DELAWARE GROUP INCOME FUNDS, N-30D, 1999-09-29

DELAWARE GROUP INCOME FUNDS
N-30D, 1999-09-29

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<PAGE>
Delaware Strategic Income Fund
FOR CURRENT INCOME

service and guidance

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

professional management

1999
Annual
Report

goals

DELAWARE INVESMENTS
- - -------------------
Philadelphia o London

<PAGE>

A TRADITION OF SOUND INVESTING

A Commitment
To Our Investors

(photo of computer keyboard)
(illustration of waterfall)

commitment

Delaware Investments has a tradition of money management that dates back to
1929. We have a long and distinguished history of helping individuals and
institutions--including some of America's largest pension funds--reach their
financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, the Delaware organization established its first mutual fund in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also manage
investments for variable annuities and closed-end funds as well as offer a wide
range of retirement plan services for individuals and businesses.
Delaware Investments manages approximately $47 billion in mutual fund
assets and institutional advisory accounts for more than half-a-million
investors.

Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.

Delaware Strategic Income
Fund Objective
To provide investors with high current income and total return.

Table of Contents

LETTER TO SHAREHOLDERS Page 1
PORTFOLIO MANAGERS' REVIEW Page 3
PERFORMANCE SUMMARY Page 10
STATEMENT OF NET ASSETS Page 11
FINANCIAL HIGHLIGHTS Page 16

current
income

tradition

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FOR CURRENT
INCOME
1

August 24, 1999
Dear Shareholder:

THE PAST FISCAL YEAR HAS BEEN A challenging one for fixed income investors.
First, we saw markets fall into a late summer tailspin following Russia's
devaluation of the ruble and failure to meet certain debt obligations. The Asian
recession added to investors' concerns as it escalated into a global problem for
both emerging and established nations.
Caution became the word of the day. U.S. Treasury bonds rallied as
investors in both the U.S. and abroad sought to protect their assets from
turbulent global economic conditions. As demand and prices rose, long-term
Treasury yields reached 30-year lows. Prices for other bonds, especially in the
higher risk, high-yield market, dropped sharply as investors fled to the safer
ground of better quality investments.
The market's tale turned by November when investor confidence began to
recover following three Federal Reserve interest rate cuts. Lower interest rates
added liquidity, helping to ease concerns. Treasuries lost some appeal as
investors pursued opportunities to earn higher yields. In December and January,
investment grade corporate bonds and mortgage-backed securities, and to some
degree high-yield bonds, bounced back from their lows.

WE FEEL THAT FOR INVESTORS WHO SEEK HIGH CURRENT INCOME AND TOTAL RETURN,
DELAWARE STRATEGIC INCOME FUND OFFERS AN ATTRACTIVE BALANCE BETWEEN THE TWO.

Robust U.S. economic growth invigorated the stock market during the winter
and spring of 1999 and helped support foreign economic recovery, especially in
emerging markets regions such as Asia and Latin America.
An improving foreign outlook, however, reduced demand for U.S. government
debt in the spring, putting a stop to the burgeoning recovery in the U.S. bond
market. Many investors chose the greater appreciation potential of equity
securities as the Dow Jones Industrial Average closed above both the 10,000 and
11,000 marks for the first time in the spring of 1999.

CUMULATIVE TOTAL RETURN
- - --------------------------------------------------------------------------------
One Year
Ended
July 31, 1999
- - --------------------------------------------------------------------------------
Delaware Strategic Income Fund A Class -2.77%
Lipper Multi-Sector Fund Average (100 funds) -2.65%
Lehman Brothers Aggregate Bond Index +2.48%
- - --------------------------------------------------------------------------------

Performance is calculated at net asset value without effect of sales charges and
assumes reinvestment of distributions. The Lipper Multi-Sector Fund Average is
an index of all multi-sector funds. The Lehman Brothers Aggregate Bond Index is
composed of investment grade and non-investment grade U.S. bonds. Past
performance does not guarantee future results. Complete performance for all
classes can be found on page 10.

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FOR CURRENT
INCOME
2

On June 30, the Federal Reserve Board raised the Fed Funds rate, its
target rate for overnight loans between banks, by a quarter of a percentage
point, citing inflationary concerns. The Treasury market improved as a result,
posting solid gains into the first week of July. Even U.S. equity indexes hit
new highs following the rate increase (Source:
Bloomberg).

discipline

In the midst of these shifting and sometimes volatile bond market
conditions, Delaware Strategic Income Fund had a total return of -2.77% (for
Class A shares at net asset value with distributions reinvested) for the 12
months ended July 31, 1999. Strategic Income Fund did not perform quite as well
as its benchmark, the Lehman Brothers Aggregate Bond Index.
This index, however, is composed entirely of U.S. bonds, so its return does not
reflect volatility in foreign bond prices.
Delaware Strategic Income Fund attempts to provide high current income and
total return to it shareholders by investing in three distinct bond sectors:

o U.S. government and investment grade bonds,
o high-yield, higher risk U.S. corporate bonds and
o foreign bonds.

In addition, the Fund also has the ability to invest up to 10% of it
assets in U.S. equity securities. We took advantage of this ability last year,
investing about 5% of total assets in real estate investment trusts (REITS).
Although this past year has also been a challenging one for investors in REITS,
we remain very optimistic about this asset class.
Looking forward, we believe bonds may remain in the shadow of stocks as
long as economic growth continues in 1999. However, we still believe fixed
income investments play a vital role in well-balanced portfolios. For investors
who seek high current income and total return, Delaware Strategic Income Fund
offers an attractive balance between the two.
On the pages that follow, Paul Grillo, Joanna Bates, Paul Matlack and
Christopher Moth, your Fund's portfolio managers, explain Delaware Strategic
Income Fund's positioning during the period and provide an outlook for fiscal
2000. Thank you for your continued confidence in Delaware Investments.

Sincerely,

/S/WAYNE A. STORK
- - -----------------
WAYNE A. STORK
Chairman
Delaware Investments Family of Funds

/S/DAVID K. DOWNES
- - ------------------
DAVID K. DOWNES
President and Chief Executive Officer
Delaware Investments Family of Funds

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FOR CURRENT
INCOME
3

Portfolio Managers' Review

PAUL GRILLO
Delaware Management Company
U.S. Investment Grade Bonds

JOANNA BATES
Delaware International Advisers Ltd.
Foreign Bonds

PAUL A. MATLACK
Delaware Management Company
U.S. High Yield Bonds

CHRISTOPHER A. MOTH
Delaware International Advisers Ltd.
Foreign Bonds

August 24, 1999

INVESTMENT STRATEGY
DELAWARE STRATEGIC INCOME FUND IS A multi-sector fund portfolio that seeks high
current income and total return by investing primarily in:

o Investment grade U.S. government and corporate bonds;
o High-yield, higher risk U.S. corporate bonds;* and,
o Investment grade foreign government and corporate bonds.**

The Fund's investment guidelines allow us to allocate between 20% and 60%
of net assets in any one sector. We may also invest up to 10% of net assets in
U.S. stocks to generate higher total return. Our allocations are based on a
detailed analysis of U.S. and foreign economic and political trends. We consider
interest rates and the effect they may have on income potential. In addition, we
examine how economic conditions may affect the ability of corporate issuers to
make interest and principal payments.

OVERVIEW
Fiscal 1999 was a tumultuous year for both domestic and international investors.
The last six months, however, have brought cause for optimism as the financial
turbulence around the world has shown signs of calming. As in the United States,
lower interest rates around the globe helped turn the tide.

overview

In November, the United States started the wave of worldwide interest rate
cuts. The Federal Reserve cut interest rates three times over the course of the
fall. Lower interest rates added liquidity, helping to ease both domestic and
international concerns. In December, the central banks of 11 euro-zone nations
followed suit and cut rates to a uniform 3.0%. Many other nations abroad,
including the United Kingdom, New Zealand and countries in the Pacific Rim, went
on to cut their interest rates.
The International Monetary Fund also played a role in the global
turnaround by providing billions of dollars to struggling economies in Brazil,
Russia and Asia. After many months of weakness, the economies in eastern Asia
appear to be strengthening. Many corporations in the region have restructured
and are operating more efficiently.

* High-yielding non-investment grade bonds involve higher risk that under
adverse conditions may affect the issuer's ability to pay interest and
principal on these securities.
** Foreign investments are subject to certain special risks, such as currency
fluctuations, political and economic instability and differences in
accounting standards that do not affect domestic investments.

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FOR CURRENT
INCOME
4

Low interest rates, continued growth of the U.S. economy and a brightening
picture abroad restored faith in the equity markets worldwide. This favorable
scenario for stocks, however, put a damper on both U.S. and foreign fixed income
securities, which had benefited from a global flight to quality last year. In
the following sections, your Fund's four portfolio managers detail how they
navigated these difficult fixed income environments.

investment
grade

(photo of family on beach)

INVESTMENT GRADE U.S. BONDS
As of July 31, 1999, Delaware Strategic Income Fund had allocated 22.0% of its
portfolio to investment grade U.S. bonds. This was a slight 0.6% increase from
the Fund's allocation to these securities as of July 31, 1998.
The three Federal Reserve interest rate cuts provided the key economic
backdrop for the majority of the fiscal year. The improved global outlook
decreased demand for U.S. government debt over the last year, reducing U.S. bond
prices and pushing yields higher. U.S. Treasury bonds, particularly 30-year
Treasuries were hit hardest.
For the first half of your Fund's fiscal year, we attempted to underweight
Treasury securities and overweight non-Treasury securities in the investment
grade portion of the Delaware Strategic Income Fund in non-Treasury securities.
We did this primarily because Treasuries were suffering and we could find
greater yield advantage in other types of securities. The non-Treasury
securities we invested in included agency mortgage-backed securities,
asset-backed securities, commercial mortgage-backed obligations and corporate
bonds.
We intended to keep this positioning in place through the end of the third
quarter. However, we were forced to alter our strategy in May, when the Federal
Reserve mentioned a bias towards tightening rates amid inflationary fears.
Subsequently, on June 30, the Federal Reserve Board raised the Fed Funds rate,
its target rate for overnight loans between banks. These events triggered a
trend toward higher yield premiums in the non-Treasury sectors. As non-Treasury
sectors began to underperform Treasury securities, we shifted toward more
defensive and liquid securities (agency mortgage-backed securities, agency
debentures, and Treasuries). We think this more defensive portfolio is prudent
in light of possible market disruptions due to Y2K.

PORTFOLIO HIGHLIGHTS AND ASSET MIX
- - --------------------------------------------------------------------------------
AS OF JULY 31, 1999

(pie graph)
U.S. Equities 5.3%
Foreign Bonds 26.8%
U.S. High Yield Bonds 37.1%
U.S. Investment Grade Bonds 22.0%

July 31, July 31,
1999 1998
- - --------------------------------------------------------------------------------
Average Quality Baa (domestic) Baa (domestic)
AA-(foreign) AA-(foreign)
Average Effective
Duration 4.8 years 4.4 years
Average Effective
Maturity 7.4 years 7.1 years
Current 30-Day
SEC Yield 8.32% 7.65%

* For Class A shares measured according to the Securities and Exchange
Commission guidelines. For Class B and Class C shares, the 30-day SEC current
yields as of July 31, 1999 were 7.97% and 7.97%, respectively.

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FOR CURRENT
INCOME
5

(photo of three people talking)

On Tuesday, August 24th, The Federal Reserve again raised interest rates
by a quarter of a percentage point, the second increase in less than two months,
saying the action should help avert inflation while allowing the nation's long
economic expansion to continue. The bank increased the main rate it controls,
the Federal funds target rate on overnight loans between banks, to 5.25% and
discount rate on loans to banks from the Federal Reserve System to 4.75%. The
Dow Jones Industrial Average reacted favorably to the interest rate cut,
reaching an all-time high of 11,326 on August 25, 1999 (Source: Bloomberg).
Over the course of the year, we have significantly increased your Fund's
investment in agency mortgage-backed securities. As of July 31, 1998, these
non-Treasury securities represented 4.32% of your Fund. As of July 31, 1999,
they grew to 6.35% of your Fund's total assets.
Government-sponsored corporations issue agency mortgage-backed securities.
Examples include the Federal Home Loan Banks or Federal Land Banks. Two of the
most popular issuers are the Federal National Mortgage Association (known to
many as Fannie Mae) and the Government National Mortgage Association (known as
Ginnie Mae). These securities generally yield more than Treasuries of comparable
maturity. However, when interest rates fall, they carry the risk that homeowners
will refinance their mortgages, requiring bondholders like us to reinvest
principal at lower current rates. During fiscal 1999, we believed the risk of
prepayment was minimal and that the incremental yield was attractive relative to
this risk. These securities also have the added value of being among the most
liquid instruments in the capital markets.
We significantly decreased our weighting in collateralized mortgage
obligations (CMOs) since July 31, 1998 when they represented 5.15% of the Fund.
As of July 31, 1999, they were just 2.86% of total assets. CMOs are typically
backed by government-guaranteed or other top grade mortgages, equivalent to a
AAA bond rating. For a slight sacrifice of yield, CMOs lessen the anxiety
investors may have about the uncertain life of their investments. CMOs have
different tranches, or maturity classes, which pay different rates of interest
and typically mature in pre-set two, five, ten or twenty year increments. These
securities can be a source of consistent income and stability in volatile
markets. In May, when the Federal Reserve announced its bias to tighten rates,
CMOs began to underperform Treasury securities. We decided to reduce our
position in CMOs and start adding back to our investment in U.S.
Treasury obligations, which ended the year as 3.21% of total assets in your
Fund.

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FOR CURRENT
INCOME
6

Our most significant holdings in non-government securities during this
past year were corporate bonds. These bonds looked especially attractive to us
in December, because their prices fell substantially amid last year's liquidity
crisis, and in our view they offered exceptional yields and values. These bonds
began to appreciate in the early winter and spring of 1999, as they capitalized
on the comeback of both equity and credit markets. Our significant weighting in
this area is being reduced in anticipation of Y2K anxiety, and the trend in
monetary tightening by the Federal Reserve. We will probably increase our
weighting in this area when we believe that the yield premium is large enough to
compensate for the uncertainty facing this sector of the bond market. Corporate
bonds represented 24% of the investment grade portion of your Fund and 5.3% of
the total assets of the Delaware Strategic Income Fund as of July 31, 1999.

HIGH-YIELD U.S. BONDS
Throughout fiscal 1999, the high-yield bond market suffered from reduced demand
and a corresponding low level of liquidity. The lack of liquidity stemmed in
large part from unwillingness among Wall Street underwriters to use their own
capital to create markets for the issues they had underwritten.

high
yield

Our allocation to the U.S. high-yield bonds represented 37.1% of Delaware
Strategic Income Fund as of July 31, 1999. This was a slight increase from July
31, 1998. We correctly anticipated a record number of new issues coming to
market during fiscal 1999, but thought investor demand would be equally as
strong. Regrettably, it was not. Your Fund's return was negatively impacted by
this sector's disappointing performance. Typically, we expect high-yield bonds
to lead our Fund's investments, in terms of both income generated and total
return potential.
Overall, we focus on U.S. high-yield bonds that we believe offer an
attractive level of income and potential for price appreciation. We also seek to
manage credit risk by focusing on issuers who demonstrate a high likelihood of
being able to pay their debt obligations.
In keeping with this approach and the Fund's primary investment objective
to seek total return, we concentrate the Fund's investment selection on bonds
rated BB and B, the upper credit tiers of non-investment grade bonds. We
continue to structure the portfolio with a bias toward these higher quality
issues over those with the lowest credit ratings in an effort to help preserve
capital in down markets.

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FOR CURRENT
INCOME
7

FOREIGN BONDS
Foreign markets calmed considerably since the fall of 1998 and winter of 1999. A
healthy U.S. economy helped support international economic recovery, especially
in emerging markets regions such as Asia and Latin America. However, demand for
foreign fixed income investments appeared to wane as investor confidence
increased.

foreign
bonds

Foreign bonds represented 26.8% of your Fund as of July 31, 1999, a 2.2%
increase from July 31, 1998. We believe overseas economies are continuing to
stabilize and have found great opportunities to buy some high quality foreign
bonds at considerable values.
We place great importance on selecting quality foreign bonds for Delaware
Strategic Income Fund's portfolio. We typically look for bonds, rated "A" or
better by Standard and Poor's that deliver high current income and have an
average effective maturity of five to 10 years.
Over the last year, the foreign bond segment of your Fund had sizable
investments in Australia, Canada and New Zealand. Prior to November, we viewed
currencies in these countries as undervalued relative to the U.S. dollar. Your
Fund benefited over the past six months as currencies in Australia, Canada and
New Zealand strengthened. We have, however, begun to reduce our exposure in
these countries in favor of the better values we now believe to be available in
Europe.
In Europe, progress toward currency union over the past two years
originally helped bond performance in countries with historically weak
currencies and higher than average inflation like Italy and Spain. However, the
value of the euro has depreciated over 12.0% between its introduction in January
and the end of our fiscal period, July 31, 1999 (Source:
Bloomberg).
We believe slower than expected growth throughout Europe and an economic
recession in Germany contributed to the declining value of the euro. The euro's
weakness increased bond yields in European Monetary Union member nations,
creating better value. We believe this will open up attractive investment
opportunities in Europe.

On July 2, 1999, Joanna Bates joined the Delaware Strategic Income Fund
management team and began work on the foreign bond component of your Fund. Ms.
Bates is a graduate of London University and has been with Delaware since 1997.
Previously she was an Associate Director, Fixed Interest at Hill Samuel
Investment Management. She joins Christopher A. Moth in managing the foreign
bond component. Mr. Moth has been a part of the Strategic Income Fund's team
since the Fund's inception. Mr. Moth graduated from the City University of
London and previously worked at the Guardian Royal Exchange, where he was
responsible for technical analysis, quantitative models and projections.

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FOR CURRENT
INCOME
8

Investing in foreign bonds involves certain risks, including fluctuating
currency values. Since American investors measure their results in U.S. dollars,
international currency changes can add or subtract from U.S. returns. We attempt
to reduce currency risk by holding bonds denominated in currencies that appear
undervalued. For example, as of July 31, 1999, we held bonds denominated in
South African rand, which we viewed as inexpensive and having significant
appreciation potential.
We may sometimes attempt to minimize currency risk by selectively hedging
our currency exposure with contracts that allow us to convert foreign currencies
into U.S. dollars at a predetermined rate. Our focus on undervalued currencies
made hedging unnecessary over the last six months.

equity securities

U.S. EQUITY SECURITIES
This past year, we allocated 5.3% of Delaware Strategic Income Fund to U.S.
equity securities in an attempt to maximize your Fund's total return potential.
Our equity holdings consisted entirely of real estate investment trusts (REITs).
For much of the year, REITs, companies that manage portfolios of real
estate holdings to earn profits for shareholders, were decidedly out of favor.
This appeared to be largely the result of recessionary fears and a late 1998
capital crunch, which severely limited REITs' ability to raise capital by
borrowing money or issuing stock.

THIS PAST YEAR, WE ALLOCATED 5.3% OF DELAWARE STRATEGIC INCOME FUND TO U.S.
EQUITY SECURITIES IN AN ATTEMPT TO MAXIMIZE YOUR FUND'S TOTAL RETURN POTENTIAL.

REITS did, however, stage a powerful rally in April, significantly
outperforming the S&P 500. We attribute this to attractive valuations on REITS
as well as to increased volatility in other stock sectors. The strength of this
rally leaves us relatively optimistic about the prospects for the REIT sector
during the remainder of 1999.
We will continue to emphasize REITs within the relatively small U.S.
equity portion (no more than 10% of net assets) of Delaware Strategic Income
Fund and may even increase our allocation slightly. We believe REITs' high
current yields, potential growth of dividends and attractive valuations will
contribute to the total return portion of your Fund's objective in the coming
year.

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FOR CURRENT
INCOME
9

MARKET OUTLOOK
The U.S. seems to be the engine of growth for the entire world at this time. We
believe strong forward momentum for the U.S. economy is likely to result in
solid growth (about 3% annually) for the remainder of this year. We don't think
this will create an inflationary environment if labor productivity can maintain
respectable gains.
We also don't foresee any stampede into fixed income securities as long as
the stock market continues to perform well. That means we don't expect increased
demand to push bond prices higher. We do think a bond's income will be the key
driver of return in the rest of 1999, just as it has historically been over
longer periods.

market
outlook

We do anticipate that Year 2000 concerns may create an appetite for bonds
of higher credit quality, potentially raising Treasury prices as we near the
third and fourth quarters of 1999. Regardless, we foresee the 30-year Treasury
bond staying in a relatively narrow yield range for the remainder of the year.
We also believe the Federal Reserve's 0.25 percent rate increases represented
fine-tuning, rather than a fundamental change in policy.
As for the high-yield bond market, we are in an unusual period in its
history. Despite the continued strength of the U.S. economy and the prospect of
imminent economic recovery in Asia and Latin America, the high-yield bond market
has been stymied by poor trading liquidity and an uncertain market outlook. If
the U.S. economy remains strong and credit conditions in the high-yield market
do not change, we believe investors will eventually reallocate assets to
high-yield bonds to take part in compelling opportunities for high current
income with potential for capital appreciation. Despite some short-term
concerns, our long-term outlook for high-yield bonds is positive.

WE REMAIN CONFIDENT THAT A PORTFOLIO CONSISTING OF BOTH U.S. BONDS AND FOREIGN
BONDS PROVIDES DIVERSIFICATION THAT CAN HELP REDUCE INVESTMENT RISK AND INCREASE
THE POTENTIAL FOR HIGH CURRENT INCOME AND TOTAL RETURN.

In our opinion, foreign bond yields, which are still somewhat lower than
domestic bond yields, are improving. We see opportunities in Europe to purchase
undervalued bonds due to slower economic growth and currency weakness. As of
now, we are of the view that Spain is the only standout economy of the euro
currency zone. According to Bloomberg, "its economy and inflation are growing
considerably faster than most of the other 10 nations" as of July 31, 1999.
Overall, foreign bond markets now represent more than half of the
fixed-income opportunities worldwide, up from less than one third in 1989
(Source: Bloomberg). We remain confident that a portfolio consisting of both
U.S. bonds and foreign bonds provides diversification that can help reduce
investment risk and increase the potential for high current income and total
return.

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FOR CURRENT
INCOME
10

Performance Summary

(Line chart)
DELAWARE STRATEGIC INCOME FUND'S LIFETIME PERFORMANCE
- - --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
OCTOBER 1, 1996 TO JULY 31, 1999

Delaware Class Lehman Brothers
Strategic Income Aggregate
Fund A Class Bond Index
- - --------------------------------------------------------------------------------
Oct '96 $9,532 $10,000
Dec '96 9,850 10,076
Jun '97 10,354 10,390
Dec '97 10,759 11,049
Jun '98 11,008 11,483
Dec '98 10,998 12,009
Jun '99 10,822 11,842
Jul '99 $10,792 $11,793

Chart assumes $10,000 invested on October 1, 1996, a 4.75% maximum front-end
sales charge and reinvestment of all distributions. Performance for other Fund
classes will vary due to differing charges and expenses.

DELAWARESTRATEGIC INCOME FUND'S PERFORMANCE
AVERAGE ANNUAL RETURNS THROUGH JULY 31, 1999
- - --------------------------------------------------------------------------------
Lifetime One Year
- - --------------------------------------------------------------------------------
Class A (Est. 10/01/96)
Excluding Sales Charge +4.65% -2.77%
Including Sales Charge +2.89% -7.34%
Class B (Est. 10/01/96)
Excluding Sales Charge +3.93% -3.31%
Including Sales Charge +3.05% -6.87%
Class C (Est. 10/01/96)
Excluding Sales Charge +3.93% -3.32%
Including Sales Charge +3.93% -4.20%

Delaware Strategic Income Fund invests a portion of its portfolio in high-yield
bonds, which involves greater risks than investing in higher quality
fixed-income securities. Return and share value will fluctuate so that shares,
when redeemed, may be worth more or less than the original cost. All results
include reinvestment of distributions and sales charges as shown below. Past
performance is not a guarantee of future results. Performance for Class B and C
shares excluding sales charge assumes either contingent sales charges did not
apply or the investment was not redeemed.

A voluntary expense limitation has been in effect since inception. Performance
would have been lower if the expense limitation was not in effect.

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

The average annual total returns for the lifetime and one-year periods as of
July 31, 1999, for Delaware Strategic Income Fund's Institutional Class, which
is available without sales or asset-based distribution charges only to certain
eligible institutional accounts, were +4.90% and -2.46%, respectively.

<PAGE>

FOR CURRENT INCOME 11

Financial Statements

DELAWARE GROUP INCOME FUNDS, INC. - DELAWARE STRATEGIC INCOME FUND+
STATEMENT OF NET ASSETS
JULY 31, 1999
- - --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT* (U.S. $)
- - --------------------------------------------------------------------------------
CORPORATE BONDS - 40.90%
AUTOMOBILES & AUTOMOTIVE PARTS - 2.12%
Federal Mogul notes 7.50% 1/15/09 .................. $400,000 $ 371,500
Meritor Auto notes 6.80% 2/15/09 ................... 250,000 235,313
Stanadyne Automotive sr sub notes
10.25% 12/15/07 .................................. 500,000 429,375
------------
1,036,188
------------
BANKING, FINANCE & INSURANCE - 1.90%
American Financial Group sr notes
7.125% 4/15/09 ................................... 100,000 93,125
Banco Santander-Chile notes 6.50% 11/1/05 .......... 75,000 72,094
Bank One notes 6.40% 8/1/02 ........................ 250,000 249,063
Fairfax Financial Holdings notes
7.375% 3/15/06 ................................... 125,000 119,688
Popular North America notes
6.625% 1/15/04 ................................... 200,000 194,500
Southern Investments United Kingdom sr notes
6.375% 11/15/01 .................................. 200,000 200,000
------------
928,470
------------
CABLE, MEDIA & PUBLISHING - 2.17%
Adelphia Communications sr notes
7.75% 1/15/09 .................................... 200,000 184,500
American Media Operation sr notes
10.25% 5/1/09 .................................... 200,000 200,750
Cox Communications notes 6.15% 8/1/03 .............. 135,000 131,625
Muzak sr sub notes 9.875% 3/15/09 .................. 400,000 400,000
United News and Media notes
7.75% 7/1/09 ..................................... 150,000 146,813
------------
1,063,688
------------
CHEMICALS - 4.31%
Equistar Chemicals sr notes 8.75% 2/15/09 .......... 200,000 200,500
General Chemical sr sub notes
10.625% 5/1/09 ................................... 400,000 408,000
LaRoche Industries sr sub notes
9.50% 9/15/07 .................................... 300,000 219,000
Lyondell Chemicals sr notes 9.625% 5/1/07 .......... 200,000 203,000
Octel Developments sr notes
10.00% 5/1/06 .................................... 650,000 678,438
Sterling Chemicals sr sub notes
11.75% 8/15/06 ................................... 500,000 400,000
------------
2,108,938
------------
COMPUTERS & TECHNOLOGY - 0.81%
American General Institute co. guarantee
7.57% 12/1/46 .................................... 100,000 95,500
Seagate Technology debs 7.45% 3/1/37 ............... 200,000 181,750
Sun Microsystems sr notes 7.65% 8/15/09 ............ 120,000 119,456
------------
396,706
------------

PRINCIPAL MARKET VALUE
AMOUNT* (U.S. $)
- - --------------------------------------------------------------------------------
CORPORATE BONDS (CONTINUED)
CONSUMER PRODUCTS - 2.32%
Drypers sr notes 10.25% 6/15/07 .................... $350,000 $ 279,563
Outboard Marine sr unsec sub notes
10.75% 6/1/08 .................................... 500,000 342,500
Precise Technology sr sub notes
11.125% 6/15/07 .................................. 350,000 333,813
Spinnaker Industries sr notes
10.75% 10/15/06 .................................. 250,000 182,500
------------
1,138,376
------------
ENERGY - 2.41%
First Wave Marine sr notes 11.00% 2/1/08 ........... 350,000 328,563
General Electric Capital notes 8.85% 3/1/07 ........ 225,000 250,031
Pride International sr notes 10.00% 6/1/09 ......... 200,000 205,000
Swift Energy sr sub notes 10.25% 8/1/09 ............ 400,000 396,944
------------
1,180,538
------------
ENVIRONMENTAL SERVICES - 0.78%
Allied Waste sr unsec notes 7.375% 1/1/04 .......... 400,000 380,000
------------
380,000
------------
FOOD, BEVERAGE & TOBACCO - 2.07%
Big V Supermarkets sr sub notes
11.00% 2/15/04 ................................... 350,000 361,375
Canadaigua Brands sr unsec sub notes
8.50% 3/1/09 ..................................... 250,000 241,250
Standard Commercial Tobacco sr notes
8.875% 8/1/05 .................................... 500,000 411,250
------------
1,013,875
------------
HEALTHCARE & PHARMACEUTICALS - 0.54%
Pueblo Xtra International sr notes
9.50% 8/1/03 ..................................... 300,000 264,000
------------
264,000
------------
INDUSTRIAL MACHINERY - 1.17%
Alliance Laundry Systems sr sub notes
9.625% 5/1/08 .................................... 200,000 185,000
Anthony Crane Rentals sr notes
10.375% 8/1/08 ................................... 400,000 389,000
------------
574,000
------------
LEISURE, LODGING & ENTERTAINMENT - 4.64%
Avado Brands sr sub notes 9.75% 6/1/06 ............. 900,000 894,375
Carmike Cinemas sr sub notes
9.375% 2/1/09 .................................... 175,000 171,063
Cinemark sr sub notes 9.625% 8/1/08 ................ 200,000 193,500
Hollywood Casino sr sec notes
11.25% 5/1/07 .................................... 400,000 404,000
Mohegan Tribal Gaming sr sub notes
8.75% 1/1/09 ..................................... 200,000 197,000
Trump Atlantic City Association Funding
co. guarantee 11.25% 5/1/06 ...................... 200,000 182,000

<PAGE>

12 FOR CURRENT INCOME

STATEMENT OF NET ASSETS (CONTINUED)
- - --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT* (U.S. $)
- - --------------------------------------------------------------------------------
CORPORATE BONDS (CONTINUED)
LEISURE, LODGING & ENTERTAINMENT (CONTINUED)
United Artists Theatre sr sub notes
9.75% 4/15/08 .................................. $350,000 $ 227,500
------------
2,269,438
------------
METALS & MINING - 3.15%
AK Steel sr notes 9.125% 12/15/06 ................ 400,000 414,000
Doe Run Resources sr notes 11.25% 3/15/05 ........ 400,000 363,500
Kaiser Aluminum & Chemical sr notes
9.875% 2/15/02 ................................. 300,000 301,500
Metallurg sr notes
11.00% 12/1/07 ................................. 350,000 342,563
Weirton Steel sr notes
11.375% 7/1/04 ................................. 125,000 122,188
------------
1,543,751
------------
PACKAGING & CONTAINERS - 0.50%
Riverwood International sr sub notes
10.875% 4/1/08 ................................. 250,000 246,875
------------
246,875
------------
PAPER & FOREST PRODUCTS - 0.82%
US Timberlands sr notes 9.625% 11/15/07 .......... 400,000 403,500
------------
403,500
------------
RETAIL - 4.24%
Advance Stores sr sub notes 10.25%
4/15/08 ........................................ 500,000 476,250
Frank's Nursery and Crafts sr sub notes
10.25% 3/1/08 .................................. 500,000 498,750
Friendly Ice Cream co. guarantee
10.50% 12/1/07 ................................. 500,000 450,000
SAKS sr unsec notes 8.25% 11/15/08 ............... 200,000 208,250
Tommy Hilfiger unsec notes 6.85% 6/1/08 .......... 200,000 187,250
Wilsons The Leather Experts co. guarantee
11.25% 8/15/04 ................................. 250,000 255,625
------------
2,076,125
------------
TELECOMMUNICATIONS - 0.80%
Metrocall sr sub notes 10.375% 10/1/07 ........... 500,000 393,750
------------
393,750
------------
TEXTILES, APPAREL & FURNITURE - 1.31%
McNaughton Apparel Group sr notes
12.50% 6/1/05 .................................. 750,000 641,250
------------
641,250
------------
MISCELLANEOUS - 4.84%
Avis Rent A Car sr notes 11.00% 5/1/09 ........... 400,000 411,000
Budget Group sr notes 9.125% 4/1/06 .............. 400,000 364,000
Caithness Coso Fund sec 9.05% 12/15/09 ........... 400,000 400,000
Clark R & M Corporation sr sub notes
8.875% 11/15/07 ................................ 500,000 438,125
Derby Cycle/Lyon Cycle sr notes
10.00% 5/15/08 ................................. 400,000 323,500
Ntex sr notes 11.50% 6/1/06 ...................... 500,000 432,500
------------
2,369,125
------------
Total Corporate Bonds (cost $21,103,449) ......... 20,028,593
------------

PRINCIPAL MARKET VALUE
AMOUNT* (U.S. $)
- - --------------------------------------------------------------------------------
FOREIGN BONDS - 26.75%
AUSTRALIA - 2.97%
Australian Government 13.00% 7/15/00....... A$ 200,000 $ 140,393
Bank of Austria 10.875% 11/17/04 ............ 383,000 294,082
Commerzbank 10.50% 1/9/00 ................... 500,000 333,221
Queensland Treasury Global 8.00% 8/14/01 .... 1,000,000 684,299
------------
1,451,995
------------
CANADA - 3.28%
Bank Nederlandse Gemeenten
9.125% 9/27/04............................. C$ 500,000 375,823
Electric Power Development
10.375% 9/27/01 ........................... 200,000 144,433
General Electric Capital of Canada
7.125% 2/12/04 ............................ 80,000 55,300
Government of Canada 10.25% 3/15/14 ......... 850,000 812,927
InterAmerica Development Bank Notes
7.25% 11/3/03 ............................. 100,000 69,574
Kansai International Airport 8.00% 7/2/03 ... 80,000 56,571
Kingdom of Norway 8.375% 1/27/03 ............ 130,000 92,585
------------
1,607,213
------------
GERMANY - 1.42%
Halifax 5.625% 7/23/07....................... Dem 900,000 508,067
Republic of Austria 7.25% 5/3/07 ............ 300,000 188,761
------------
696,828
------------
GREECE - 2.57%
Ford Credit Europe 9.45% 3/1/00.............. Grd120,000,000 394,301
Hellenic Republic 8.60% 3/26/08 ............. 49,000,000 181,667
Hellenic Republic 8.70% 4/8/05 .............. 80,000,000 287,903
Hellenic Republic 11.00% 11/26/99 ........... 120,000,000 396,539
------------
1,260,410
------------
ITALY - 1.71%
European Investment Bank 12.75% 2/15/00...... Itl300,000,000 174,260
Italian Government 9.50% 2/1/01 ............. Eur 258 228 300,829
Italian Government 12.00% 1/1/03 ............ 273,722 364,308
------------
839,397
------------
NEW ZEALAND - 3.28%
International Bank of Reconstruction &
Development 5.50% 11/3/08 ................. NZ$ 800,000 377,631
New Zealand Government 8.00% 11/15/06 ....... 1,700,000 979,211
Ontario Province 6.25% 12/3/08 .............. 500,000 247,014
------------
1,603,856
------------
SOUTH AFRICA - 5.39%
Electric Supply Communication 11.00% 6/1/08.. Sa 4,500,000 570,040
Republic of South Africa 12.50% 1/15/02 ..... 6,650,000 1,050,202
Republic of South Africa 13.00% 8/31/10 ..... 3,000,000 427,356
Transnet 16.50% 4/1/10 ...................... 3,500,000 590,375
------------
2,637,973
------------
SPAIN - 0.44%
Spanish Government 5.15% 7/30/09 ............ Eur 200,000 215,264
------------
215,264
------------
SWEDEN - 4.43%
Swedish Government 8.00% 8/15/07 ............ Sk 8,000,000 1,147,369

<PAGE>

FOR CURRENT INCOME 13

Agency Mortgage-Backed
Securities - 6.35%
Federal Home Loan Mortgage Corporation
6.00% 11/1/26 ............................. $ 44,133 41,347
6.50% 1/25/15 ............................. 50,000 48,719
6.50% 5/1/29 .............................. 1,864,780 1,777,951
Federal National Mortgage Association
6.00% 5/1/13 .............................. 194,664 186,573
6.00% 11/1/13 ............................. 487,628 466,752
6.50% 7/25/28 ............................. 210,000 208,901
7.50% 10/1/29 ............................. 210,000 209,934
Government National Mortgage Association
6.85% 12/20/25 ............................ 100,000 97,418
9.50% 9/15/17 ............................. 35,843 39,035
10.00% 7/15/17 ............................ 32,056 34,279
------------
Total Agency Mortgage-Backed Securities
(cost $3,217,660) ......................... 3,110,909
------------

Asset-Backed Securities - 3.62%
CIT RV Trust 1998-A A5 6.12% 7/15/14 ........ 200,000 197,340
Countrywide Home Equity Loan-Series
97-1 A4 6.95% 5/25/21 ..................... 150,000 150,075
EQCC Home Equity Loan Trust
1996-4 Class A6 6.88% 7/15/14 ............. 200,000 200,600
1998-2 Class A3F 6.229% 3/15/13 ........... 360,000 356,738
1999-3 Class A3F 7.07% 8/26/22 ............ 200,000 200,000
Honda Auto Lease Trust 1999-A Class A4
6.45% 9/16/02 ............................. 200,000 200,125
MetLife Capital Equipment Loan Trust-Series
97-AA 6.85% 5/20/08 ....................... 295,000 295,177
NationsCredit Grantor Trust-Series 97-1 A
6.75% 8/15/13 ............................. 173,701 173,267
------------
Total Asset-Backed Securities (cost $1,789,388) 1,773,322
------------

PRINCIPAL MARKET VALUE
AMOUNT* (U.S. $)
- - --------------------------------------------------------------------------------
Collateralized Mortgage
Obligations - 2.86%
Asset Securitization Series
96-D3 A1B 7.21% 10/13/26 ............................ $100,000 $ 100,625
97-D5 A2 6.8158% 2/14/41 ............................ 150,000 138,844
97-D5 A3 6.8658% 2/14/41 ............................ 200,000 182,000
97-D4 A1A 7.35% 4/14/29 ............................. 67,296 67,895
First Union-Chase Commercial Mortgage Series
99-C2 A2 6.645% 4/15/09 ............................. 210,000 201,666
Lehman Large Loan Series 97-LLI A1
6.79% 6/12/04 ....................................... 191,925 191,190
Mortgage Capital Funding 96-MC2-C
7.224% 9/20/06 ...................................... 150,000 148,828
Nomura Asset Securities-Series
93-1 A1 6.68% 12/15/01 .............................. 74,756 74,265
95-MD3 A1A 8.17% 3/4/20 ............................. 59,244 60,465
Residential Accredit Loans Series
97-QS3 A3 7.50% 4/25/27 ............................. 33,959 33,888
98-QS9 A3 6.75% 7/25/28 ............................. 200,000 198,578
------------
Total Collateralized Mortgage Obligations
(cost $1,459,542) ................................... 1,398,244
------------

Municipal Bonds - 0.18%
Philadelphia,Pennsylvania Authority For Industrial
Development Tax Claim Revenue-Class A
6.488% 6/15/04 ...................................... 90,000 89,100
------------
Total Municipal Bonds (cost $90,000) .................. 89,100
------------

U.S. Treasury Obligations - 3.21%
+ U.S. Treasury Notes 4.75% 2/15/04 ................... 335,000 320,344
U.S. Treasury Notes 5.25% 5/15/04 ..................... 150,000 146,643
U.S. Treasury Notes 5.50% 5/15/09 ..................... 425,000 412,149
U.S. Treasury Notes 5.75% 6/30/01 ..................... 200,000 200,381
U.S. Treasury Notes 6.50% 10/15/06 .................... 285,000 291,698
U.S. Treasury Strips 0.00% 2/15/19 .................... 700,000 201,387
------------
Total U.S. Treasury Obligations (cost $1,634,867) ..... 1,572,602
------------

NUMBER
OF SHARES
------------
COMMON STOCK - 5.30%
REAL ESTATE - 5.30%
AMB Property .......................................... 28,300 636,750
Chateau Communities ................................... 21,700 610,313
Kilroy Realty ......................................... 5,000 112,500
Macerich .............................................. 23,065 562,209
Pan Pacific Retail Properties ......................... 34,200 671,175
------------
Total Common Stock (cost $2,622,892) .................. 2,592,947
------------

Preferred Stock - 1.67%
CABLE, MEDIA & PUBLISHING - 0.28%
Pegasus Communications Unit pik ....................... 250 26,229
Pegasus Communications Unit ........................... 1,000 111,500
------------
137,729
------------

<PAGE>

FOR CURRENT INCOME 14

STATEMENT OF NET ASSETS (CONTINUED)
- - --------------------------------------------------------------------------------
NUMBER MARKET VALUE
OF SHARES (U.S. $)
- - --------------------------------------------------------------------------------
PREFERRED STOCK (CONTINUED)
ENERGY - 0.00%
TCR Holding Class B ................................... 834 $ 50
TCR Holding Class C ................................... 459 26
TCR Holding Class D ................................... 1,209 64
TCR Holding Class E ................................... 2,502 158
------------
298
------------
TELECOMMUNICATIONS - 1.39%
Hyperion Telecommunications pik ....................... 805 73,255
Nextel Communications pik ............................. 1,235 133,380
Nextlink Communications Class A ....................... 1 33
21st Century Telecommunications pik ................... 11,255 472,706
------------
679,374
------------
Total Preferred Stock (cost $1,380,389) ............... 817,401
------------

Warrants - 0.39%
BANKING, FINANCE & INSURANCE - 0.39%
** 21st Century Telecommunications ................... 950 190,000
** American Banknote ................................. 300 3,000
------------
Total Warrants (cost $55,265) ......................... 193,000
------------

TOTAL MARKET VALUE OF SECURITIES - 91.23%
(cost $47,853,438) .......................................... $44,676,391
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 8.77% ....... 4,296,897
------------
NET ASSETS APPLICABLE TO 10,073,167 SHARES
($0.01 PAR VALUE) OUTSTANDING - 100.00% ..................... $48,973,288
===========

NET ASSET VALUE- STRATEGIC INCOME FUND A CLASS
($18,756,998 / 3,857,545 shares) ................................. $4.86
======
NET ASSET VALUE- STRATEGIC INCOME FUND B CLASS
($19,317,996 / 3,972,919 shares) ................................. $4.86
======
NET ASSET VALUE- STRATEGIC INCOME FUND C CLASS
($6,548,417 / 1,346,115 shares) .................................. $4.86
======
NET ASSET VALUE- STRATEGIC INCOME FUND INSTITUTIONAL CLASS
($4,349,877 / 896,588 shares) .................................... $4.85
======

COMPONENTS OF NET ASSETS AT JULY 31, 1999:
Common stock, $0.01 par value, 200,000,000 shares authorized
to the Fund with 100,000,000 shares allocated to Strategic
Income Fund A Class, 25,000,000 shares allocated to Strategic
Income Fund B Class, 25,000,000 shares allocated to Strategic
Income Fund C Class, and 50,000,000 shares allocated to
Strategic Income Fund Institutional Class................... $55,528,850
Undistributed net investment income*** ....................... 56,634
Accumulated net realized loss on investments and futures
contracts................................................... (3,435,897)
Net unrealized depreciation of investments, futures contracts and
foreign currencies.......................................... (3,176,299)
------------
Total net assets.............................................. $48,973,288
============
- - ----------------------
* Principal amount is stated in the currency in which each bond is denominated.
A$ - Australian Dollars Itl - Italian Lira
Gbp - British Pounds NZ$ - New Zealand Dollars
C$ - Canadian Dollars Sa - South African Rand
Dem - German Deutschemark Sk - Swedish Kroner
Eur - European Monetary Unit $ - U.S. Dollars
Grd - Greek Drakma

** Non-income producing security for the year ended July 31, 1999.
*** Undistributed net investment income includes net realized gains (losses)
on foreign currencies. Net realized gains on foreign currencies are
distributed as net investment income in accordance with provisions of the
Internal Revenue Code.
+ Fully or partially pledged as collateral for financial futures contracts.

Summary of Abbreviations
co. guarantee - company guarantee
debs - debentures
pik - payment-in-kind
sec - secured
sr - senior
sub - subordinated
unsec - unsecured

Net Asset Value And Offering Price Per Share -
Strategic Income Fund
Net asset value A Class (A)........................................... $4.86
Sales charge (4.75% of offering price or
4.94% of the amount invested per share)(B).......................... 0.24
------
Offering price........................................................ $5.10
======
- - ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current prospectus for purchases of $100,000
or more.
+ Effective August 16, 1999, Strategic Income became Delaware Strategic
Income Fund.

See accompanying notes

DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999
- - --------------------------------------------------------------------------------
ASSETS:
Investments at market (cost $47,853,438) ........ $44,676,391
Cash and foreign currencies ..................... (2,043,119)
Dividends and interest receivable ............... 1,097,279
Subscriptions receivable ........................ 130,404
Receivable for securities sold .................. 6,896,211
Other assets .................................... 26,778
-----------
Total assets .................................. 50,783,944
-----------

LIABILITIES:
Liquidations payable ............................ 110,320
Payable for securities purchased ................ 1,463,803
Distributions payable ........................... 112,367
Other accounts payable and accrued expenses ..... 124,166
-----------
Total liabilities ............................. 1,810,656
-----------

Total net assets ................................ $48,973,288
===========

See accompanying notes

<PAGE>

FOR CURRENT INCOME 15

DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1999
- - --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .............................................$4,109,133
Dividends ............................................ 606,755
Foreign tax withheld ................................. (1,854) $4,714,034
-----------

EXPENSES:
Management fees ...................................... 307,418
Distribution expense ................................. 292,499
Dividend disbursing and transfer agent fees
and expenses ....................................... 165,200
Registration fees .................................... 46,867
Reports and statements to shareholders ............... 37,921
Accounting and administration fees ................... 18,533
Professional fees .................................... 7,855
Custodian fees ....................................... 5,254
Amortization of organization expenses ................ 4,990
Taxes (other than taxes on income) ................... 2,598
Directors' fees ...................................... 1,689
Other ................................................ 15,373
----------
906,197
Less expenses absorbed or waived ..................... (258,188)
Less expenses paid indirectly ........................ (1,088)
----------
Total expenses ....................................... 646,921
-------------

NET INVESTMENT INCOME ................................ 4,067,113
-------------

NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES:
Net realized loss on:
Investments .......................................... (3,295,034)
Futures contracts .................................... (40,696)
Foreign currencies ................................... (157,874)
-------------
Net realized loss .................................... (3,493,604)
Net change in unrealized appreciation/depreciation
of investments, futures contracts and
foreign currencies ................................. (2,017,723)
-------------

NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS, FUTURES CONTRACTS
AND FOREIGN CURRENCIES ............................. (5,511,327)
-------------

NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................................... $(1,444,214)
=============

See accompanying notes

<PAGE>

<TABLE>
<CAPTION>
DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- - ---------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
7/31/99 7/31/98
- - ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C>
Net investment income ...................................................... $ 4,067,113 $ 2,484,508
Net realized gain (loss) on investments,
futures contracts and foreign currencies ................................. (3,493,604) 521,283
Net change in unrealized appreciation/
depreciation of investments, futures
contracts and foreign currencies ......................................... (2,017,723) (1,290,402)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................................................ (1,444,214) 1,715,389
------------ ------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class .................................................................. (1,600,246) (1,072,908)
B Class .................................................................. (1,425,098) (836,538)
C Class .................................................................. (492,978) (261,064)
Institutional Class ...................................................... (356,403) (292,986)

Net realized gain on investments:
A Class .................................................................. (122,311) (260,060)
B Class .................................................................. (119,046) (218,690)
C Class .................................................................. (41,353) (67,987)
Institutional Class ...................................................... (24,621) (73,555)
------------ ------------
(4,182,056) (3,083,788)
------------ ------------

CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .................................................................. 8,415,676 11,710,278
B Class .................................................................. 10,423,650 10,936,630
C Class .................................................................. 3,326,511 4,184,459
Institutional Class ...................................................... 2,160,658 160,252
Net asset value of shares issued upon reinvestment of distributions from net
investment income and net realized gain on investments:
A Class .................................................................. 1,148,752 937,123
B Class .................................................................. 940,245 652,466
C Class .................................................................. 315,465 158,936
Institutional Class ...................................................... 379,006 365,597
------------ ------------
27,109,963 29,105,741
------------ ------------
Cost of shares repurchased:
A Class .................................................................. (7,525,928) (3,355,061)
B Class .................................................................. (5,474,721) (2,362,012)
C Class .................................................................. (1,619,498) (859,105)
Institutional Class ...................................................... (403,637) (18,853)
------------ ------------
(15,023,784) (6,595,031)
------------ ------------
Increase in net assets derived from capital
share transactions ....................................................... 12,086,179 22,510,710
------------ ------------

NET INCREASE IN NET ASSETS ................................................. 6,459,909 21,142,311

NET ASSETS:
Beginning of year .......................................................... 42,513,379 21,371,068
------------ ------------
End of year ................................................................ $ 48,973,288 $ 42,513,379
============ ============
</TABLE>

See accompanying notes

<PAGE>

16 FOR CURRENT INCOME

DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND A CLASS STRATEGIC INCOME FUND B CLASS
-------------------------------- --------------------------------
YEAR ENDED YEAR ENDED 10/1/96(1) YEAR ENDED YEAR ENDED 10/1/96(1)
7/31/99 7/31/98 7/31/97 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 5.480 $ 5.700 $ 5.500 $ 5.480 $ 5.700 $ 5.500

Income (loss) from investment operations:
Net investment income2 ..................... 0.462 0.444 0.337 0.424 0.402 0.308
Net realized and unrealized gain (loss) on
investments, futures contracts
and foreign currencies .................. (0.607) (0.104) 0.204 (0.607) (0.100) 0.204
------- ------- -------- ------- ------- -------
Total from investment operations ........... (0.145) 0.340 0.541 (0.183) 0.302 0.511
------- ------- -------- ------- ------- -------

Less dividends and distributions:
Dividends from net investment income ....... (0.440) (0.440) (0.341) (0.402) (0.402) (0.311)
Distributions from net realized gain
on investments .......................... (0.035) (0.120) none (0.035) (0.120) none
------- ------- -------- ------- ------- -------
Total dividends and distributions .......... (0.475) (0.560) (0.341) (0.437) (0.522) (0.311)
------- ------- -------- ------- ------- -------
Net asset value, end of period ............... $ 4.860 $ 5.480 $ 5.700 $ 4.860 $ 5.480 $ 5.700
======= ======= ======== ======= ======= =======

Total return(3) ................................ (2.77%) 6.23% 10.11% (3.31%) 5.32% 9.53%

Ratios and supplemental data:
Net assets, end of period (000 omitted) .... $18,757 $17,871 $ 9,144 $19,318 $15,602 $ 6,878
Ratio of expenses to average net assets .... 1.00% 1.00% 1.00% 1.75% 1.75% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly ................ 1.55% 1.73% 2.12% 2.30% 2.48% 2.87%
Ratio of net investment income to average
net assets .............................. 8.97% 7.93% 7.76% 8.22% 7.18% 7.01%
Ratio of net investment income to average
net assets prior to expense limitation and
expenses paid indirectly ................ 8.42% 7.20% 6.64% 7.67% 6.45% 5.89%
Portfolio turnover ......................... 156% 175% 183% 156% 175% 183%
</TABLE>

<TABLE>
<CAPTION>
STRATEGIC INCOME FUND STRATEGIC INCOME FUND
C CLASS INSTITUTIONAL CLASS
-------------------------------- --------------------------------
YEAR ENDED YEAR ENDED 10/1/96(1) YEAR ENDED YEAR ENDED 10/1/96(1)
7/31/99 7/31/98 7/31/97 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 5.480 $ 5.700 $ 5.500 $ 5.470 $ 5.700 $ 5.500

Income (loss) from investment operations:
Net investment income2 ..................... 0.424 0.402 0.313 0.475 0.458 0.367
Net realized and unrealized gain (loss)
on investments, futures contracts
and foreign currencies .................. (0.607) (0.100) 0.198) (0.603) (0.111) 0.187
------- ------- ------- ------- ------- -------
Total from investment operations ........... (0.183) 0.302 0.511 (0.128) 0.347 0.554
------- ------- ------- ------- ------- -------

Less dividends and distributions:
Dividends from net investment income ....... (0.402) (0.402) (0.311) (0.457) (0.457) (0.354)
Distributions from net realized gain
on investments .......................... (0.035) (0.120) none (0.035) (0.120) none
------- ------- ------- ------- ------- -------
Total dividends and distributions .......... (0.437) (0.522) (0.311) (0.492) (0.577) (0.354)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............... $ 4.860 $ 5.480 $ 5.700 $ 4.850 $ 5.470 $ 5.700
======= ======= ======= ======= ======= =======

Total return(3) .............................. (3.32%) 5.32% 9.53% (2.46%) 6.36% 10.36%

Ratios and supplemental data:
Net assets, end of period (000 omitted) .... $ 6,548 $ 5,276 $ 1,944 $ 4,350 $ 3,764 $ 3,405
Ratio of expenses to average net assets .... 1.75% 1.75% 1.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly ......................... 2.30% 2.48% 2.87% 1.30% 1.48% 1.87%
Ratio of net investment income to average
net assets .............................. 8.22% 7.18% 7.01% 9.22% 8.18% 7.90%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly ............ 7.67% 6.45% 5.89% 8.67% 7.45% 6.78%
Portfolio turnover ......................... 156% 175% 183% 156% 175% 183%
</TABLE>
----------------------
1 Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
2 Per share information for the years ended July 31, 1998 and 1999 were based
on the average shares outstanding method.
3 Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.

See accompanying notes

<PAGE>

FOR CURRENT INCOME 17

DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
- - --------------------------------------------------------------------------------
Delaware Group Income Funds, Inc. is registered as a diversified open-end
investment company under the Investment Company Act of 1940, as amended. The
Fund is organized as a Maryland Corporation and offers five series: the
Corporate Bond Fund, the Extended Duration Bond Fund, the Delchester Fund, the
High-Yield Opportunities Fund and the Strategic Income Fund. These financial
statements and related notes pertain to the Strategic Income Fund (the
"Fund"). The Fund offers four classes of shares. The A Class carries a
front-end sales charge of 4.75%. The B Class carries a back-end deferred sales
charge. The C Class carries a level load deferred sales charge and the
Institutional Class has no sales charge.

The investment objective of the Fund is to seek to provide investors with high
current income and total return.

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

Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date.
Securities not traded or securities not listed on an exchange are valued at
the mean of the last quoted bid and asked prices. Securities listed on a
foreign exchange are valued at the last quoted sales price before the Fund is
valued. Long-term debt securities are valued by an independent pricing service
and such prices are believed to reflect the fair value of such securities.
Money market instruments having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Other securities and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Fund's Board of
Directors.

Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles.

Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.

Foreign Currency Transactions - Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar as of 3:00 PM EST. Transaction gains or losses resulting from changes
in exchange rates during the reporting period or upon settlement of the
foreign currency transaction are reported in operations for the current
period. The Fund isolates that portion of gains and losses on investments in
debt securities which are due to changes in the foreign exchange rate from
that which are due to changes in market prices. The Fund reports certain
foreign currency related transactions as components of realized gains (losses)
for financial reporting purposes, whereas such components are treated as
ordinary income (loss) for federal income tax purposes.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Original issue discounts are accreted to
interest income over the lives of the respective securities. Withholding taxes
on foreign interest have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. The Fund
declares dividends daily from net investment income and pays such dividends
monthly and declares and pays distributions from net realized gain on
investment transactions, if any, semi-annually.

Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $1,088 for the year ended July 31,
1999. In addition, the Fund receives earnings credits from its custodian when
positive cash balances are maintained, which are used to offset custody fees.
There were no credits for the year ended July 31, 1999. The expenses paid
under the above arrangements are included in their respective expense captions
on the Statement of Operations with the corresponding expense offset shown as
"Expenses paid indirectly".

2. Investment Management and Other Transactions with Affiliates
Commencing April 1, 1999 and in accordance with the terms of the Investment
Management Agreement, the Fund pays Delaware Management Company (DMC), the
Investment Manager of the Fund, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the
Fund, 0.60% on the next $500 million, 0.55% on the next $1,500 million and
0.50% on the average daily net assets in excess $2,500 million. Prior to April
1, 1999, the Fund paid DMC an annual fee which was calculated at the rate of
0.65% of average daily net assets, less the fees paid to the unaffiliated
directors. DMC has entered into a sub-advisory agreement with Delaware
International Advisors Ltd. (DIAL) with respect to the management of the
investments in foreign securities. DIAL will receive a fee equal to one third
of the investment management fees and other expenses.

DMC has elected to waive that portion of its management fee and reimburse the
Fund to the extent that annual operating expenses, exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and distribution
expenses, exceed 0.75% of average daily net assets of the Fund through June
30, 2000. At July 31, 1999, the Fund had a liability for investment management
fees and other expenses payable to DMC of $20,165.

The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services.
The Fund pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums.
At July 31, 1999, the Fund had a liability for such fees and other expenses
payable to DSC of $10,573.

Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class.

For the year ended July 31, 1999, DDLP earned $28,590 for commissions on sales
of the Fund A Class shares.

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

<PAGE>

18 FOR CURRENT INCOME

FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
3. Investments
For the year ended July 31, 1999, the Fund made purchases of $80,150,491 and
sales of $69,035,605 of investment securities other than U.S. government
securities and temporary cash investments.

At July 31, 1999, net unrealized depreciation for federal income tax purposes
aggregated $3,181,282 of which $379,523 related to unrealized appreciation of
securities and $3,560,805 related to unrealized depreciation of securities. At
July 31, 1999, the aggregate cost of securities for federal income tax
purposes was $47,857,673.

4. Capital Stock
Transactions in capital stock shares were as follows:

YEAR YEAR
ENDED ENDED
7/31/99 7/31/98
----------- -----------
Shares sold:
A Class ........................................ 1,884,581 2,090,197
B Class ........................................ 2,003,638 1,948,372
C Class ........................................ 638,499 746,554
Institutional Class ............................ 159,578 28,625

Shares issued upon reinvestment of dividends
from net investment income and net realized
gain on investments:
A Class ........................................ 222,980 167,315
B Class ........................................ 182,505 116,603
C Class ........................................ 61,246 28,415
Institutional Class ............................ 73,777 65,280
---------- ----------
5,226,804 5,191,361
---------- ----------

Shares repurchased:
A Class ........................................ (1,511,156) (600,061)
B Class ........................................ (1,062,264) (422,357)
C Class ........................................ (316,532) (152,911)
Institutional Class ............................ (24,928) (3,338)
---------- ----------
(2,914,880) (1,178,667)
---------- ----------
Net increase ..................................... 2,311,924 4,012,694
========== ==========

5. Line of Credit
The Fund has a committed line of credit of $1,600,000. No amount was
outstanding at July 31, 1999, or at any time during the fiscal year.

6. Foreign Exchange Contracts
The Fund will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. The Fund may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the
date the security is delivered and paid for. They may also be used to hedge
the U.S. dollar value of securities it already owns denominated in foreign
currencies.

Forward foreign currency contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. The change in market value is recorded
by the Fund as an unrealized gain or loss. When the contract is closed, a
realized gain or loss is recorded equal to the difference between the value of
the contract at the time it was opened and the value of the time it was
closed.

The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's securities, but it does establish a
rate of exchange that can be achieved in the future. Although forward foreign
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should
the value of the currency increase. In addition, the Fund could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
their contracts.

No forward foreign currency contracts were outstanding at July 31, 1999.

7. Futures Contracts
During the year ended July 31, 1999, the Fund entered into financial futures
contracts for the purpose of hedging its existing portfolio securities against
fluctuations in fair value caused by changes in prevailing market rates. Upon
entering into a futures contract, the fund deposits cash or pledges U.S.
government securities to a broker, equal to the minimum "initial margin"
requirements of the exchange on which the contract is traded. Subsequent
payments are received from or paid to the broker each day, based on the daily
fluctuation in the market value of the contract. These receipts or payments
are known as "variation margin" and are recorded daily by the fund as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, the fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Risk may arise upon entering into futures contracts
from potential imperfect correlation between the futures contracts and the
underlying securities and from the possibility of an illiquid secondary market
for these instruments.

Financial futures contracts open at July 31, 1999 were as follows:

NOTIONAL UNREALIZED
CONTRACTS COST AMOUNT EXPIRATION DATE LOSS
- - --------------------------------------------------------------------------------
1 U.S. Treasury 10 Yr. Notes $110,797 09/99 ($484)

8. Market and Credit Risk
Some countries in which the Fund may invest require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.

The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Fund
may be inhibited.

The Fund invests in high-yield fixed income securities which carry ratings of
BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.

The Fund invests in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Prepayment of these loans may shorten the
stated maturity of the respective obligation and may result in a loss of
premium, if any has been paid.

The Fund may invest up to 15% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The
relative illiquidity of some of these securities may adversely affect the
Fund's ability to dispose of such securities in a timely manner and at a fair
price when it is necessary to liquidate such securities.

<PAGE>

FOR CURRENT INCOME 19

DELAWARE GROUP INCOME FUNDS, INC. -
DELAWARE STRATEGIC INCOME FUND
REPORT OF INDEPENDENT AUDITORS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP INCOME FUNDS, INC. - STRATEGIC INCOME FUND

We have audited the accompanying statement of net assets and the statement of
assets and liabilities of Delaware Group Income Funds, Inc. - Strategic Income
Fund (the "Fund") as of July 31, 1999, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Income Funds, Inc. - Strategic Income Fund at July 31, 1999,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP

Philadelphia, Pennsylvania
September 6, 1999

<PAGE>

20 FOR CURRENT INCOME

PROXY RESULTS

For the year ended July 31, 1999, The Delaware Group Income Funds, Inc.
shareholders voted on the following proposals at the annual meeting of
shareholders on March 17, 1999 or as adjourned. The description of each
proposal and number of shares voted are as follows:

1. To elect the Delaware Group Income Funds, Inc. Board of Directors.

SHARES SHARES VOTED
VOTED WITHHELD
FOR AUTHORITY
--------------------------------
Jeffrey J. Nick .... 167,789,240 14,445,510
Walter P. Babich... 167,879,941 14,354,809
John H. Durham ..... 168,015,378 14,219,372
Anthony D. Knerr... 168,075,457 14,159,293
Ann R. Leven ....... 168,052,435 14,182,315
Thomas F. Madison... 168,053,081 14,181,669
Charles E. Peck .... 168,093,442 14,141,308
Wayne A. Stork ..... 168,129,118 14,105,632
Jan L. Yeomans ..... 168,135,284 14,099,466

2. To approve the reclassification of the investment objective from
fundamental to non-fundamental.

FOR AGAINST ABSTAIN
-----------------------------------------------
3,618,460 762,243 294,423

3. To approve standardized fundamental investment restrictions for the
Strategic Income Fund (proposal involves separate votes on seven sub-proposals
3A-3G).

3A.To adopt a new fundamental investment restriction concerning concentration
of the investments in the same industry.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,341,730 60,193 273,192

3B.To adopt a new fundamental investment restriction concerning borrowing
money and issuing senior securities.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,330,651 65,175 279,279

3C.To adopt a new fundamental investment restriction concerning underwriting.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,337,230 57,725 280,160

3D.To adopt a new fundamental investment restriction concerning investments in
real estate.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,322,738 70,224 282,154

3E.To adopt a new fundamental investment restriction concerning investments in
commodities.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,328,201 63,742 283,172

3F.To adopt a new fundamental investment restriction concerning lending by the
Fund.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,323,965 82,128 269,022

3G.To reclassify all current fundamental investment restrictions as
non-fundamental.

FOR AGAINST ABSTAIN
-----------------------------------------------
4,295,890 68,524 310,701

4. To approve a new investment management agreement with Delaware Management
Company for the Strategic Income Fund.

FOR AGAINST ABSTAIN
-----------------------------------------------
5,316,351 52,552 298,478

5. To approve a new sub-advisory agreement for the Strategic Income Fund.

FOR AGAINST ABSTAIN
-----------------------------------------------
5313362 54118 299900

6. To ratify the selection of Ernst & Young LLP, as the independent auditors
for Delaware Group Income Funds, Inc.

FOR AGAINST ABSTAIN
-----------------------------------------------
170,342,196 1,709,355 10,183,195

7. To approve the restructuring of the Delaware Group Income Funds, Inc. from
a Maryland Corporation into a Delaware Business Trust.

FOR AGAINST ABSTAIN
-----------------------------------------------
133,129,206 5,660,859 12,632,334

<PAGE>

THIS ANNUAL REPORT IS FOR THE INFORMATION OF DELAWARE STRATEGIC INCOME FUND
SHAREHOLDERS, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for Strategic Income Fund and the Delaware
Investments Performance Update for the most recently completed calendar quarter.
The Prospectus sets forth details about charges, expenses, investment objectives
and operating policies of the Fund. You should read the prospectus carefully
before you invest or send money. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in the Fund will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.

Board of Directors

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

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

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

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

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

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

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

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

JAN L. YEOMANS
Vice President and Treasurer
3M Corporation
St. Paul, Minnesota

Affiliated Officers

RICHARD J. FLANNERY
Executive Vice President and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA

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

ERIC E. MILLER
Senior Vice President, Secretary
and Deputy General Counsel
Delaware Investments Family of Funds
Philadelphia, PA

directors
& officers

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

INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania

INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England

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

SHAREHOLDER SERVICING,

DIVIDEND DISBURSING

AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania

1818 Market Street
Philadelphia, PA 19103-3682

<PAGE>

When used with prospective investors, this report must be preceded or
accompanied by a current Delaware Strategic Income Fund Prospectus and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. For a prospectus of any other mutual fund from Delaware Investments,
contact your financial adviser or Delaware Investments.

For Shareholders
1.800.523.1918

For Securities Dealers
1.800.362.7500

For Financial Institutions

Representatives Only
1.800.659.2265

www.delawareinvestments.com

DELAWARE INVESMENTS
- - -------------------
Philadelphia o London

Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.

Printed in the USA
on recycled paper

(2074)
AR-125[7/99]PPL9/99