<PAGE>
FOR CURRENT INCOME
Corporate Bond Fund
Extended Duration
Bond Fund
(Photo of illustration from Current Income Brochure)
service and guidance
professional management
goals
1999
Semi-Annual Report
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
<PAGE>
for current
income
2 February 5, 1999
Dear Shareholder:
Corporate Bond Fund and Extended Duration Bond Fund concluded the first half of
their inaugural fiscal year on January 31, 1999. We are pleased to report that
the Funds' initial four and a half months of operations provided encouraging
results, as shown below.
The Funds opened on September 15, 1998, just after a large-scale disruption
in global financial markets. Many foreign investors had become fearful of credit
risk in the face of global economic uncertainty, and by late August, had sold
their riskier investments stocks and non-government bonds - for the safety and
liquidity of U.S. Treasuries.
As Treasury prices rose and corporate bond prices fell, the yield spread
between corporate bonds and similar maturity Treasuries widened dramatically. By
mid-September, as we began building the two portfolios - which focus on
investment-grade corporate bonds rated BBB or better - we were able to take
advantage of compelling low prices and high income potential created by the
uncertainty.
By late September, the Federal Reserve Board began reducing its target for
short-term interest rates in an effort to stabilize market conditions. The Fed
lowered the federal funds rate (the interest rate charged between banks for
overnight loans) again in October and November, for a total rate cut of 0.75%.
The federal funds rate remained at 4.75% through January 1999.
Lower interest rates provided much needed liquidity to the stock and bond
markets. Although prices subsequently rebounded, many fixed income securities,
including investment-grade corporate bonds, have yet to experience a full
recovery. We believe that increasing
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
September 15, 1998
to January 31, 1999
- --------------------------------------------------------------------------------
Corporate Bond Fund A Class +4.24%
Extended Duration Bond Fund A Class +4.46%
- --------------------------------------------------------------------------------
Saloman Smith Barney Large Pension Index +1.17%
The performance shown above is based on net asset value without effect of sales
charges and assumes reinvestment of distributions. See page 7 for portfolio
performance for all Classes. Performance of other Fund classes varies due to
different expenses. Past performance is not a guarantee of future results.
During the period an expense limit of 0.55% was in effect. Performance would
have been lower if the limit were not in effect.
<PAGE>
for current
income
3
investor appetite for the above-average yields and relatively high credit
quality will gradually push investment-grade corporate bond prices higher.
On the next several pages,
Gary A. Reed, the Funds' portfolio manager, describes the investment selection
process and current portfolio positioning of Corporate Bond Fund and Extended
Duration Bond Fund, and shares his outlook for the remainder of 1999.
During the short lifetime of the Funds, they have experienced strong growth
in net assets. As of January 31, 1999, Corporate Bond Fund and Extended Duration
Bond Fund had net assets of $55.8 million and $48.3 million, respectively. We
thank you for your investment, and we look forward to helping you reach your
long-term financial goals.
Sincerely,
/s/ JEFFREY J. NICK
- ------------------------------------
JEFFREY J. NICK
Chairman, President
and Chief Executive Officer
Delaware Investments Family of Funds
WE BELIEVE THAT INCREASING INVESTOR APPETITE FOR THE ABOVE-AVERAGE YIELDS AND
RELATIVELY HIGH CREDIT QUALITY WILL GRADUALLY PUSH INVESTMENT-GRADE CORPORATE
BOND PRICES HIGHER.
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 Manager's Review
BY GARY A. REED
Vice President/Senior Portfolio Manager
February 5, 1999
A QUALITY APPROACH TO
TOTAL RETURN
A bond's credit rating is an important indication of its issuer's likely ability
to pay interest and repay principal. When corporations and governments issue
debt, national organizations - such as Standard and Poor's and Moody's Investors
Services - rate the creditworthiness of the issuers.
The highest categories of credit quality - bonds rated AAA through
BBB - indicate a good probability that the issuer will meet its financial
commitments. Bonds rated BB or lower are generally issued by companies whose
financial situations make their ability to fulfill debt obligations less
certain. These lower quality bonds typically offer a higher yield to compensate
for their higher risk.
Quality is a top priority in managing Corporate Bond Fund and Extended
Duration Bond Fund. We invest each portfolio primarily in investment grade
corporate bonds with ratings of BBB or higher. This helps us to minimize credit
risk while working toward the goal of both Funds: providing investors with
total return.
CURRENT POSITIONING
As of January 31, 1999, both portfolios held more than 95% of net assets in
investment grade bonds. Corporate bonds made up most of this allocation, while
U.S. Treasuries and agency securities accounted for approximately 31% of
Corporate Bond Fund's investment grade holdings and 27% of Extended Duration
Bond Fund's investment grade holdings.
PORTFOLIO CREDIT QUALITY AND CHARACTERISTICS
- --------------------------------------------------------------------------------
JANUARY 31, 1999
Corporate Bond Fund Extended Duration Bond Fund
- --------------------------------------------------------------------------------
AAA 31.7% 27.8%
AA 11.7% 12.1%
A 24.8% 26.2%
BBB 27.5% 29.0%
BB 4.3% 4.9%
- --------------------------------------------------------------------------------
Current 30-Day SEC Yield* 4.52% 4.53%
Average Effective Duration 7.7 years 8.7 years
Average Effective Maturity 13.0 years 14.6 years
Number of Securities 42 39
* For A Class shares measured according to Securities and Exchange Commission
(SEC) guidelines. Current 30-Day SEC yields as of 1/31/99 for Corporate Bond
Fund B and C Class shares were 4.06% and 4.13% respectively. The Institutional
Class yield was 4.99%. For Extended Duration Bond Fund, the current 30-day SEC
yield was 4.02% for B Class, 4.01% for C Class and 5.00% for the Institutional
Class.
<PAGE>
for current
income
5
Lower quality, higher risk, BB bonds represented just under 5% of net assets.
We may invest up to 20% in bonds rated BB which offer high income and on which
we conduct extensive credit analysis. In general, we prefer to buy bonds rated
BB from companies that exhibit improving financial characteristics. We believe
many have the potential to receive a credit upgrade. If that happens, prices
could rise, helping the Funds' performance. In the meantime, these securities
have been offering us extra yield, which has also helped the Funds' performance.
INVESTMENT STRATEGY
We employ a careful selection process to choose bonds for each portfolio from
the broad universe of investment grade bonds. We consider economic, industry and
company-specific factors, including:
o Liquidity of the individual security. It is important that we buy bonds that
can be easily bought and sold.
o Financial strength of the company and its industry. When we consider bonds for
investment, we conduct extensive research of the companies and their
respective industries. This includes evaluating the viability of the business
and industry, quality of management, balance sheets, operating cash flows, and
plans for future growth.
o Relative value in the marketplace. We look for securities that are
inexpensively priced and issued by good quality companies. We think these
bonds will provide solid total return over time.
Portfolio Selection Process
Investment Grade Bonds
Liquidity Factors
Industry and Company
Research
Relative Value
Analysis
Corporate Bond Extended Duration
Fund Portfolio Bond Fund Portfolio
<PAGE>
for current
income
6
TWO FUNDS FOR
DIFFERENT INVESTORS
Corporate Bond Fund and Extended Duration Bond Fund have a lot in common. They
share the same investment objective of seeking total return and employ a similar
strategy of investing in higher quality corporate bonds. But there is one major
difference between the two funds: the length of their average durations and the
resulting difference in risk profile.
Duration measures a bond's price sensitivity to changes in interest rates.
The longer the duration, the more a bond or bond fund's price is likely to
fluctuate. Generally, a bond or bond fund with a longer duration will experience
bigger losses when interest rates rise, and bigger gains when interest rates
fall.
Corporate Bond Fund's duration range is lower than the duration range for
Extended Duration Bond Fund.
Extended Duration Bond Fund's longer duration makes it more suitable for
investors with a longer time horizon or greater tolerance for risk. Over time,
its longer duration offers the potential for greater returns. Corporate Bond
Fund's more conservative approach may be more appropriate for long-term
investors who desire less exposure to principal fluctuations.
OUTLOOK
In early February 1999, the U.S. Conference Board released economic data for the
fourth quarter of 1998. The government's report card surprised many, as it
reflected better than anticipated economic growth late last year with no signs
of inflation on the horizon.
Low inflation and the economy's continued strength lead us to believe that
interest rates will fluctuate in a moderate range over the next 12 to 18 months.
With liquidity increasing in the bond markets, we think that corporate bond
yields will begin to fall, lessening the income advantage they have over
Treasuries. This bodes well for corporate bond prices. Corporate Bond Fund and
Extended Duration Bond Fund have already begun to realize the benefits of price
appreciation relative to Treasuries. We believe that the portfolios can earn
high income with some modest capital appreciation during the rest of 1999. We
believe this combination will help us meet the Fund's investment objectives.
<PAGE>
for current
income
7
Performance Summary
CORPORATE BOND FUND PERFORMANCE
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS THROUGH JANUARY 31, 1999
Lifetime
September 15, 1998
to January 31, 1999
- --------------------------------------------------------------------------------
Class A (Est. 9/15/98)
Excluding Sales Charge +4.24%
Including Sales Charge -0.64%
- --------------------------------------------------------------------------------
Class B (Est. 9/15/98)
Excluding Sales Charge +4.06%
Including Sales Charge +0.06%
- --------------------------------------------------------------------------------
Class C (Est. 9/15/98)
Excluding Sales Charge +4.06%
Including Sales Charge +3.06%
EXTENDED DURATION BOND FUND PERFORMANCE
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS THROUGH JANUARY 31, 1999
Lifetime
September 15, 1998
to January 31, 1999
- --------------------------------------------------------------------------------
Class A (Est. 9/15/98)
Excluding Sales Charge +4.46%
Including Sales Charge -0.43%
- --------------------------------------------------------------------------------
Class B (Est. 9/15/98)
Excluding Sales Charge +4.21%
Including Sales Charge +0.21%
- --------------------------------------------------------------------------------
Class C (Est. 9/15/98)
Excluding Sales Charge +4.36%
Including Sales Charge +3.36%
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 assumes either that contingent deferred sales charges did not apply or
the investment was not redeemed. Past performance for this short time period may
not be indicative of future results.
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 contingent 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.
Institutional Class Cumulative Returns through January 31, 1999 are:
Lifetime
Corporate Bond Fund (Est. 9/15/98) 4.32%
Extended Duration Bond Fund (Est. 9/15/98) 4.52%
<PAGE>
8 for current income
Financial Statements
DELAWARE GROUP INCOME FUNDS, INC.
CORPORATE BOND FUND
STATEMENT OF NET ASSETS
JANUARY 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
AGENCY MORTGAGE-BACKED SECURITIES - 16.08%
Federal National Mortgage Association
5.75% 4/15/03 ................................. $2,000,000 $2,057,618
Federal National Mortgage Association
6.00% 5/15/08 ................................. 2,200,000 2,324,839
Federal National Mortgage Association
6.00% 10/1/28 ................................. 452,244 447,439
Federal National Mortgage Association PL 456078
6.00% 12/1/28 ................................. 1,666,499 1,648,792
Federal National Mortgage Association PL 481539
6.00% 1/1/29 .................................. 2,525,000 2,498,172
---------
Total Agency Mortgage-Backed Securities
(cost $8,911,958) ............................. 8,976,860
---------
ASSET-BACKED SECURITIES - 1.10%
Home Equity Loan Trust (EQCC) 1996-4 A6
6.88% 7/15/14 ................................. 270,000 276,048
NationsCredit Grantor Trust (NCGT) 97-1 A
6.75% 8/15/13 ................................. 332,651 340,302
---------
Total Asset Backed Securities (cost $614,603) .... 616,350
---------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 0.75%
Federal Home Loan Mortgage Corporation 2091PD
6.00% 4/15/21 ................................. 45,000 45,437
Mortgage Capital Funding 96-MC2-C
7.224% 9/20/06 ................................ 355,000 371,030
---------
Total Collateralized Mortgage Obligations
(cost $409,627) ............................... 416,467
---------
CORPORATE BONDS - 67.45%
AUTOMOBILE & AUTO EQUIPMENT - 2.77%
Federal Mogul 144A 7.50% 1/15/09 ................. 500,000 502,500
Ford Motor Company 6.625% 10/1/28 ................ 1,000,000 1,043,750
---------
1,546,250
---------
BANKING - 6.63%
Chase Manhattan 6.75% 8/15/08 .................... 1,600,000 1,704,000
J.P. Morgan 6.00% 1/15/09 ........................ 2,000,000 1,997,500
---------
3,701,500
---------
CABLE, MEDIA & PUBLISHING - 13.93%
News America Holdings 7.75% 12/1/45 .............. 900,000 995,625
Time Warner 9.125% 1/15/13 ....................... 1,125,000 1,440,000
Turner Broadcasting senior notes
8.375% 7/1/13 ................................. 2,125,000 2,565,938
Viacom 7.625% 1/15/16 ............................ 2,500,000 2,781,250
---------
7,782,813
---------
COMPUTERS & TECHNOLOGY - 1.72%
Computer Associates 6.50% 4/15/08 ................ 950,000 960,688
---------
960,688
---------
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
CONSUMER PRODUCTS - 4.08%
Tommy Hilfiger 6.85% 6/1/08 ...................... $2,300,000 $ 2,279,875
-----------
2,279,875
-----------
FINANCE - 21.87%
Associates Corporation NA 6.25% 11/1/08 .......... 2,225,000 2,325,125
Commercial Credit 6.50% 8/1/04 ................... 1,250,000 1,295,312
Conseco Finance 8.796% 4/1/27 .................... 500,000 471,875
Ford Motor Credit 5.80% 1/12/09 .................. 1,500,000 1,511,250
General Electric Capital 8.85% 3/1/07 ............ 1,000,000 1,223,750
Household Finance 6.50% 11/15/08 ................. 2,375,000 2,499,688
Lehman Brothers Holdings 6.625% 2/5/06 ........... 890,000 886,565
Morgan Stanley Dean Witter 5.625% 1/20/04 ........ 1,000,000 1,001,250
Popular NA 6.625% 1/15/04 ......................... 1,000,000 1,000,000
-----------
12,214,815
-----------
FOOD, BEVERAGE & TOBACCO - 2.36%
Philip Morris 7.20% 2/1/07 ....................... 1,210,000 1,318,900
-----------
1,318,900
-----------
HEALTHCARE & PHARMACEUTICALS - 0.54%
Cardinal Health unsecured notes 6.00% 1/15/06 .... 150,000 151,125
United Health Care 144A 6.60% 12/1/03 ............ 145,000 147,719
-----------
298,844
-----------
RETAIL - 4.92%
Saks Incorporated 8.25% 11/15/08 ................. 2,500,000 2,750,000
-----------
2,750,000
-----------
TELECOMMUNICATIONS - 5.66%
Cox Communications 6.15% 8/1/03 .................. 250,000 255,000
MCI Worldcom 7.55% 4/1/04 ........................ 630,000 686,700
Sprint Capital 6.125% 11/15/08 ................... 2,160,000 2,219,400
-----------
3,161,100
-----------
MISCELLANEOUS - 2.97%
Petro Mexicanos 8.02% 5/15/07 .................... 375,000 370,311
Republic of Korea 8.875% 4/15/08 ................. 1,200,000 1,288,500
-----------
1,658,811
-----------
Total Corporate Bonds (cost $37,282,623) 37,673,596
-----------
U.S. TREASURY OBLIGATIONS - 14.44%
U.S. Treasury Bond 6.125% 11/15/27 ............... 10,000 11,242
U.S. Treasury Bond 6.375% 8/15/27 ................ 5,565,000 6,439,914
U.S. Treasury Note 5.50% 2/15/08 ................. 885,000 935,962
U.S. Treasury Note 6.375% 1/15/00 ................ 335,000 340,379
U.S. Treasury Strip 5.127% 5/15/27 ............... 1,500,000 334,160
-----------
Total U.S. Treasury Obligations
(cost $7,998,246) ............................. 8,061,657
-----------
<PAGE>
for current income 9
CORPORATE BOND FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
------------
TOTAL MARKET VALUE OF SECURITIES - 99.82%
(COST $55,217,057) ....................................... $55,744,930
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.18% ..... 102,024
-----------
NET ASSETS APPLICABLE TO 9,818,501 CORPORATE BOND
SHARES OUTSTANDING - 100.00% ............................. $55,846,954
===========
NET ASSET VALUE CORPORATE BOND A CLASS
($1,065,368 / 187,301 shares) ............................ $5.69
=====
NET ASSET VALUE CORPORATE BOND B CLASS
($241,147 / 42,379 shares) ............................... $5.69
=====
NET ASSET VALUE CORPORATE BOND C CLASS
($242,344 / 42,598 shares) ............................... $5.69
=====
NET ASSET VALUE CORPORATE BOND INSTITUTIONAL CLASS
($54,298,095 / 9,546,223 shares) ......................... $5.69
=====
COMPONENTS OF NET ASSETS AT JANUARY 31, 1999:
Commom stock, $1 par value, 200,000,000 shares authorized
to the Fund with 100,000,000 shares allocated to
Corporate Bond Fund A Class, 25,000,000 shares allocated
to Corporate Bond Fund B Class, 25,000,000 shares
allocated to Corporate Bond Fund C Class and 50,000,000
shares allocated to Corporate Bond Fund Institutional
Class .................................................... $55,379,977
Undistributed net investment income ......................... 234
Accumulated net realized loss on investments ................ (61,130)
Net unrealized appreciaton of investments ................... 527,873
-----------
Total net assets ............................................ $55,846,954
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE
CORPORATE BOND FUND A CLASS
Net asset value A Class (A) ................................. $5.69
Sales charge (4.75% of offering price or 4.92% of amount
invested per share) (B) .................................. 0.28
-----
Offering Price .............................................. $5.97
=====
- --------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How To Buy Shares in the current prospectus for purchases of $100,000 or
more.
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC.
EXTENDED DURATION BOND FUND
STATEMENT OF NET ASSETS
JANUARY 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
AGENCY MORTGAGE-BACKED SECURITIES - 8.72%
Federal National Mortgage Association
6.00% 10/1/28 ................................... $ 373,663 $ 369,693
Federal National Mortgage Association PL 456078
6.00% 12/1/28 ................................... 1,363,500 1,349,012
Federal National Mortgage Association PL 481539
6.00% 1/1/29 .................................... 2,525,000 2,498,172
----------
Total Agency Mortgage-Backed Securities
(cost $4,205,373) ............................... 4,216,877
----------
ASSET-BACKED SECURITIES - 0.52%
Home Equity Loan Trust 1996-4 A6
6.88% 7/15/14 ................................... 245,000 250,488
----------
Total Asset-Backed Securities (cost $249,632) ...... 250,488
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 0.86%
Federal Home Loan Mortgage Corporation 2091PD
6.00% 4/15/21 ................................... 40,000 40,388
Mortgage Capital Funding 96-MC2-C
7.224% 9/20/06 .................................. 360,000 376,256
----------
Total Collateralized Mortgage Obligations
(cost $409,734) 416,644
----------
CORPORATE BONDS - 71.90%
AUTOMOBILE & AUTO EQUIPMENT - 3.20%
Federal Mogul 144A 7.50% 1/15/09 ................... 500,000 502,500
Ford Motor 6.625% 10/1/28 .......................... 1,000,000 1,043,750
----------
1,546,250
----------
BANKING - 7.21%
Chase Manhattan 6.75% 8/15/08 ...................... 1,400,000 1,491,000
J.P. Morgan 6.00% 1/15/09 .......................... 2,000,000 1,997,500
----------
3,488,500
----------
CABLE, MEDIA & PUBLISHING - 15.18%
News America Holdings 7.75% 12/1/45 ................ 906,000 1,002,263
Time Warner 9.125% 1/15/13 ......................... 1,125,000 1,440,000
Turner Broadcasting senior notes
8.375% 7/1/13 ................................... 2,125,000 2,565,938
Viacom 7.625% 1/15/16 .............................. 2,100,000 2,336,250
----------
7,344,451
----------
COMPUTERS & TECHNOLOGY - 1.57%
Computer Associates 6.50% 4/15/08 .................. 750,000 758,438
----------
758,438
----------
CONSUMER PRODUCTS - 4.07%
Tommy Hilfiger 6.85% 6/1/08 ........................ 1,985,000 1,967,631
----------
1,967,631
----------
FINANCE - 23.77%
Associates Corporation North America
6.25% 11/1/08 ................................... 2,025,000 2,116,125
Commercial Credit 6.50% 8/1/04 ..................... 1,250,000 1,295,313
Conseco Finance 8.796% 4/1/29 ...................... 500,000 471,875
Ford Motor Credit 5.80% 1/12/09 .................... 1,500,000 1,511,250
<PAGE>
10 for current income
EXTENDED DURATION BOND FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
FINANCE (Continued)
General Electric Capital 8.85% 3/1/07 ............ $1,000,000 $ 1,223,750
Household Finance 6.50% 11/15/08 ................. 2,010,000 2,115,525
Lehman Brothers Holdings 6.625% 2/5/06 ........... 770,000 767,027
Morgan Stanley Dean Witter 5.625% 1/20/04 ........ 1,000,000 1,001,250
Popular North America 6.625% 1/15/04 ............. 1,000,000 1,000,000
-----------
11,502,115
-----------
FOOD, BEVERAGE & TOBACCO - 2.67%
Philip Morris 7.20% 2/1/07 ....................... 1,185,000 1,291,650
-----------
1,291,650
-----------
TELECOMMUNICATIONS - 5.83%
Cox Communications 6.15% 8/1/03 .................. 225,000 229,500
MCI Worldcom 7.55% 4/1/04 ........................ 630,000 686,700
Sprint Capital 6.125% 11/15/08 ................... 1,855,000 1,906,013
-----------
2,822,213
-----------
HEALTHCARE - 0.28%
United Health Care 144A 6.60% 12/1/03 ............ 135,000 137,531
-----------
137,531
-----------
RETAIL - 5.15%
May Department Stores 7.625% 08/15/13 ............ 160,000 182,400
Saks Incorporated 8.25% 11/15/08 ................. 2,100,000 2,310,000
-----------
2,492,400
-----------
MISCELLANEOUS - 2.97 %
Petro Mexicanos 8.020% 5/15/07 ................... 370,000 365,375
Republic of Korea 8.875% 4/15/08 ................. 1,000,000 1,073,750
-----------
1,439,125
-----------
Total Corporate Bonds (cost $34,436,719) ......... 34,790,304
-----------
U.S. TREASURY OBLIGATIONS - 17.91%
U.S. Treasury Bond 6.375% 8/15/27 ................ 6,125,000 7,087,955
U.S. Treasury Note 5.50% 2/15/08 ................. 105,000 111,046
U.S. Treasury Strip 5.04% 2/15/27 ................ 1,500,000 343,216
U.S. Treasury Strip 5.127% 5/15/27 ............... 2,500,000 556,933
U.S. Treasury Strip 6.501% 2/15/29 ............... 2,500,000 568,910
-----------
Total U.S. Treasury Obligations
(cost $8,583,045) ............................. 8,668,060
-----------
<PAGE>
- --------------------------------------------------------------------------------
MARKET
VALUE
-----------
TOTAL MARKET VALUE OF SECURITIES - 99.91%
(COST $47,884,503) ........................................ $48,342,373
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.09% ...... 42,148
-----------
NET ASSETS APPLICABLE TO 8,494,847 EXTENDED DURATION
BOND FUND SHARES OUTSTANDING - 100.00% .................... $48,384,521
===========
NET ASSET VALUE - EXTENDED DURATION BOND FUND A CLASS
($751,358 / 131,915 shares) ............................... $5.70
=====
NET ASSET VALUE - EXTENDED DURATION BOND FUND B CLASS
($9,543 / 1,675 shares) ................................... $5.70
=====
NET ASSET VALUE - EXTENDED DURATION BOND FUND C CLASS
($25,101 / 4,407 shares) .................................. $5.70
=====
NET ASSET VALUE - EXTENDED DURATION BOND FUND
INSTITUTIONAL CLASS ($47,598,519 / 8,356,850 shares) ...... $5.70
=====
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 Extended
Duration Bond Fund A Class, 25,000,000 shares allocated
to Extended Duration Bond Fund B Class, 25,000,000 shares
allocated to Extended Duration Bond Fund C Class and
50,000,000 shares allocated to Extended Duration Bond
Fund Institutional Class .................................. $47,961,209
Undistributed net investment income .......................... 1,496
Accumulated net realized loss on investments ................. (36,054)
Net unrealized appreciation of investments ................... 457,870
-----------
Total Net Assets ............................................. $48,384,521
===========
NET ASSET VALUE AND OFFERING PRICE FOR EXTENDED
DURATION BOND FUND A CLASS
Net asset value A Class (A) .................................. $5.70
Sales charge (4.75% of offering price or 4.91% of the
amount invested per share) (B) ............................ 0.28
-----
Offering price ............................................... $5.98
=====
- --------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How To Buy Shares in the current prospectus for purchases of $100,000 or
more.
See accompanying notes
<PAGE>
for current income 11
DELAWARE GROUP INCOME FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD SEPTEMBER 15, 1998*
THROUGH JANUARY 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
----------------------------------
INVESTMENT INCOME:
Interest ................................... $364,879 $321,646
-------- --------
364,879 321,646
-------- --------
EXPENSES:
Management fees ............................ 31,774 30,623
Registration fees .......................... 13,793 13,806
Dividend disbursing and transfer
agent fees and expenses ................. 11,240 9,548
Accounting and administration .............. 2,689 1,932
Custodian fees ............................. 1,152 1,264
Reports and statements to shareholders ..... 937 1,570
Directors' fees ............................ 900 711
Distribution expense ....................... 723 500
Professional fees .......................... 476 668
Taxes (other than taxes on income) ......... 44 18
Other ...................................... 697 716
-------- --------
64,425 61,356
-------- --------
Less expenses absorbed by Delaware
Management Company ...................... (28,163) (29,709)
-------- --------
NET INVESTMENT INCOME ...................... 328,617 289,999
-------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments ........... (37,396) (21,280)
Net change in unrealized appreciation
of investments .......................... 527,873 457,870
-------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS .......................... 490,477 436,590
-------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................... $819,094 $726,589
======== ========
- -----------------
* Date of commencement of operations.
See accompanying notes
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-----------------------------------
9/15/1998* 9/15/1998*
to 1/31/1999 to 1/31/1999
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .................... $ 328,617 $ 289,999
Net realized loss on investments ......... (37,396) (21,280)
Net change in unrealized appreciation
of investments ........................ 527,873 457,870
----------- -----------
Net increase in net assets resulting
from operations ....................... 819,094 726,589
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class ............................... (6,590) (5,627)
B Class ............................... (342) (35)
C Class ............................... (552) (159)
Institutional Class ................... (320,899) (282,682)
Net realized gain from security
transactions:
A Class ............................... (649) (403)
B Class ............................... (26) (3)
C Class ............................... (37) (13)
Institutional Class ................... (23,022) (14,355)
----------- -----------
(352,117) (303,277)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ............................... 1,277,945 853,041
B Class ............................... 239,420 61,034
C Class ............................... 240,871 25,095
Institutional Class ................... 56,299,522 48,862,699
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on security transactions:
A Class ............................... 5,650 4,995
B Class ............................... 141 27
C Class ............................... 351 68
Institutional Class ................... 250,119 214,973
----------- -----------
58,314,019 50,021,932
----------- -----------
Cost of shares repurchased:
A Class ............................... (234,283) (119,941)
B Class ............................... - (51,226)
C Class ............................... - -
Institutional Class ................... (2,699,759) (1,889,556)
----------- -----------
(2,934,042) (2,060,723)
----------- -----------
Increase in net assets derived from
capital share transactions ............ 55,379,977 47,961,209
----------- -----------
NET INCREASE IN NET ASSETS ............... 55,846,954 48,384,521
NET ASSETS:
Beginning of period - -
----------- -----------
End of period ............................ $55,846,954 $48,384,521
=========== ===========
- -------------
* Date of commencement of operations.
See accompanying notes
<PAGE>
12 for current income
DELAWARE GROUP INCOME FUNDS, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for each share of the fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
CORPORATE BOND FUND
-------------------------------------------------------------
A CLASS B CLASS C CLASS INSTITUTIONAL CLASS
9/15/98(1) 9/15/98(1) 9/15/98(1) 9/15/98(1)
TO TO TO TO
1/31/99 1/31/99 1/31/99 1/31/99
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $5.500 $5.500 $5.500 $ 5.500
Income from investment operations:
Net investment income ................................... 0.100 0.088 0.085 0.105
Net realized and unrealized gain from investments ....... 0.133 0.135 0.138 0.132
------ ------ ------ ------
Net increase in net assets from investment operations ... 0.233 0.223 0.223 0.237
------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income .................... (0.039) (0.029) (0.029) (0.043)
Distributions from net realized gain on security
transactions .......................................... (0.004) (0.004) (0.004) (0.004)
------ ------ ------ ------
Total dividends and distributions ....................... (0.043) (0.033) (0.033) (0.047)
------ ------ ------ ------
Net asset value, end of period ............................. $5.690 $5.690 $5.690 $ 5.690
====== ====== ====== ======
Total Return(2) ............................................ 4.24% 4.06% 4.06% 4.32%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $1,065 $ 241 $ 242 $54,298
Ratio of expenses to average net assets 0.80% 1.55% 1.55% 0.55%
Ratio of expenses to average net assets prior to
expense limitation .................................... 1.21% 1.96% 1.96% 0.96%
Ratio of net investment income to average net assets .... 4.65% 3.90% 3.90% 4.90%
Ratio of net investment income to average net assets
prior to expense limitation ........................... 4.24% 3.49% 3.49% 4.49%
Portfolio turnover ...................................... 315% 315% 315% 315%
</TABLE>
- -----------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) 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 13
DELAWARE GROUP INCOME FUNDS, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
EXTENDED DURATION BOND FUND
-------------------------------------------------------------
A CLASS B CLASS C CLASS INSTITUTIONAL CLASS
9/15/98(1) 9/15/98(1) 9/15/98(1) 9/15/98(1)
TO TO TO TO
1/31/99 1/31/99 1/31/99 1/31/99
<S> <C> <C> <C> <C>
Net asset value, beginning of period $5.500 $5.500 $5.500 $ 5.500
Income from investment operations:
Net investment income ................................... 0.101 0.086 0.085 0.106
Net realized and unrealized gain from investments ....... 0.144 0.145 0.154 0.142
------ ------ ------ ------
Net increase in net assets from investment operations ... 0.245 0.231 0.239 0.248
------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income .................... (0.042) (0.028) (0.036) (0.045)
Distributions from net realized gain on
security transactions ................................. (0.003) (0.003) (0.003) (0.003)
------ ------ ------ ------
Total dividends and distributions ....................... (0.045) (0.031) (0.039) (0.048)
------ ------ ------ ------
Net asset value, end of period ............................. $5.700 $5.700 $5.700 $ 5.700
====== ====== ====== ======
Total Return(2) ............................................ 4.46% 4.21% 4.36% 4.52%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $ 751 $ 10 $ 25 $47,599
Ratio of expenses to average net assets ................. 0.80% 1.55% 1.55% 0.55%
Ratio of expenses to average net assets prior
to expense limitation ................................. 1.30% 2.05% 2.05% 1.05%
Ratio of net investment income to average
net assets ............................................ 4.70% 3.95% 3.95% 4.95%
Ratio of net investment income to average net
assets prior to expense limitation .................... 4.20% 3.45% 3.45% 4.45%
Portfolio turnover ...................................... 232% 232% 232% 232%
</TABLE>
- ------------------
(1) Date of commencement of operations; ratios and portfolio turnover have been
annualized and total returns has not been annualized.
(2) 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.
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 five series: the
Corporate Bond Fund, the Delchester Fund, the Extended Duration Bond Fund, the
High-Yield Opportunities Fund and the Strategic Income Fund. These financial
statements and related notes pertain to the Corporate Bond Fund and Extended
Duration Bond Fund (The "Funds"). The Funds offer four classes of shares. The A
Class carries a front-end sales charge of 4.75%. The B Class carries a back-end
deferred sales charge. The C Class carries a level load deferred sales charge
and the Institutional Class has no sales charge.
The investment objective of the Funds is to seek to provide investors with total
return.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. Money market instruments having less than 60 days to
maturity are valued at amortized cost which approximates market value. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Fund's Board of Directors.
Federal Income Taxes - Each Fund intends 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 - Each Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by each
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
Other - Expenses common to all Funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Original issue discounts are
accreted to interest income over the lives of the respective securities. Each
Fund declares and pays dividends from net investment income daily and capital
gains, if any, annually.
<PAGE>
- --------------------------------------------------------------------------------
The custodian bank of the Funds has agreed to waive its custodial fees when the
Funds maintain a prescribed amount of cash on deposit in certain non-interest
bearing accounts. For the calendar year ended December 31, 1998, the custodial
fees offset arrangements amounted to the following:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
$666 $702
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Funds
pay Delaware Management Company (DMC), the Investment Manager, an annual fee
based on its average daily net assets at the following rates:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
On the first $500 million ....... 0.500% 0.550%
On the next $500 million ........ 0.475% 0.500%
On the next $1.5 billion ........ 0.450% 0.450%
In excess of $2.5 billion ....... 0.425% 0.425%
At January 31, 1999 the liability for Investment Management Fees and other
expenses payable to DMC were as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
$31,774 $30,623
DMC has elected to waive that portion if any of the management fee and reimburse
each Fund to the extent that annual operating expenses exclusive of taxes,
interest, brokerage commissions, distribution and extraordinary expenses, exceed
0.55% of average daily net assets for each Fund through March 31, 1999.
The Funds have engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing, transfer agent and accounting services
agent for the Funds. The Funds pay DSC a monthly based fee based on the number
of shareholder accounts, shareholder transactions and average net assets,
subject to certain minimums. At January 31, 1999, the Funds had payables for
such fees and other expenses payable to DSC as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
$10,273 $9,484
Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily
<PAGE>
for current income 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
net assets of the A Class and 1.00% of the average daily net assets of the B and
C Class for each Fund. No distribution expenses are paid by the Institutional
Class. At January 31, 1999, the Funds had payables for distribution fees and
other expenses payable to DDLP as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
$222 $188
For the period ended January 31, 1999, DDLP earned $431 for commissions on the
sales of the Fund A Class shares for the Corporate Bond Fund.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Funds. These officers, directors and employees are paid no compensation
by the Funds.
3. Investments
For the period ended January 31, 1999, the Fund made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments for each Fund as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
Purchases ....................... $51,478,608 $43,502,888
Sales ........................... $4,264,122 $4,213,787
Purchases and sales of U.S. government securities were as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
Purchases ....................... $27,166,023 $19,257,466
Sales ........................... $19,128,020 $10,649,095
At January 31, 1999, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for each Fund were
as follows:
CORPORATE BOND EXTENDED DURATION
FUND BOND FUND
-------------- -----------------
Cost of Investments ............. $55,238,767 $47,929,600
=========== ===========
Aggregate unrealized
appreciation ................... $518,596 $427,885
Aggregate unrealized
depreciation ................... $12,433 $15,112
----------- ----------
Net unrealized appreciation $506,163 $412,773
4. Capital Stock
Transactions in capital stock were as follows:
9/15/1998*
to
1/31/1999
---------
Shares sold:
Corporate Bond Fund A Class .............................. 227,678
Corporate Bond Fund B Class .............................. 42,354
Corporate Bond Fund C Class .............................. 42,536
Corporate Bond Fund Institutional Class .................. 9,980,914
Shares issued upon reinvestment of dividends from net investment income and net
realized gains from security transactions:
Corporate Bond Fund A Class .............................. 999
Corporate Bond Fund B Class .............................. 25
Corporate Bond Fund C Class .............................. 62
Corporate Bond Fund Institutional Class .................. 44,203
----------
10,338,771
----------
<PAGE>
- --------------------------------------------------------------------------------
Shares repurchased:
Corporate Bond Fund A Class .............................. (41,376)
Corporate Bond Fund B Class .............................. -
Corporate Bond Fund C Class .............................. -
Corporate Bond Fund Institutional Class .................. (478,894)
----------
(520,270)
----------
Net Increase ................................................ 9,818,501
==========
9/15/1998*
to
1/31/1999
---------
Shares sold:
Extended Duration Bond Fund A Class ...................... 152,192
Extended Duration Bond Fund B Class ...................... 10,940
Extended Duration Bond Fund C Class ...................... 4,395
Extended Duration Bond Fund Institutional Class .......... 8,652,546
Shares issued upon reinvestment of dividends from net
investment income and net realized gains from security
transactions:
Extended Duration Bond Fund A Class ...................... 882
Extended Duration Bond Fund B Class ...................... 5
Extended Duration Bond Fund C Class ...................... 12
Extended Duration Bond Fund Institutional Class .......... 37,962
----------
8,858,934
----------
Shares repurchased:
Extended Duration Bond Fund A Class ...................... (21,159)
Extended Duration Bond Fund B Class ...................... (9,270)
Extended Duration Bond Fund C Class ...................... -
Extended Duration Bond Fund Institutional Class .......... (333,658)
----------
(364,087)
----------
Net Increase ................................................ 8,494,847
==========
- -----------------
* Date of commencement of operations.
5. Market and Credit Risk
The Funds may invest in high-yield fixed income securities which carry ratings
of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Funds may invest 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 Funds 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 Funds' ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities. These securities, if any, have been
denoted in the Statement of Net Assets.
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF CORPORATE BOND FUND AND
EXTENDED DURATION BOND FUND shareholders, but it may be used with prospective
investors when preceded or accompanied by a current Corporate Bond Fund and
Extended Duration Bond 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 each Fund. You should read the prospectus carefully before you
invest. Summary investment results are documentated in each Fund's current
Statement of Additional Information. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in each Fund will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
(photo of globes)
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Funds are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Funds are not bank or credit union deposits.
(C) Delaware Distributors, L.P.
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
Printed in the USA
on recycled paper
(1478)
SA-460[1/99] PP3/99
