<PAGE>
FOR CURRENT INCOME
High-Yield
Opportunities Fund
service and guidance
professional management
goals
1999
Semi-Annual
Report
DELAWARE(SM)
INVESTMENTS
- -----------------------
Philadelphia [ ] London For Current Income
<PAGE>
for current
income
2
February 5, 1999
Dear Shareholder:
WE BEGAN OUR 1999 FISCAL YEAR IN August 1998 during a period of great
uncertainty for world securities markets. Economic and currency problems in
Southeast Asia, Russia and Latin America captured the attention of investors
around the world. By late August, many investors, particularly foreign
investors, had fled stocks and non-government bonds for the safe haven of U.S.
Treasuries.
The resulting loss of liquidity caused price declines in the world's stock
and bond markets, including the U.S. high-yield bond market. The Federal Reserve
Board responded by lowering its target for short-term interest rates, which
helped bolster stock and high-yield bond prices in late autumn. Large
capitalization U.S. stocks recovered more quickly than high-yield bonds which
have yet to experience a full recovery. We believe that increasing investors'
appetite for above-average yields will gradually push high-yield bond prices
higher.
High-Yield Opportunities Fund provided a total return of -4.37% (capital
change plus reinvested dividends for A Class shares at net asset value) for the
six months ended January 31, 1999.
The Fund's small asset size and ability to readily buy and sell securities
were beneficial to us in a difficult environment. As prices on lower rated,
higher risk corporate bonds - bonds rated BB and B - declined over the past six
months, we were able to buy bonds in this universe at much lower prices. As
their yields rose relative to Treasuries, these bonds have offered us a
significant yield advantage.
Lack of liquidity caused by the global flight to U.S. Treasuries late last
summer temporarily halted new issuance of high-yield debt. New issuance
gradually
AS HIGH-YIELD MARKET CONDITIONS CONTINUED TO IMPROVE THROUGH JANUARY, INVESTORS
TIPTOED BACK INTO HIGH-YIELD BONDS, ATTRACTED BY THEIR RICH YIELD PREMIUMS.
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
Six Months Ended
January 31, 1999
- --------------------------------------------------------------------------------
High-Yield Opportunities Fund A Class -4.37%
- --------------------------------------------------------------------------------
Lipper High Current Yield Fund Average (298 Funds) -3.84%
Salomon SmithBarney High-Yield Bond Index -0.22%
- --------------------------------------------------------------------------------
The performance shown above is based on net asset value without effect of sales
charges and assumes reinvestment of distributions. See page 8 for portfolio
performance for all Classes. Performance of other Fund classes varies due to
different expenses. An expense limitation was in effect for the period shown;
had the limitation not been in effect, the Fund's return would have been lower.
Past performance is not a guarantee of future results.
<PAGE>
for current
income
3
resumed in November after the Federal Reserve cut the federal funds rate (the
rate charged between banks for overnight loans) by a total of 0.75% to 4.75%.
Still nervous about credit risk, investors who returned to the high-yield
market initially favored bonds rated BB, the highest rated of low quality bonds.
But as conditions continued to improve through January, investors tiptoed back
into lower rated bonds, attracted by their rich yield premiums.
Over the past six months, the difference between yields of high-yield
corporate bonds and similar maturity U.S. Treasuries widened dramatically (see
chart on page 7). Though this yield advantage declined somewhat by the end of
January, high-yield bonds still had a yield advantage above historical averages
based on the Salomon SmithBarney High-Yield Index.
Although uncertain market conditions have altered what had been a
near-perfect landscape for high-yield bonds, key indicators of credit risk and
market liquidity remain solid. We believe there continues to be ample credit
available to companies, and we do not anticipate that lending institutions will
restrict financial capital.
On the following pages, Paul Matlack and Gerald Nichols, Delaware
Investments' high-yield fixed-income portfolio managers, discuss the events of
the past six months and review High-Yield Opportunities Fund's investment
strategy.
Against a backdrop of stable economic growth, steady interest rates and low
inflation, we believe that the bonds in the portfolio offer the potential for
strong total return. Given how undervalued high-yield bonds are relative to
Treasuries, we may benefit from capital appreciation as well as from income in
the coming six months.
We look forward to reporting to you again this summer, and thank you for your
continued investment in High-Yield Opportunities Fund.
Sincerely,
/s/ Jeffrey J. Nick
- --------------------
JEFFREY J. NICK
Chairman, President and
Chief Executive Officer
Delaware Investments Family of Funds
Jeffrey J. Nick Named Chairman
On December 17, 1998, Jeffrey J. Nick was named Chairman of the Delaware
Investments Family of Funds. He replaces Wayne A. Stork who has retired as
Chairman of the Board of Directors, but continues to serve as a Board Member.
Mr. Nick was named President and Chief Executive Officer of Delaware Investments
Family of Funds in October 1997. He has been CEO of Lincoln National Investment
Companies, an indirect parent company of Delaware Investments, since October
1996 and previously managed Lincoln's operations in the United Kingdom. Mr. Nick
holds an MBA from the University of Chicago and a Bachelor of Arts degree from
Princeton University.
<PAGE>
for current
income
4
Portfolio Managers' Review
BY PAUL A. MATLACK
Vice President/Senior Portfolio Manager
GERALD T. NICHOLS
Vice President/Senior Portfolio Manager
February 5, 1999
CREDIT QUALITY DROVE
PERFORMANCE
Leadership within the high-yield bond market changed measurably during the past
six months as investors' concerns about credit risk intensified in the face of a
worldwide financial crisis.
Before August 1998, investors willing to accept higher risks (lower credit
quality in exchange for potentially higher yields) were well rewarded. After
August 1998, bonds with better risk profiles took the lead. As a result, bonds
rated BB, the highest quality tier of the non-investment grade bond market,
outperformed bonds with lower credit ratings.*
High-Yield Opportunities Fund had significant holdings of well-capitalized
single B issues. In our view, these bonds offered above average yield, adequate
credit protection and significant total return potential.
Though bonds rated B are just one credit rating below bonds rated BB, their
performance was significantly lower. The underperformance of single B bonds,
particularly in August and September at the height of the market's price
decline, hurt the Fund's performance. However, this was tempered by the Fund's
ability to easily buy and sell securities. We discuss this further on page 6
with respect to the Fund's portfolio turnover rate.
In January, renewed investor appetite for single B issues - due to
exceptionally high yields - reversed the leadership trend of BB bonds. For the
month of January, B bonds returned +1.60%, while bonds rated BB returned
+1.15%.*
LOW DEFAULT RATE REFLECTS
FINANCIAL STRENGTH OF ISSUERS
During the recent period of declining high-yield bond prices, the underlying
financial status of bond issuers remained relatively steady. Though the default
rate (a measure of debt issuers' failure to pay interest or repay principal) has
increased slightly, it is still below its 18-year average of 3.4%. As of January
31, 1999, the default rate was in the range of 2.5%, according to Merrill Lynch.
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
AS OF JANUARY 31, 1999
- --------------------------------------------------------------------------------
Average Effective Duration 4.60 years
Average Effective Maturity 6.82 years
Current 30-Day SEC Yield+ 7.88%
Portfolio Turnover 223%
Number of Securities 70
* Source: The Salomon SmithBarney High-Yield Index, segmented by credit quality.
+ For A Class shares measured according to Securities and Exchange Commission
(SEC) guidelines. Current 30-day SEC yield as of 1/31/99 for B and C Class
shares was 7.55% and 7.57%, respectively. The Institutional Class yield was
8.57%.
<PAGE>
for current
income
5
Further evidence of issuers' strength is that credit agencies have downgraded
their ratings on less than 6% of corporate debt issuers, further suggesting to
us that a material decline in credit quality has not occurred. The quality
rating on new debt issued in December and January was consistently strong.
(Lehman Brothers)
In light of this environment and our view that commercial banks are not
likely to restrict lending in the face of a stable U.S. economy, we have
continued to actively buy new issues for the High-Yield Opportunities portfolio.
A TOTAL RETURN APPROACH
TO HIGH-YIELD BONDS
Our strategy over time is to maximize the total return potential of high-yield
bonds by investing in bonds that are rated BB or B, the top credit tiers of
non-investment grade bonds. These bonds may offer both attractive yields and
capital appreciation potential in return for taking more risk.
During the past six months, High-Yield Opportunities Fund was heavily
concentrated in bonds rated B, with an underweighting in BBs. We followed this
strategy because in our experience, bonds rated BB tend to underperform bonds
with B ratings when interest rates are stable, and we did not anticipate a major
drop in rates. We avoided lower quality CCC bonds and deferred interest bonds
(bonds that pay interest at a later date) because we believe their potential
returns are not worth the risks they involve.
The recent underperformance of bonds with B ratings appears to have created
compelling investment opportunities in this market segment. Prices have yet to
fully recover and yields
HIGH-YIELD BONDS:
HISTORICALLY HIGH INCOME ADVANTAGE
- --------------------------------------------------------------------------------
TREASURIES COMPARED TO HIGH-YIELD BONDS
JANUARY 31, 1998 TO JANUARY 31, 1999
Salomon SmithBarney
High-Yield Cash Pay Index U.S. Treasury Yield
------------------------- -------------------
Jan '98 8.71% 5.41%
Feb '98 8.9 % 5.58%
Mar '98 8.69% 5.63%
Apr '98 8.69% 5.63%
May '98 8.85% 5.55%
Jun '98 9.02% 5.46%
July '98 9.02% 5.49%
Aug '98 10.62% 4.99%
Sept '98 10.41% 4.37%
Oct '98 10.8 % 4.46%
Nov '98 10.02% 4.65%
Dec '98 10.04% 4.63%
Jan '99 9.89% 4.62%
- --------------------------------------------------------------------------------
Source: Salomon SmithBarney High-Yield Cash Pay Index.
The graph above highlights how the spread between the yields on U.S. Treasuries
and high-yield corporate bonds widened during the summer "flight to quality."
Treasuries are generally considered to be the highest quality bonds because
principal and interest payments are guaranteed by the U.S. government. Chart
shows U.S. Treasuries with a duration equivalent to the Salomon SmithBarney
High-Yield Index. High-yield corporate bonds are of significantly lower quality
and involve greater risks.
<PAGE>
for current
income
6
relative to Treasuries are now among the most attractive in the history of the
high-yield asset class. We believe yields will eventually prove irresistible to
investors who are tired of anemic government bond yields and willing to assume
the greater risks associated with high-yield corporate bonds.
DIVERSIFICATION AMONG
INDUSTRIES HELPS MANAGE RISK
In general, we try to avoid investing too heavily in any one industry. We spread
the Funds' holdings across many sectors, though we frequently invest more in
defensive and neutral industries (such as consumer and cable companies) which
tend to be more stable than cyclical industries (such as chemical, energy and
steel companies).
Over the past six months, the strongest performers among corporate bonds
rated B were defensive, consumer-driven industries such as utilities,
supermarkets and cable TV. Cyclical industries, such as energy, and financial
companies, which were a less significant component of the Fund, experienced
negative returns. Slowing worldwide demand for commodities hurt energy and
chemical prices through the end of 1998, while a global liquidity crunch stifled
financial companies.
A LOOK AT PORTFOLIO TURNOVER
The table on page 4 shows the portfolio turnover rate (the percentage of net
assets that were bought and sold) of High-Yield Opportunities Fund during the
six months ended January 31, 1999. Because the Fund's rate was higher than usual
for such a short time period, we thought it was important to explain why.
With $20 million in assets High-Yield Opportunities Fund's small size enables
us to move easily in and out of securities, selling less attractive securities
and buying others of better merit. During the past six months, this agility
allowed us to add bonds to the portfolio that we believe offer a more attractive
risk/reward profile.
HIGH-YIELD OPPORTUNITIES FUND: A DIVERSIFIED MIX
- --------------------------------------------------------------------------------
Percentage of Assets
Industry As of 1/31/99
- --------------------------------------------------------------------------------
Food, Beverage & Tobacco 9.6%
Leisure, Lodging & Entertainment 9.2%
Chemicals 7.0%
Cable, Media & Publishing 6.8%
Metals & Mining 5.9%
Telecommunications 5.4%
Transportation and Shipping 5.1%
Includes all sectors representing more than 5% of the portfolio. The remaining
51% of the portfolio is spread across 12 different sectors and includes 8.9% in
repurchase agreements.
<PAGE>
for current
income
7
INVESTMENT OUTLOOK
Since November, we have seen market conditions stabilize as investors became
less afraid of exposure to credit risk. However, the road ahead may not be
completely smooth. If stocks experience another sharp decline in 1999,
high-yield bonds may encounter more short-term pain before they can stage a full
price recovery.
We will strive to take advantage of the compelling low prices and rich yield
premiums in the high-yield market today. We do not think the basic underpinnings
of the high-yield market have changed, and we see no immediate signs of any
impending credit problems.
This, in addition to our positive outlook for stable U.S. economic growth and
low inflation for the coming six months, leads us to believe that High-Yield
Opportunities Fund is poised for a rebound. We believe that the portfolio will
earn high income and may experience some modest capital appreciation through the
remainder of 1999.
HIGH-YIELD OPPORTUNITIES FUND PERFORMANCE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS THROUGH JANUARY 31, 1999
Lifetime One Year
- --------------------------------------------------------------------------------
Class A (Est. 12/30/96)
Excluding Sales Charge +10.18% +1.35%
Including Sales Charge +7.69% -3.46%
- --------------------------------------------------------------------------------
Class B (Est. 2/17/98)*
Excluding Sales Charge -1.33%
Including Sales Charge -4.95%
- --------------------------------------------------------------------------------
Class C (Est. 2/17/98)*
Excluding Sales Charge -1.35%
Including Sales Charge -2.26%
The Fund invests primarily in high-yield bonds, which involve greater risk than
higher quality bonds. Returns reflect reinvestment of distributions and any
applicable sales charges as noted below. Return and share value will fluctuate
so that shares, when redeemed, may be worth more or less than the original cost.
B and C Class results excluding sales charge assume either that contingent sales
charges did not apply or the investment was not redeemed. Past performance is
not a guarantee of future results. An expense limitation was in effect for the
periods shown. Performance would have been lower without the limitation.
* Cumulative return.
Class A shares have a 4.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
Institutional Class shares are available without sales or asset-based
distribution charges only to certain eligible institutional accounts. Average
annual Institutional Class returns through January 31, 1999 were:
Lifetime One Year
High-Yield Opportunities Fund
(Est. 12/30/96) 10.33% 1.64%
<PAGE>
8 for current income
Financial Statements
DELAWARE GROUP INCOME FUNDS, INC. -
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF NET ASSETS
JANUARY 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
CORPORATE BONDS - 86.22%
AEROSPACE & DEFENSE - 2.17%
Compass Aerospace sr sub nts
10.125% 4/15/05 ................................ $ 200,000 $ 195,000
Roller Bearing sr sub nts 9.625% 6/15/07 ........ 275,000 263,313
----------
458,313
----------
AUTOMOBILE & AUTO EQUIPMENT - 4.75%
Mark IV 7.75% 4/1/06 ............................ 400,000 392,000
Numatics 9.625% 4/1/08 .......................... 100,000 94,250
Prestolite Electric sr nts 9.625% 2/1/08 ........ 200,000 197,500
Talon Automotive Group sr nts 9.625% 5/1/08 ..... 325,000 318,094
----------
1,001,844
----------
BUILDING & MATERIALS - 3.52%
American Builders and Contractors sr unsec
sub nts 10.625% 5/15/07 ........................ 150,000 141,000
Henry sr nts 10.00% 4/15/08 ..................... 200,000 202,000
Kaufman & Broad Home 7.750% 10/15/04 ............ 400,000 399,000
----------
742,000
----------
CABLE, MEDIA & PUBLISHING - 6.76%
Classic Cable sr sub nts 9.875% 8/1/08 .......... 325,000 342,062
Pathnet sr nts 12.250% 4/15/08 .................. 300,000 201,000
RH Donnelly sr sub nts 9.125% 6/1/08 ............ 325,000 344,500
Verio 11.250% 12/1/08 ........................... 500,000 536,250
----------
1,423,812
----------
CHEMICALS - 6.96%
LaRoche Industries sr sub nts 9.50% 9/15/07 ..... 200,000 168,000
Phillip Brothers sr sub nts 9.875% 6/1/08 ....... 350,000 341,250
Precise Technology unsec sr sub nts
11.125% 6/15/07 ................................ 250,000 241,875
Scotts Company 8.625% 1/15/09 ................... 375,000 388,125
Sterling Chemicals sr sub nts 11.75% 8/15/06 .... 375,000 328,125
----------
1,467,375
----------
COMPUTERS & TECHNOLOGY - 0.05%
+Decisionone Holdings sr disc debs
11.50% 8/1/08 .................................. 200,000 10,000
----------
10,000
----------
CONSUMER PRODUCTS - 2.37%
Doskocil Manufacturing sr sub nts
10.125% 9/15/07 ................................ 275,000 262,281
Riddell Sports sr unsec sub nts
10.50% 7/15/07 ................................. 250,000 236,875
----------
499,156
----------
ENERGY - 2.15%
Frontier Oil Corp sr nts 9.125% 2/15/06 ......... 300,000 280,500
Rutherford-Moran Oil sr sub nts
10.75% 10/1/04 ................................. 150,000 172,500
----------
453,000
----------
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
CORPORATE BONDS (Continued)
ENVIRONMENTAL SERVICES - 5.21%
Allied Waste NA 7.875% 1/1/09 ................... $ 400,000 $ 413,000
Hydrochem Industrial sr sub nts
10.375% 8/1/07 ................................. 350,000 348,250
Safety Kleen Services 9.25% 6/1/08 .............. 325,000 337,188
----------
1,098,438
----------
FOOD, BEVERAGE & TOBACCO - 9.58%
AFC Enterprises sr sub nts 10.25% 5/15/07 ....... 75,000 79,687
Aurora Foods 8.75% 7/1/08 ....................... 200,000 209,000
Carrols 9.50% 12/1/08 ........................... 400,000 407,000
Community Distributors sr nts
10.25% 10/15/04 ................................ 275,000 259,188
Duane Reade sr sub nts 9.25% 2/15/08 ............ 175,000 179,375
+Electronic Retailing Systems sr disc nts
13.25% 2/1/04 .................................. 300,000 109,875
National Wine & Spirit 10.125% 1/15/09 .......... 475,000 486,875
Pueblo Xtra International 9.50% 8/1/03 .......... 300,000 288,000
----------
2,019,000
----------
HEALTHCARE & PHARMACEUTICALS - 2.54%
Biovail 10.875% 11/15/05 ........................ 325,000 331,500
Fisher Scientific International 9.00% 2/1/08 .... 200,000 204,000
----------
535,500
----------
INDUSTRIAL MACHINERY - 4.20%
Anchor Lamina 9.875% 2/1/08 ..................... 300,000 294,000
Anthony Crane Rentals sr nts 10.375% 8/1/08 ..... 200,000 192,500
Brand Scaffold 10.250% 2/15/08 .................. 175,000 172,812
Jackson Products sr sub nts 9.50% 4/15/05 ....... 225,000 225,000
----------
884,312
----------
LEISURE, LODGING & ENTERTAINMENT - 9.15%
Carmike Cinemas 9.375% 2/1/09 ................... 575,000 583,625
Harrahs Oper Inc 7.7875% 12/15/05 ............... 400,000 405,000
Park Place Entertainment 7.875% 12/15/05 ........ 400,000 402,000
Silver Cinemas sr sub nts 10.50% 4/15/05 ........ 325,000 224,250
United Artists sr sub nts 9.75% 4/15/08 ......... 325,000 313,625
----------
1,928,500
----------
METALS & MINING - 5.89%
Armco 8.875% 12/1/08 ............................ 400,000 414,000
ISG Resources 10.00% 4/15/08 .................... 200,000 200,000
P and Coal Holdings 8.875% 5/15/08 .............. 325,000 338,000
Schuff Steel unsec sr nts 10.50% 6/1/08 ......... 325,000 289,250
----------
1,241,250
----------
PAPER & FOREST PRODUCTS - 2.72%
Republic Group 9.50% 7/15/08 .................... 325,000 331,500
US Office Products sr sub nts 9.75% 6/15/08 ..... 325,000 241,313
----------
572,813
----------
RETAIL - 1.23%
Leslie's Poolmart sr nts 10.375% 7/15/04 ........ 250,000 260,000
----------
260,000
----------
<PAGE>
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS - 3.23%
CBS Radio 11.375% 1/15/09 ...................... $ 12,100 $ 14,278
MetroNet Communications sr disc nts
9.95% 6/15/08 ................................. 350,000 235,375
+Nextel Communications sr disc nts
10.65% 9/15/07 ................................ 300,000 207,190
+Viatel units 12.50% 4/15/08 .................... 375,000 223,125
-----------
679,968
-----------
TEXTILES & FURNITURE - 0.56%
Galey & Lord sr sub nts 9.125% 3/1/08 .......... 150,000 118,500
-----------
118,500
-----------
TRANSPORTATION & SHIPPING - 5.12%
Amer Commercial Lines 10.250% 6/30/08 .......... 325,000 338,000
American Reefer 1st mtg pfd nts
10.25% 3/1/08 ................................. 50,000 30,250
Amtran 9.625% 12/15/05 ......................... 350,000 350,000
Atlas Air 9.375% 11/15/06 ...................... 350,000 361,375
-----------
1,079,625
-----------
MISCELLANEOUS - 8.06%
Cex Holdings 9.625% 6/1/08 ..................... 325,000 294,125
Group Maintenance 9.75% 1/15/09 ................ 375,000 384,375
Integrated Electric Services
9.375% 2/1/09 ................................. 575,000 590,812
+Spin Cycle units 12.75% 5/1/05 ................. 250,000 132,500
True Temper 10.875% 12/1/08 .................... 300,000 295,500
-----------
1,697,312
-----------
Total Corporate Bonds
(cost $18,672,908) ............................ 18,170,718
-----------
NUMBER OF
SHARES
---------
PREFERRED STOCKS - 2.18%
TELECOMMUNICATIONS - 2.18%
21st Century Telecom Group ..................... 458 460,457
-------
Total Preferred Stocks
(cost $436,497) ............................... 460,457
-------
WARRANTS - 0.08%
TELECOMMUNICATIONS - 0.06%
*21st Century Telecommunications ................ 3,510 12,000
-------
12,000
-------
ELECTRONICS & ELECTRICAL EQUIPMENT - 0.02%
*Electronic Retailing System Warrants ........... 300 1,500
*Pathnet ........................................ 300 3,000
-------
4,500
-------
Total Warrants (cost $34,750) .................. 16,500
-------
<PAGE>
for current income 9
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
------------------------
REPURCHASE AGREEMENTS - 8.90%
With Chase Manhattan 4.68% 2/1/99 (dated 01/29/99,
collateralized by $198,000 U.S. Treasury Notes
6.375% due 3/31/01, market value $208,916 and
$190,000 U.S. Treasury Notes 6.625% due 6/30/01,
market value $199,212 and $190,000 U.S Treasury
Notes 7.875% due 8/15/01, market value $210,982
and $17,000 U.S. Treasury Notes 5.625% due
12/31/02, market value $17,461)............... $624,000 $624,000
With JP Morgan Securities 4.70% 2/1/99
(dated 1/29/99, collateralized by $299,000 U.S.
Treasury Notes 5.50% due 3/31/03, market value
$313,535 and $202,000 U.S. Treasury Notes 5.375%
due 6/30/03, market value $208,443 and $110,000
U.S Treasury Notes 5.75% due 8/15/03, market
value $117,759)............................... 626,000 626,000
With PaineWebber 4.70% 2/1/99 (dated 1/29/99,
collateralized by $198,000 U.S. Treasury Notes
6.00% due 6/30/99, market value $200,574 and
$202,000 U.S. Treasury Notes 5.50% due 2/29/00,
market value $208,325 and $78,000 U.S. Treasury
Notes 6.25% due 4/30/01, market value $81,304 and
$139,000 U.S. Treasury Notes 6.00% due 7/31/02,
market value $148,823)........................ 626,000 626,000
---------
Total Repurchase Agreements
(cost $1,876,000)............................. 1,876,000
---------
TOTAL MARKET VALUE OF SECURITIES - 97.38%
(cost $21,020,155)............................ $20,523,675
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.62%.................... 551,198
-----------
NET ASSETS APPLICABLE TO 3,966,603 SHARES
($1 PAR VALUE) OUTSTANDING - 100.00%.......... $21,074,873
===========
NET ASSET VALUE - HIGH-YIELD OPPORTUNITIES
FUND A CLASS ($11,958,660 / 2,250,839)........ $5.31
=====
NET ASSET VALUE - HIGH-YIELD OPPORTUNITIES
FUND B CLASS ($4,245,464 / 798,985)........... $5.31
=====
NET ASSET VALUE - HIGH-YIELD OPPORTUNITIES
FUND C CLASS ($1,189,575 / 223,884)........... $5.31
=====
NET ASSET VALUE - HIGH-YIELD OPPORTUNITIES
INSTITUTIONAL CLASS ($3,681,174 / 692,895).... $5.31
=====
<PAGE>
10 for current income
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT JANUARY 31, 1999:
Common stock, $1 par value, 200,000,000 shares
authorized to the Fund with 100,000,000
shares allocated to High-Yield Opportunities
Fund A Class, 25,000,000 shares allocated to
High-Yield Opportunities Fund B Class,
25,000,000 shares allocated to High-Yield
Opportunities Fund C Class and 50,000,000
shares allocated to High-Yield Opportunities
Fund Institutional Class...................................... $22,282,654
Distribution in excess of net investment income.................. (26,467)
Accumulated net realized loss on investments..................... (684,834)
Net unrealized depreciation of investments....................... (496,480)
-----------
Total net assets................................................. $21,074,873
===========
+ Zero coupon security as of January 31, 1999. The coupon shown is the step-up
rate.
* Non-income producing security for the period ended January 31, 1999.
NET ASSET VALUE AND OFFERING PRICE PER SHARE - HIGH-YIELD
OPPORTUNITIES FUND A CLASS
Net asset value A class (A)...................................... $5.31
Sales charge (4.75% of offering price or 4.90% of the amount
invested per share) (B)....................................... 0.26
-----
Offering price................................................... $5.57
=====
- -------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchase of $100,000
or more.
Summary of Abbreviations:
debs - debentures
disc - discount
mtg - mortgage
nts - notes
pik - pay in kind
pfd - preferred
sr - senior
sub - subordinated
unsec - unsecured
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC. -
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments at market (cost $21,020,155) .. $20,523,675
Receivable for securities sold ............ 2,600,397
Dividends and interest receivable ......... 383,961
Subscription receivable ................... 259,784
Other assets .............................. 45,671
-----------
Total assets .............................. 23,813,488
===========
LIABILITIES:
Payable for securities purchased .......... 2,610,498
Other accounts payable and accrued expenses 84,047
Liquidations payable ...................... 44,070
-----------
Total liabilities ......................... 2,738,615
-----------
TOTAL NET ASSETS .......................... $21,074,873
===========
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC.
HIGH-YIELD OPPORTUNITIES FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .......................................... $ 825,305
Dividends ......................................... 40,288 $ 865,593
-----------
EXPENSES:
Management fees ................................... 59,277
Registration fees ................................. 43,000
Distribution expense .............................. 31,416
Reports and statements to shareholders ............ 18,629
Dividend disbursing and transfer agent
fees and expenses .............................. 17,706
Professional fees ................................. 4,501
Accounting and administration ..................... 3,697
Custodian fees .................................... 2,903
Taxes (other than taxes on income) ................ 2,600
Directors' fees ................................... 775
Other ............................................. 4,700 189,204
----------- -----------
Less expenses absorbed or waived .................. (67,487)
----------
Total expenses .................................... 121,717
----------
NET INVESTMENT INCOME ............................. 743,876
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments .................. (684,801)
Net change in unrealized appreciation/
depreciation of investments .................... (715,179)
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ................................. (1,399,980)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ ($656,104)
===========
See accompanying notes
<PAGE>
for current income 11
DELAWARE GROUP INCOME FUNDS, INC.
HIGH-YIELD OPPORTUNITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED
1/31/99 YEAR ENDED
(UNAUDITED) 7/31/98
-------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................... $ 743,876 $ 964,255
Net realized gain (loss) on investments ............. (684,801) 545,351
Net change in unrealized appreciation/
depreciation of investments ...................... (715,179) 4,234
----------- -----------
Net increase (decrease) in net assets
resulting from operations ........................ (656,104) 1,513,840
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class .......................................... (480,062) (696,516)
B Class .......................................... (107,650) (15,881)
C Class .......................................... (34,122) (4,660)
Institutional Class .............................. (166,205) (369,702)
Net realized gain on investments:
A Class .......................................... (219,201) (264,225)
B Class .......................................... (58,238) --
C Class .......................................... (18,815) --
Institutional Class .............................. (69,788) (146,731)
----------- -----------
(1,154,081) (1,497,715)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .......................................... 3,891,915 3,291,902
B Class .......................................... 3,345,898 1,599,171
C Class .......................................... 977,445 554,661
Institutional Class .............................. 25,780 --
Net asset value of shares issued upon reinvestment of
dividends from net investment income
and distributions of net realized gain on
investments:
A Class .......................................... 608,763 922,596
B Class .......................................... 71,187 6,132
C Class .......................................... 27,453 3,037
Institutional Class .............................. 211,732 507,888
----------- -----------
9,160,173 6,885,387
----------- -----------
Cost of shares repurchased:
A Class .......................................... (1,091,613) (546,285)
B Class .......................................... (556,159) (4,598)
C Class .......................................... (285,650) (11,944)
Institutional Class .............................. -- --
----------- -----------
(1,933,422) (562,827)
----------- -----------
Increase in net assets derived from capital
share transactions ............................... 7,226,751 6,322,560
----------- -----------
NET INCREASE IN NET ASSETS .......................... 5,416,566 6,338,685
NET ASSETS:
Beginning of year ................................... 15,658,307 9,319,622
----------- -----------
End of year ......................................... $21,074,873 $15,658,307
=========== ===========
See accompanying notes
<PAGE>
12 for current income
DELAWARE GROUP INCOME FUNDS, INC. - HIGH-YIELD OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
HIGH-YIELD OPPORTUNITIES HIGH-YIELD OPPORTUNITIES
FUND CLASS A FUND B CLASS
------------------------------------- ------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR 12/30/1996(2) ENDED 2/17/1998(2)
1/31/99(1) ENDED TO 1/31/99(1) TO
(UNAUDITED) 7/31/98 7/31/97 (UNAUDITED) 7/31/98
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $5.920 $5.920 $5.500 $5.920 $5.870
Income (loss) from investment operations:
Net investment income ................................. 0.223(3) 0.523 0.290(3) 0.205(3) 0.161
Net realized and unrealized gain (loss)
on investments ...................................... (0.487) 0.336 0.299 (0.488) 0.044
------- ------- ------- ------- -------
Total from investment operations ...................... (0.264) 0.859 0.589 (0.283) 0.205
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................. (0.241) (0.605) (0.169) (0.222) (0.155)
Distributions from net realized
gain on investments ................................. (0.105) (0.254) -- (0.105) --
------- ------- ------- ------- -------
Total dividends and distributions ..................... (0.346) (0.859) (0.169) (0.327) (0.155)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $5.310 $5.920 $5.920 $5.310 $5.920
======= ======= ======= ======= =======
Total return(4) .......................................... (4.37%) 15.66% 10.81% (4.71%) 3.54%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............... $11,959 $9,670 $5,990 $4,245 $1,603
Ratio of expenses to average net assets ............... 1.25% 1.14% 0.75% 1.95% 1.84%
Ratio of expenses to average net assets prior
to expense limitation ............................... 1.98% 1.44% 1.57% 2.68% 2.14%
Ratio of net investment income to average net assets .. 8.18% 8.88% 8.53% 7.48% 8.18%
Ratio of net investment income to average net assets ..
prior to expense limitation ......................... 7.45% 8.58% 7.70% 6.75% 7.88%
Portfolio turnover .................................... 223% 317% 270% 223% 317%
</TABLE>
- ---------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of initial public offering: ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(3) The average shares outstanding method has been applied for per share
information.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestrment of distributions at net
asset value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
for current income 13
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
HIGH-YIELD OPPORTUNITIES HIGH-YIELD OPPORTUNITIES
FUND C CLASS FUND INSTITUTIONAL CLASS
------------------------ ------------------------------------
SIX MONTHS SIX MONTHS
ENDED 2/17/98(2) ENDED YEAR 12/30/96(2)
1/31/99(1) TO 1/31/99(1) ENDED TO
(UNAUDITED) 7/31/98 (UNAUDITED) 7/31/98 7/31/97
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $5.920 $5.870 $5.920 $5.920 $5.500
Income from investment operations:
Net investment income .................................. 0.205(3) 0.161 0.232(3) 0.537 0.290(3)
Net realized and unrealized gain (loss)
on investments ....................................... (0.488) 0.044 (0.488) 0.330 0.299
------- ------- ------- ------- -------
Total from investment operations ....................... (0.283) 0.205 (0.256) 0.867 0.589
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ................... (0.222) (0.155) (0.249) (0.613) (0.169)
Distributions from net realized
gain on investment transactions ...................... (0.105) -- (0.105) (0.254) --
------- ------- ------- ------- -------
Total dividends and distributions ...................... (0.327) (0.155) (0.354) (0.867) (0.169)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $5.310 $5.920 $5.310 $5.920 $5.920
======= ======= ======= ======= =======
Total return .............................................. (4.71%)(4) 3.54%(4) (4.23%) 15.82% 10.81%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $1,190 $547 $3,681 $3,837 $3,330
Ratio of expenses to average net assets ................ 1.95% 1.84% 0.95% 0.84% 0.75%
Ratio of expenses to average net assets
prior to expense limitation .......................... 2.68% 2.14% 1.68% 1.14% 1.27%
Ratio of net investment income to average net assets ... 7.48% 8.18% 8.48% 9.18% 8.53%
Ratio of net investment income to average net assets
prior to expense limitation .......................... 6.75% 7.88% 7.75% 8.88% 8.00%
Portfolio turnover ..................................... 223% 317% 223% 317% 270%
</TABLE>
- -------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of initial public offering: ratios have been annualized but total
return has not been annualized. Total return for this short of a time
period may not be representative of longer term results.
(3) The average shares outstanding method has been applied for per share
information.
(4) 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>
14 for current income
DELAWARE GROUP INCOME FUNDS, INC. -
HIGH-YIELD OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Delaware Group Income Funds, Inc. is registered as a diversified open-end
investment company under the Investment Company Act of 1940, as amended. The
Fund is organized as a Maryland Corporation and offers three series: the
Delchester Fund, the High-Yield Opportunities Fund and the Strategic Income
Fund. These financial statements and related notes pertain to the High-Yield
Opportunities Fund (The "Fund"). The Fund offers four classes of shares. The
High-Yield Opportunities Fund A Class carries a front-end sales charge of 4.75%.
The High-Yield Opportunities Fund B Class carries a back-end deferred sales
charge. The High-Yield Opportunities Fund C Class carries a level load deferred
sales charge and the Institutional Class has no sales charge. The investment
objective of the High-Yield Opportunities Fund is to provide investors with high
current income and total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. 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
each Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by each
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
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. The Fund declares and pays
dividends from net investment income daily and capital gains, if any, annually.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC), the Investment Manager, an annual fee
which is calculated daily at 0.65% of the average daily net assets on the first
$500 million, 0.625% of the average daily net assets on the next $500 million
and 0.60% of the average net assets over $1 billion, less fees paid to
unaffiliated directors. At January 31, 1999, the liability for investment
management fees and other expenses payable to DMC was $11,867.
DMC has elected to waive that portion if any of the management fee and reimburse
the Fund to the extent that annual expenses exclusive of taxes, interest,
brokerage commissions, distribution and extraordinary expenses, exceed 0.95% of
average daily net assets of the Fund through March 31, 1999. Total expenses
absorbed by DMC for the six months ended January 31, 1999, were $67,487.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services. At
January 31, 1999, the Fund had a liability for such fees and other expenses
payable to DSC of $2,420.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Classes.
For the six months ended January 31, 1999, commissions earned by DDLP on sales
of the Fund's A Class shares was $9,239.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
3. Investments
During the six months ended January 31, 1999, the Fund made purchases and sales
of $22,391,911 and $17,109,418 respectively, of investment securities other than
U.S. government securities and temporary cash investments.
At January 31, 1999, net unrealized depreciation for federal income tax purposes
aggregated $496,480 of which $421,949 related to unrealized appreciation of
securities and $918,429 related to unrealized depreciation of securities. At
January 31, 1999, the aggregate cost of securities for federal income tax
purposes was $21,020,155.
<PAGE>
for current income 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. Capital Stock
Transactions in capital stock shares were as follows:
SIX MONTHS YEAR
ENDED ENDED
1/31/99 7/31/98
---------- -------
Shares sold:
A Class 705,876 557,471
B Class 619,092 270,668
C Class 180,024 94,007
Institutional Class 4,911 --
Shares issued upon reinvestment of dividends
from net investment income and net realized
gains on investment transactions:
A Class 113,464 158,375
B Class 13,359 1,039
C Class 5,131 514
Institutional Class 39,269 87,197
--------- ---------
1,681,126 1,169,271
--------- ---------
Shares repurchased:
A Class (203,319) (92,469)
B Class (104,395) (778)
C Class (53,761) (2,031)
Institutional Class -- --
--------- ---------
(361,475) (95,278)
Net Increase 1,319,651 1,073,993
========= =========
5. Lines of Credit
The Fund has a committed line of credit for $400,000. No amount was outstanding
at January 31, 1999, or at any time during the fiscal year.
6. Market and Credit Risk
The Fund may invest in high-yield fixed income securities, which carry ratings
of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect each Fund's ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities.
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF HIGH-YIELD OPPORTUNITIES FUND
SHAREHOLDERS, BUT IT MAY BE USED with prospective investors when preceded or
accompanied by a current High-Yield Opportunities Fund Prospectus 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. Summary investment results are documented in the
Fund's current Statement of Additional Information. The figures in this report
represent past performance which is not a guarantee of future results. The
return and principal value of an investment in the Fund will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
(photo of globes)
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES ONLY
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.
(C) Delaware Distributors, L.P.
DELAWARE(SM)
INVESTMENTS
- -----------------------
Philadelphia [ ] London
Printed in the USA
on recycled paper
SA-137 [1/99] PP3/99
(1477)
