management Company, Inc., Delaware Investment
Advisers (a series of Delaware Management Business Trust),
Delaware Management Company (a series of Delaware Management
Business Trust) and Delaware Capital Management, Inc.
During the past five years, Mr. Reed has served in such capacities
within the Delaware organization.

-59-
<PAGE>

The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Income Funds, Inc. and the total compensation received from all investment
companies in the Delaware Investments family for which he or she serves as a
director or trustee for the fiscal year ended July 31, 1997 and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Directors/Trustees as of July 31, 1997. Only the independent
directors of the Fund receive compensation from the Income Funds, Inc.

<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total
Accrued Estimated Compensation
as Part Annual from the
Aggregate of Income Benefits Delaware
Compensation from Funds, Inc. Upon Investments
Name Income Funds, Inc. Expenses Retirement Companies(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $4,412 None $38,000 $53,598
Ann R. Leven $4,942 None $38,000 $58,557
Walter P. Babich $4,835 None $38,000 $57,557
Anthony D. Knerr $4,835 None $38,000 $57,557
Charles E. Peck $4,313 None $38,000 $50,412
Thomas F. Madison(3) $1,032 None $38,000 $15,123
John H. Durham (4) N/A None $31,000 N/A

</TABLE>

(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time
of his or her retirement from the Board, has attained the age of 70 and
served on the Board for at least five continuous years, is entitled to
receive payments from each investment company in the Delaware Investments
family for which he or she serves as a director or trustee for a period
equal to the lesser of the number of years that such person served as a
director or trustee or the remainder of such person's life. The amount of
such payments will be equal, on an annual basis, to the amount of the
annual retainer that is paid to directors/trustees of each investment
company at the time of such person's retirement. If an eligible
director/trustee retired as of July 31, 1998, he or she would be entitled
to annual payments totaling the amount noted above, in the aggregate, from
all of the investment companies in the Delaware Investments family for
which he or she served as director or trustee, based on the number of
investment companies in the Delaware Investments family as of that date.

(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a director
or trustee for all 34 investment companies in Delaware Investments, plus
$3,145 for each Board Meeting attended. John H. Durham currently receives
a total annual retainer fee of $31,000 for serving as a director or
trustee for 19 investment companies in Delaware Investments, plus
$1,757.50 for each Board Meeting attended. Ann R. Leven, Walter P. Babich,
Anthony D. Knerr and Thomas F. Madison serve on the Fund's audit
committee; Ms. Leven is the chairperson. Members of the audit committee
currently receive additional annual compensation of $5,000 from all
investment companies, in the aggregate, with the exception of the
chairperson, who receives $6,000.

-60-
<PAGE>

(3) Thomas F. Madison joined the Board of Directors on April 30, 1997.

(4) John H. Durham joined the Board of Directors of the Income Funds, Inc. and
18 other investment companies in Delaware Investments on April 16, 1998.

-61-
<PAGE>

EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Investments family
are set forth in the relevant prospectuses for such classes. The following
supplements that information. Each Fund may modify, terminate or suspend the
exchange privilege upon 60 days' notice to shareholders.

An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.

In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Investments family on behalf of their clients by telephone
or other expedited means. This service may be discontinued or revised at any
time by the Transfer Agent. Such exchange requests may be rejected if it is
determined that a particular request or the total requests at any time could
have an adverse effect on any of the funds. Requests for expedited exchanges may
be submitted with a properly completed exchange authorization form, as described
above.

Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Investments family. This service is
automatically provided unless the relevant Fund receives written notice from the
shareholder to the contrary.

Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 or, in the case of shareholders of
the Institutional Classes, their Client Services Representative at 800-828-5052,
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.

The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to

-62-
<PAGE>

amounts or frequency. The Transfer Agent and each Fund reserve the right to
record exchange instructions received by telephone and to reject exchange
requests at any time in the future.

As described in the Funds' Prospectuses, neither the Funds nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.

Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), each Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in funds in
the Delaware Investments family from Timing Firms. Each Fund reserves the right
to temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be aggregated for purposes of the exchange limits.

Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight funds in the Delaware Investments
family: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware
Fund, (4) Limited-Term Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash
Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other funds
in the Delaware Investments family are available for timed exchanges. Assets
redeemed or exchanged out of Timing Accounts in Delaware Investments funds not
listed above may not be reinvested back into that Timing Account. Each Fund
reserves the right to apply these same restrictions to the account(s) of any
person whose transactions seem to follow a timing pattern (as described above).

Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.

Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.

* * *

Following is a summary of the investment objectives of the other funds
in the Delaware Investments family:

Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and

-63-
<PAGE>

capital appreciation by investing primarily in income-producing common stocks,
with a focus on common stocks the Manager believes have the potential for above
average dividend increases over time.

Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.

Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.

DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.

Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Social Awareness Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.

Delchester Fund seeks as high a current income as possible by investing
principally in high-yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.

U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.

Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.

-64-
<PAGE>

REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.

Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.

Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.

Tax-Free New Jersey Fund seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. Tax-Free Ohio Fund seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital. Tax-Free Pennsylvania Fund seeks a high
level of current interest income exempt from federal and, to the extent
possible, certain Pennsylvania state and local taxes, consistent with the
preservation of capital.

International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Equity Fund seeks to achieve
long-term total return by investing in global securities that provide the
potential for capital appreciation and income. Emerging Markets Fund seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.

U.S. Growth Fund seeks to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields, strong balance sheets and
high expected earnings growth rates relative to their industry. Overseas Equity
Fund seeks to maximize total return (capital appreciation and income),
principally through investments in an internationally diversified portfolio of
equity securities. New Pacific Fund seeks long-term capital appreciation by
investing primarily in companies which are domiciled in or have their principal
business activities in the Pacific Basin.

Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Income Portfolio seeks a combination of current income and preservation of
capital with capital appreciation by investing in primarily a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. Foundation Funds Balanced Portfolio seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. Foundation Funds Growth Portfolio seeks long term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.

Delaware Group Premium Fund, Inc. offers 16 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total

-65-
<PAGE>

rate of return by selecting issues that exhibit the potential for capital
appreciation while providing higher than average dividend income. Delchester
Series seeks as high a current income as possible by investing in rated and
unrated corporate bonds, U.S. government securities and commercial paper.
Capital Reserves Series seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short- and intermediate-term securities. Cash Reserve Series seeks the highest
level of income consistent with preservation of capital and liquidity through
investments in short-term money market instruments. DelCap Series seeks
long-term capital appreciation by investing its assets in a diversified
portfolio of securities exhibiting the potential for significant growth.
Delaware Series seeks a balance of capital appreciation, income and preservation
of capital. It uses a dividend-oriented valuation strategy to select securities
issued by established companies that are believed to demonstrate potential for
income and capital growth. International Equity Series seeks long-term growth
without undue risk to principal by investing primarily in equity securities of
foreign issuers that provide the potential for capital appreciation and income.
Small Cap Value Series seeks capital appreciation by investing primarily in
small-cap common stocks whose market values appear low relative to their
underlying value or future earnings and growth potential. Emphasis will also be
placed on securities of companies that may be temporarily out of favor or whose
value is not yet recognized by the market. Trend Series seeks long-term capital
appreciation by investing primarily in small- cap common stocks and convertible
securities of emerging and other growth-oriented companies. These securities
will have been judged to be responsive to changes in the market place and to
have fundamental characteristics to support growth. Income is not an objective.
Global Bond Series seeks to achieve current income consistent with the
preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation.
Strategic Income Series seeks high current income and total return by using a
multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities markets: high-yield, higher risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. Devon Series seeks current income and capital
appreciation by investing primarily in income-producing common stocks, with a
focus on common stocks that the investment manager believes have the potential
for above-average dividend increases over time. Emerging Markets Series seeks to
achieve long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries. Convertible
Securities Series seeks a high level of total return on its assets through a
combination of capital appreciation and current income by investing primarily in
convertible securities. Social Awareness Series seeks to achieve long-term
capital appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry.

Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.

Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.

Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of

-66-
<PAGE>

capital. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.

Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital. Delaware-
Voyageur Tax-Free Idaho Fund seeks to provide a high level of current income
exempt from federal income tax and the Idaho personal income tax, consistent
with the preservation of capital. Delaware-Voyageur Minnesota High Yield
Municipal Bond Fund seeks to provide a high level of current income exempt from
federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.

-67-
<PAGE>

Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.

Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.

-68-
<PAGE>

Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
North Dakota Fund seeks to provide a high level of current income exempt from
federal income tax and the North Dakota personal income tax, consistent with the
preservation of capital.

For more complete information about any of the funds in the Delaware
Investments family funds, including charges and expenses, you can obtain a
prospectus from the Distributor. Read it carefully before you invest or forward
funds.

Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).

-69-
<PAGE>

GENERAL INFORMATION

The Manager is the investment manager of the Funds. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. While investment decisions of the Funds are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Funds.

The Manager, or its affiliate Delaware International Advisers Ltd., also
manages the investment options for Delaware Medallion (sm) III Variable Annuity.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers a variety of investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an investment
strategy and discipline the same as or similar to one of the mutual funds in the
Delaware Investments family as available outside the annuity. See Delaware Group
Premium Fund, Inc., above.

Access persons and advisory persons of the funds in the Delaware
Investments family, as those terms are defined in SEC Rule 17j-1 under the 1940
Act, who provide services to the Manager, Delaware International Advisers Ltd.
or their affiliates, are permitted to engage in personal securities transactions
subject to the exceptions set forth in Rule 17j-1 and the following general
restrictions and procedures: (1) certain blackout periods apply to personal
securities transactions of those persons; (2) transactions must receive advance
clearance and must be completed on the same day as the clearance is received;
(3) certain persons are prohibited from investing in initial public offerings of
securities and other restrictions apply to investments in private placements of
securities; (4) opening positions may only be closed-out at a profit after a
60-day holding period has elapsed; and (5) the Compliance Officer must be
informed periodically of all securities transactions and duplicate copies of
brokerage confirmations and account statements must be supplied to the
Compliance Officer.

The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for Income Funds, Inc. and for
the other mutual funds in the Delaware Group. The Transfer Agent is paid a fee
by the Funds for providing these services consisting of an annual per account
charge, in each case, of $11.00 plus, in each case, transaction charges for
particular services according to a schedule. Compensation is fixed each year and
approved by the Board of Directors, including a majority of the disinterested
directors. The Transfer Agent also provides accounting services to the Funds.
Those services include performing all functions related to calculating each
Fund's net asset value and providing all financial reporting services,
regulatory compliance testing and other related accounting services. For its
services, the Transfer Agent is paid a fee based on total assets of all funds in
the Delaware Group for which it provides such accounting services. Such fee is
equal to 0.25% multiplied by the total amount of assets in the complex for which
the Transfer Agent furnishes accounting services, where such aggregate complex
assets are $10 billion or less, and 0.20% of assets if such aggregate complex
assets exceed $10 billion. The fees are charged to each fund, including the
Funds, on an aggregate pro-rata basis. The asset-based fee payable to the
Transfer Agent is subject to a minimum fee calculated by determining the total
number of investment portfolios and associated classes.

The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Income Funds, Inc.'s
advisory relationships with the Manager or their distribution relationships with
the Distributor, the Manager and its affiliates could cause Income Funds, Inc.
to delete the words "Delaware Group" from Income Funds, Inc.'s name.

-70-
<PAGE>

The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of each Fund's securities and cash. As custodian for each
Fund, Chase maintains a separate account or accounts for the Funds; receives,
holds and releases portfolio securities on account of the Funds; receives and
disburses money on behalf of the Funds; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.

Capitalization

Income Funds, Inc. has a present authorized capitalization of
1,400,000,000 shares of capital stock with a $1.00 par value per share. Each
fund offers four classes of shares, each representing a proportionate interest
in the assets of that Fund, and each having the same voting and other rights and
preferences as the other classes, except that shares of a fund's Institutional
Class may not vote on matters affecting that fund's Distribution Plans under
Rule 12b-1. Similarly, as a general matter, shareholders of Class A Shares,
Class B Shares and Class C Shares of a fund may vote only on matters affecting
the 12b-1 Plan that relates to the class of shares that they hold. However,
Class B Shares of a fund may vote on any proposal to increase materially the
fees to be paid by the Fund under the Rule 12b-1 Plans relating to its Class A
Shares. General expenses of a fund will be allocated on a pro-rata basis to the
classes according to asset size, except that expenses of the Rule 12b-1 Plans of
each Fund's Class A, Class B and Class C Shares will be allocated solely to
those classes. The Board of Directors of Income Funds, Inc. has allocated the
following number of shares to each fund and class:

Delchester Fund 500 million
Delchester Fund A Class 350 million
Delchester Fund B Class 50 million
Delchester Fund C Class 50 million
Delchester Fund Institutional Class 50 million

Strategic Income Fund 200 million
Strategic Income Fund A Class 100 million
Strategic Income Fund B Class 25 million
Strategic Income Fund C Class 25 million
Strategic Income Fund Institutional Class 50 million

High-Yield Opportunities Fund 200 million
High-Yield Opportunities Fund A Class 100 million
High-Yield Opportunities Fund B Class 25 million
High-Yield Opportunities Fund C Class 25 million
High-Yield Opportunities Fund Institutional Class 50 million

Corporate Bond Fund 200 million
Corporate Bond Fund A Class 100 million
Corporate Bond Fund B Class 25 million
Corporate Bond Fund C Class 25 million
Corporate Bond Fund Institutional Class 50 million

-71-
<PAGE>

Extended Duration Bond Fund 200 million
Extended Duration Bond Fund A Class 100 million
Extended Duration Bond Fund B Class 25 million
Extended Duration Bond Fund C Class 25 million
Extended Duration Bond Fund Institutional Class 50 million

All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights.

Until September 30, 1996, Income Funds, Inc. operated as Delaware Group
Delchester High-Yield Bond Fund, Inc., and offered one series of shares, the
Delchester Fund series. Beginning September 30, 1996, Income Funds, Inc. offered
Strategic Income Fund series, beginning December 27, 1996 offered the High-Yield
Opportunities Fund series and beginning September 14, 1998 offered Corporate
Bond Fund series and Extended Duration Bond Fund series.

Noncumulative Voting
Income Funds, Inc.'s shares have noncumulative voting rights which means
that the holders of more than 50% of the shares of Income Funds, Inc. voting for
the election of directors can elect all the directors if they choose to do so,
and, in such event, the holders of the remaining shares will not be able to
elect any directors.

This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.

-72-
<PAGE>

FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for Income Funds,
Inc. and, in its capacity as such, will audit the annual financial statements of
each Fund.

-73-