<PAGE>
DELAWARE(SM)
INVESTMENTS
- -----------
Delaware Strategic Income Fund
Current Income
[GRAPHIC OMITTED]
2000 SEMI-ANNUAL REPORT
<PAGE>
A TRADITION OF SOUND INVESTING SINCE 1929
TABLE OF CONTENTS
Letter to Shareholders 1
Portfolio
Management Review 3
Performance Summary
Delaware Strategic
Income Fund 5
Financial Statements
Statement of
Net Assets 6
Statement of Assets
and Liabilities 11
Statement of
Operations 12
Statements of Changes
in Net Assets 13
Financial Highlights 14
Notes to Financial
Statements 18
A Commitment To Our Investors
Experienced
o Our seasoned investment professionals average more than 15 years' experience.
o For over 70 years, we have managed money in a variety of investment styles
that have weathered a full range of economic and market environments. We
opened our first mutual fund in 1938.
Disciplined
o We follow strict investment policies and clear buy/sell guidelines.
o We strive to balance risk and reward in order to provide relatively
conservative investment alternatives within any given asset class.
Consistent
o We believe consistent processes are the best way to seek consistent
investment performance.
o Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage approximately
$47 billion in assets as of December 31, 1999.
Comprehensive
o We offer more than 70 mutual funds in these asset classes.
o Large-cap equity o High-yield bonds
o Mid-cap equity o Investment grade bonds
o Small-cap equity o Municipal bonds
o International equity (24 single-state funds)
o Balanced o International fixed-income
o Our funds are available through financial advisers who can offer you
individualized attention and valuable investment advice.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested. (C)Delaware Distributors, L.P.
<PAGE>
Dear Shareholder
February 18, 2000
Recap of Events - Over the last six months, global equity investors found cause
for optimism as financial turbulence around the world began to stabilize. An
improving global economic outlook reduced demand for fixed income securities
over the last six months, pushing both U.S. and foreign bond prices lower and
yields significantly higher. Long-term U.S. Treasury yields increased from 6.12%
on July 31, 1999 to 6.65% on January 31, 2000 (Source: Bloomberg). This
presented a significant challenge to many investors seeking to strike a balance
between income and capital appreciation.
Strong economic activity and a booming stock market, however, eventually
heightened inflationary concerns in the United States. The Federal Reserve
responded by raising interest rates on June 30, August 24, November 16, 1999 and
February 2, 2000. As of this writing, the Federal funds target rate on overnight
loans between banks, stands at 5.75%, the lending rate's highest level in more
than four years (Source: Bloomberg). The Federal Reserve's actions have been
directed at slowing the economy and pre-empting inflation before it takes root.
As of January 31, 2000, the economy had completed a record 107th month of
expansion (Source: Bloomberg).
Delaware Strategic Income Fund provided a total return of -1.60% (Class A shares
at net asset value with distributions reinvested) for the six-month period ended
January 31, 2000. Although this was a slightly negative return, we believe your
Fund faired well in a difficult environment for U.S. and foreign fixed income
investors. As of January 31, 2000, your Fund's 30-day current yield measured
8.12% (for Class A shares at net asset value).
Average Total Returns
For Periods Ended 1/31/00 Six Months Lifetime*
- --------------------------------------------------------------------------------
Delaware Strategic Income Fund Class A -1.60% +3.43%
- --------------------------------------------------------------------------------
Lipper Multi-Sector Funds Average +0.01%(123 funds) +4.20% (69 funds)
Lehman Brothers Aggregate Bond Index +0.65% +5.97%
- --------------------------------------------------------------------------------
All performance shown above is at net asset value and assumes reinvestment of
dividends and capital gains. Performance for all other Fund classes can be found
on page 5. The Lipper Multi-Sector Funds Average is an index of all active
multi-sector bond funds with similar investment objectives. The Lehman Brothers
Aggregate Bond Index is an index of a wide variety of U.S. and foreign bonds.
You cannot invest directly in an index. Past performance does not guarantee
future results.
*10/1/96 (commencement of operations).
"Though bonds may remain in the shadow of stocks as long as economic growth
continues in 2000, we still believe they have a role in well-balanced
portfolios"
1
<PAGE>
Market Outlook - Though bonds may remain in the shadow of stocks as long as
economic growth continues in 2000, we still believe they have a role in
well-balanced portfolios. We believe that for investors who seek current income,
preservation of principal and diversification, Delaware Strategic Income Fund
offers an attractive balance among the three.
On the pages that follow, your Fund's portfolio management team, Paul Grillo,
Paul Matlack, Christopher Moth and Joanna Bates, explain Delaware Strategic
Income Fund's positioning during the six-month period ended January 31, 2000 and
provide an outlook for the second half of fiscal 2000. We'd like to thank
Delaware Strategic Income Fund's shareholders for their continued confidence and
commitment during a difficult six months for the global bond market.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
- ----------------------------- --------------------------------------------
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Delaware Investments
Family of Funds Family of Funds
2
<PAGE>
PORTFOLIO MANAGMENT REVIEW
Paul Grillo, Jr.
Senior Portfolio Manager
U.S. Investment Grade Bonds
Delaware Management Company
Paul A. Matlack
Senior Portfolio Manager
U.S. High-Yield Bonds
Delaware Management Company
Christopher Moth
Senior Portfolio Manager
Foreign Bonds
Delaware International Advisers Ltd.
Joanna Bates
Senior Portfolio Manager
Foreign Bonds
Delaware International Advisers Ltd.
February 18, 2000
The Fund's Results
Delaware Strategic Income Fund is a multi-sector fund portfolio that seeks high
current income and total return by investing primarily in:
o High-yield U.S. corporate bonds;
o Investment grade foreign government and corporate bonds; and
o Investment grade U.S. government and corporate bonds.
Our allocations to these three bond sectors are based on detailed analysis of
global economic and political trends. We consider interest rates and the effect
they may have on income potential and examine how economic conditions may affect
bond default rates.
During turbulent times for fixed income investors worldwide, Delaware Strategic
Income Fund provided a total return of -1.60% (Class A shares at net asset value
with distributions reinvested) for the six-month period ended January 31, 2000.
Portfolio Highlights
High-Yield U.S. Bonds - During the past six months, market conditions for
high-yield bonds took an unfavorable turn. There were concerns that inflation
would accelerate and subsequently, interest rates started to rise and the stock
market became more volatile. High-yield bond prices fell as these economic
factors reduced investor demand during a period of abundant new high-yield bond
supply.
Some of the factors that caused high-yield bond under-performance over the past
year included credit problems in the U.S. and recent rising interest rates.
Nevertheless, we believe your Fund's investment strategy remains an effective
approach to the high-yield corporate bond market.
Foreign Bonds - The last six months were a difficult environment for foreign
bonds as international bond markets took second billing to international
equities. In Europe, progress toward currency union over the past two years
originally helped bond performance in countries with historically weak
currencies and higher-than-average inflation like Italy and Spain. However,
since the Euro was introduced in January 1999, the value of the new currency
depreciated over 11.0% as of January 31, 2000 (Source: Bloomberg).
Over the last six months, we held sizable investments in Canada and New Zealand.
In July 1999, we viewed currencies in these countries as extremely undervalued
relative to the U.S. dollar and benefited as currencies in Australia, Canada and
New Zealand strengthened. We have, however, in the last two months of our fiscal
year, begun to reduce our exposure in these countries in favor of the better
values we now believe to be available in Europe.
3
<PAGE>
U.S. Investment Grade Bonds - Delaware Strategic Income Fund focused primarily
on mortgage-backed securities, which offered some of the highest potential
yields within the U.S. investment grade sector. The balance of the Fund's
domestic investment grade portfolio was largely allocated to U.S. Treasury
bonds.
We slightly decreased your Fund's allocation to U.S. Treasuries since
July 13, 1999, when they represented 3.21% of the Fund. As of
January 31, 2000 they represented 2.97% of the portfolio. During the last six
months, the U.S. government was faced with its first budget surplus in several
decades (Bloomberg). We believe the bond market is readying for a debt buyback
program in response to the favorable Federal budget environment. Looking
forward, we anticipate stronger demand for longer U.S. Treasury securities
within the fixed income arena, and we will consider adding to this sector in the
coming months.
Outlook
While a number of factors have hurt high-yield U.S. bond prices in the past six
months, we maintain a positive outlook. In our view, a strong economy, low
inflation and the historically better-than-average credit quality of companies
issuing high-yield debt bode well for investors.
As for the foreign bond portion of your Fund's portfolio, we plan to maintain a
somewhat conservative position in the coming months, keeping duration shorter to
preserve capital if yields rise and prices fall. Foreign bond markets now
represent more than half of the fixed income opportunities worldwide (Source:
Bloomberg). We remain confident that a portfolio consisting of both U.S. bonds
and foreign bonds helps reduce investment risk and increase your opportunities
for high current income and capital appreciation.
We plan to continue to focus the investment grade U.S. bond portion of your
portfolio on mortgage-backed securities, along with U.S. Treasury securities. We
will apply quantitative analysis to help us identify mortgage-backed securities
that offer high income potential, which are less likely to be prepaid and are
not well-followed by other investment professionals.
For Delaware Strategic Income Fund, we are cautiously optimistic that the coming
year will provide a favorable environment. We intend to keep a watchful eye on
changes in consumer and producer prices in the U.S. and overseas in order to
gauge their potential effects on markets and monetary policy for the second half
of fiscal 2000.
4
<PAGE>
Delaware Strategic Income Fund
FUND BASICS
Fund Objective
Seeks to provide high current
income and total return.
Assets Under Management
$38.1 million
Number of Holdings
129
Fund Start Date
October 1, 1996
Your Fund Managers
Paul Grillo, Jr. joined Delaware Investments in 1993. He holds a bachelor's
degree from North Carolina State University and an MBA from Pace University. Mr.
Grillo is also a Chartered Financial Analyst.
Paul A. Matlack holds a bachelor's degree from the University of Pennsylvania
and an MBA from George Washington University. He joined Delaware in 1989 and is
also a Chartered Financial Analyst.
Christopher Moth joined Delaware in 1992 and currently chairs the firm's Global
Fixed Income and Currency committee. He previously worked at the Guardian Royal
Exchange and has also been awarded the certificate of Finance and Investment
from the Institute of Actuaries in London.
Joanna Bates is a graduate of London University and joined Delaware in 1997.
Previously she was Associate Director, Fixed Income at Hill Samuel Investment
Management.
NASDAQ Symbols
Class A DISAX
Class B DISBX
Class C DISCX
FUND PERFORMANCE
Average Annual Returns
Through January 31, 2000 Lifetime Three Years One Year
- ------------------------------------------------------------------------
Class A (Est. 10/1/96)
Excluding Sales Charge +3.43% +2.47% -4.28%
Including Sales Charge +1.95% +0.81% -8.82%
- ------------------------------------------------------------------------
Class B (Est. 10/1/96)
Excluding Sales Charge +2.71% +1.73% -5.02%
Including Sales Charge +2.00% +0.94% -8.52%
- ------------------------------------------------------------------------
Class C (Est. 10/1/96)
Excluding Sales Charge +2.71% +1.73% -5.02%
Including Sales Charge +2.71% +1.73% -5.89%
- ------------------------------------------------------------------------
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Returns and share values will fluctuate so that shares when
redeemed may be worth more or less than the original cost. Past performance does
not guarantee future results. Class B and C results excluding sales charge
assume that either the investment was not redeemed or contingent sales charges
did not apply. Past performance is not a guarantee 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 have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year. Lifetime
performance excluding sales charge assumes the investment was not redeemed.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
An expense limitation was in effect for all classes of Delaware Strategic Income
Fund during the period. Performance would have been lower if the expense
limitation was not in effect.
The average annual total returns for the lifetime, one-year and three-year
periods ended 1/31/00 for the Delaware Strategic Income Fund's Institutional
Class were +3.68%, -4.01% and +2.71% respectively. The Institutional Class (Est.
10/1/96) is available without a sales charge only to certain eligible
institutional accounts. NASDAQ Symbol Institutional Class: DISIX
5
<PAGE>
Statement of Net Assets
DELAWARE STRATEGIC INCOME FUND
Market
Principal Value
January 31, 2000 (Unaudited) Amount* (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds - 43.40%
Automobiles & Automotive Parts - 2.61%
Accuride sr sub notes
9.25% 2/1/08 .............................. $ 350,000 $ 311,500
Holley Performance sr notes
12.25% 9/15/07 ............................ 350,000 333,813
Meritor Auto notes 6.80% 2/15/09 ............. 250,000 225,746
Stanadyne Automotive
co. guarantee 10.25% 12/15/07 ............. 150,000 123,375
----------
994,434
----------
Banking, Finance & Insurance - 1.24%
American Financial Group debs
7.125% 4/15/09 ............................ 100,000 89,740
Banco Santander-Chile notes
6.50% 11/1/05 ............................. 75,000 70,674
Fairfax Financial Holdings notes
7.375% 3/15/06 ............................ 125,000 111,646
Osprey Trust sec 8.31% 1/15/03 ............... 200,000 198,654
----------
470,714
----------
Building & Materials - 0.78%
Henry co. guarantee
10.00% 4/15/08 ............................ 400,000 296,000
----------
296,000
----------
Cable, Media & Publishing - 1.91%
American Media Operation
co. guarantee 10.25% 5/1/09 ............... 200,000 200,500
Muzak co. guarantee 9.875% 3/15/09 ........... 400,000 385,000
United News and Media notes
7.75% 7/1/09 .............................. 150,000 143,539
----------
729,039
----------
Chemicals - 4.87%
Equistar Chemicals notes
8.75% 2/15/09 ............................. 200,000 197,250
General Chemical sr sub notes
10.625% 5/1/09 ............................ 400,000 394,000
LaRoche sr sub notes
9.50% 9/15/07 ............................. 300,000 99,000
Lyondell Chemicals sr notes
9.625% 5/1/07 ............................. 200,000 198,500
Octel Developments co. guarantee
10.00% 5/1/06 ............................. 650,000 651,625
Precise Technology co. guarantee
11.125% 6/15/07 ........................... 350,000 314,125
----------
1,854,500
----------
<PAGE>
Market
Principal Value
Amount* (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
Computers & Technology - 1.41%
Chippac co. guarantee 12.75% 8/1/09 .............. $ 350,000 $ 364,875
Seagate Technology sr notes
7.45% 3/1/37 .................................. 200,000 172,247
----------
537,122
----------
Consumer Products - 1.30%
Derby Cycle sr notes 10.00% 5/15/08 .............. 400,000 212,000
Drypers sr notes 10.25% 6/15/07 .................. 350,000 283,500
----------
495,500
----------
Energy - 1.81%
Clark R & M sr sub notes
8.875% 11/15/07 ............................... 500,000 285,000
First Wave Marine sr notes
11.00% 2/1/08 ................................. 350,000 250,250
PSE&G Energy sr notes 10.00% 10/1/09 ............. 150,000 152,555
----------
687,805
----------
Environmental Services - 0.92%
Allied Waste sub notes
10.00% 8/1/09 ................................. 400,000 351,000
----------
351,000
----------
Food, Beverage & Tobacco - 0.94%
Canadaigua Brands co. guarantee
8.50% 3/1/09 .................................. 250,000 237,500
Standard Commercial Tobacco
co. guarantee 8.875% 8/1/05 ................... 150,000 120,375
----------
357,875
----------
Industrial Machinery - 0.77%
National Equipment co. guarantee
10.00% 11/30/04 ............................... 300,000 294,000
----------
294,000
----------
Leisure, Lodging & Entertainment - 2.66%
Cinemark USA sr sub notes
9.625% 8/1/08 ................................. 200,000 174,000
Hollywood Casino co. guarantee
11.25% 5/1/07 ................................. 400,000 413,000
Outboard Marine co. guarantee
10.75% 6/1/08 ................................. 500,000 390,000
United Artists Theatre sr sub notes
9.75% 4/15/08 ................................. 350,000 35,000
----------
1,012,000
----------
Metals & Mining - 2.06%
Algoma Steel 1st mtg notes
12.375% 7/15/05 ............................... 500,000 467,500
Metallurg co. guarantee
11.00% 12/1/07 ................................ 350,000 315,438
----------
782,938
----------
Packaging & Containers - 0.63%
Riverwood International co. guarantee
10.875% 4/1/08 ................................ 250,000 240,938
----------
240,938
----------
6
<PAGE>
Statement of Net Assets (continued)
Market
Principal Value
Delaware Strategic Income Fund Amount* (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
Paper & Forest Products - 0.98%
US Timberlands sr notes
9.625% 11/15/07 ........................... $ 400,000 $ 371,500
----------
371,500
----------
Retail - 4.41%
Advance Stores co. guarantee
10.25% 4/15/08 .............................. 500,000 432,500
Big V Supermarkets sr sub notes
11.00% 2/15/04 .............................. 350,000 343,000
Frank's Nursery and Crafts sr sub notes
10.25% 3/1/08 ............................... 500,000 231,250
Friendly Ice Cream co. guarantee
10.50% 12/1/07 .............................. 500,000 423,750
Wilsons The Leather Experts co. guarantee
11.25% 8/15/04 .............................. 250,000 250,000
----------
1,680,500
----------
Telecommunications - 7.71%
Covad Communications Group sr notes
12.00% 2/15/10 .............................. 250,000 252,500
Global Crossing sr notes
9.50% 11/15/09 .............................. 300,000 289,500
KMC Telecom Holdings sr notes
13.50% 5/15/09 .............................. 425,000 427,125
Metromedia Fiber Network sr notes
10.00% 11/15/08 ............................. 300,000 301,500
****Microcell Telecommunications
sr disc notes 14.00% 6/1/06 ................. 350,000 315,000
****Nextel Communications sr disc notes
10.65% 9/15/07 .............................. 450,000 337,500
Nextlink Communications sr notes
10.75% 11/15/08 ............................. 300,000 303,000
PSiNet sr notes 10.00% 2/15/05 ............... 300,000 297,750
****Telecorp PCS co. guarantee
11.00% 4/15/09 .............................. 650,000 414,375
----------
2,938,250
----------
Textiles, Apparel & Furniture - 1.75%
McNaughton Apparel Group co
guarantee 12.50% 6/1/05 ..................... 750,000 667,500
----------
667,500
----------
Transportation - 2.06%
Avis Rent A Car co. guarantee
11.00% 5/1/09 ............................... 400,000 415,000
Budget Group sr notes
9.125% 4/1/06 ............................... 400,000 368,000
----------
783,000
----------
Utilities - 1.59%
Caithness Coso Fund sec
9.05% 12/15/09 .............................. 400,000 396,500
Ras Laffan Liquid Natural Gas sec
8.294% 3/15/14 .............................. 225,000 209,866
----------
606,366
----------
<PAGE>
Market
Principal Value
Amount* (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
Miscellaneous - 0.99%
Alliance Laundry Systems co. guarantee
9.625% 5/1/08 ............................. $ 200,000 $ 177,750
Stagecoach Holdings notes
8.63% 11/15/09 ............................ 200,000 200,937
------------
378,687
------------
Total Corporate Bonds
(cost $18,280,564) ........................ 16,529,668
------------
Foreign Bonds - 32.21%
Australia - 1.88%
Queensland Treasury Global
8.00% 8/14/01 ............................. A$ 800,000 521,253
8.00% 5/14/03 ............................. 300,000 196,227
------------
717,480
------------
Austria - 1.14%
Bank of Austria 10.875% 11/17/04 ............. A$ 383,000 270,308
Republic of Austria 7.25% 5/3/07 ............. Dem 300,000 162,766
------------
433,074
------------
Canada - 2.85%
Electric Power Development
10.375% 9/27/01 ........................... C$ 200,000 146,358
General Electric Capital of Canada
7.125% 2/12/04 ............................ 80,000 55,533
Government of Canada
10.25% 3/15/14 ............................ 720,000 664,607
Ontario Province 6.25% 12/3/08 ............... NZ$ 500,000 218,799
------------
1,085,297
------------
Japan - 0.28%
Kansai International Airport
8.00% 7/2/03 .............................. C$ 80,000 57,002
Nippon Telegraph & Telephone
10.875% 5/10/01 ........................... Gbp 30,000 50,636
------------
107,638
------------
Greece - 1.29%
Hellenic Republic
8.60% 3/26/08 ............................. Grd 70,000,000 231,441
8.70% 4/8/05 .............................. 80,000,000 258,164
------------
489,605
------------
Italy - 1.93%
European Investment Bank
12.75% 2/15/00 ............................ Itl300,000,000 151,808
Italian Government
9.50% 2/1/01 .............................. Eu 258,228 265,297
12.00% 1/1/03 ............................. 273,722 317,168
------------
734,273
------------
Mexico - 0.64%
Mexican United States
7.38% 7/6/06 .............................. Eu 250,000 242,743
------------
242,743
------------
7
<PAGE>
Statement of Net Assets (continued)
Market
Principal Value
Delaware Strategic Income Fund Amount* (U.S.$)
- --------------------------------------------------------------------------------
Foreign Bonds (continued)
Netherlands - 0.98%
Bank Nederlandse Gemeenten
9.125% 9/27/04 ............................ C$ 500,000 $ 374,836
------------
374,836
------------
New Zealand - 2.28%
New Zealand Government
8.00% 11/15/06 ............................ NZ$ 1,700,000 867,306
------------
867,306
------------
Norway - 0.25%
Kingdom of Norway 8.375% 1/27/03 ............. C$ 130,000 93,816
------------
93,816
------------
Poland - 1.26%
Poland Government
12.00% 10/12/03 ........................... Plz 2,100,000 481,521
------------
481,521
------------
South Africa - 6.90%
Electric Supply Communication
11.00% 6/1/08 ............................. Sa 4,500,000 603,514
Republic of South Africa
12.50% 1/15/02 ............................ 5,900,000 941,358
12.50% 12/21/06 ........................... 2,000,000 301,075
13.00% 8/31/10 ............................ 2,800,000 425,986
Transnet 16.50% 4/1/10 ....................... 2,000,000 357,543
------------
2,629,476
------------
Spain - 0.49%
Spanish Government 5.15% 7/30/09 ............. Eu 200,000 186,956
------------
186,956
------------
Supranational - 2.20%
International Bank of Reconstruction
& Development 5.50% 4/15/04 ............... NZ$ 800,000 338,029
International Finance 6.75% 7/15/09 .......... 1,100,000 500,807
------------
838,836
------------
Sweden - 4.34%
Swedish Government
8.00% 8/15/07 ............................. Sk 8,000,000 1,020,627
10.25% 5/5/00 ............................. 1,000,000 115,169
10.25% 5/5/03 ............................. 4,000,000 516,379
------------
1,652,175
------------
United Kingdom - 3.50%
Anglian Water 12.00% 1/7/14 .................. Gbp 60,000 140,384
Blue Circle 10.75% 11/29/13 .................. 40,000 83,507
Ford Credit Europe Bank
9.45% 3/1/00 .............................. Grd 120,000,000 351,169
Glaxo Wellcome 8.75% 12/1/05 ................. Gbp 60,000 104,350
Halifax 5.625% 7/23/07 ....................... Dem 900,000 439,665
John Lewis 10.50% 1/23/14 .................... Gbp 40,000 86,990
Pearson 10.50% 6/13/08 ....................... 40,000 76,308
Thames Water Utilities
10.50% 11/21/01 ........................... 30,000 51,017
------------
1,333,390
------------
Total Foreign Bonds (cost $14,205,259) ....... 12,268,422
------------
<PAGE>
Market
Principal Value
Amount* (U.S.$)
- --------------------------------------------------------------------------------
Agency Mortgage-Backed Securities - 6.47%
Federal Home Loan Mortgage Corporation
6.50% 1/25/15 ................................. $ 50,000 $ 48,313
Federal National Mortgage Association
6.50% 7/25/28 ................................. 195,097 190,738
Government National Mortgage Association
6.85% 12/20/25 ................................ 100,000 93,593
7.50% 11/15/29 ................................ 1,198,247 1,168,665
8.00% 11/15/29 ................................ 898,817 896,851
9.50% 9/15/17 ................................. 28,980 31,036
10.00% 7/15/17 ................................ 31,715 33,756
----------
Total Agency Mortgage-Backed
Securities (cost $2,515,461) .................. 2,462,952
----------
Asset-Backed Securities - 5.62%
Countrywide Home Equity Loan-Series
97-1 A4 6.95% 5/25/21 ......................... 150,000 148,800
EQCC Home Equity Loan Trust
1998-2 Class A3F 6.229% 3/15/13 ............... 360,000 355,356
1999-3 Class A3F 7.067% 1/25/25 ............... 200,000 197,219
Honda Auto Lease Trust 1999-A
Class A4 6.45% 9/16/02 ........................ 200,000 197,800
MBNA Master Credit Card Trust 1999-L
Class A 6.0312% 3/16/09 ....................... 800,000 803,600
MetLife Capital Equipment Loan
Trust-Series 97-AA 6.85% 5/20/08 .............. 295,000 291,342
NationsCredit Grantor Trust-Series
97-1 A 6.75% 8/15/13 .......................... 151,483 148,256
----------
Total Asset-Backed Securities
(cost $2,162,966) ............................. 2,142,373
----------
Collateralized Mortgage Obligations - 2.07%
DLJ Commerical Mortgage Series
99-CG1 A1B 6.46% 1/10/09 ...................... 150,000 137,344
First Union-Chase Commerical Mortgage
Series 99-C2 A2 6.645% 4/15/09 ................ 210,000 196,678
Lehman Large Loan Series 97-LLI A1
6.79% 6/12/04 ................................. 189,403 186,000
Nomura Asset Securities Series
93-1 A1 6.68% 12/15/01 ........................ 71,893 70,309
Residential Accredit Loans Series
98-QS9 A3 6.75% 7/25/28 ....................... 200,000 196,430
----------
Total Collateralized Mortgage
Obligations (cost $822,362) ................... 786,761
----------
Municipal Bonds - 0.22%
Philadelphia, Pennsylvania Authority For
Industrial Development Tax Claim
Revenue Class A 6.488% 6/15/04 ................ 89,420 82,713
----------
Total Municipal Bonds (cost $89,420) ............. 82,713
----------
8
<PAGE>
Statement of Net Assets (continued)
Market
Principal Value
Delaware Strategic Income Fund Amount* (U.S.$)
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 2.97%
U.S. Treasury Inflation Index Note
3.625% 7/15/02 ............................. $ 362,363 $ 358,545
U.S. Treasury Note
6.125% 8/15/29 ............................. 560,000 533,260
6.25% 2/15/03 .............................. 40,000 39,522
+U.S. Treasury Strips 8.75% 2/15/19 .......... 700,000 201,471
----------
Total U.S. Treasury Obligations
(cost $1,222,416) .......................... 1,132,798
----------
Number of
Shares
---------
Preferred Stock - 2.42%
Cable, Media & Publishing - 0.40%
Pegasus Communications pik .................. 451 45,961
Pegasus Communications Unit pik ............. 1,000 106,500
----------
152,461
----------
Energy - 0.00%
TCR Holding Class B ......................... 834 8
TCR Holding Class C ......................... 459 5
TCR Holding Class D ......................... 1,209 12
TCR Holding Class E ......................... 2,502 25
----------
50
----------
Telecommunications - 2.02%
Nextel Communications pik ................... 1,311 135,686
Nextlink Communications Class A ............. 1 35
21st Century Telecommunications pik ......... 7,042 633,753
----------
769,474
----------
Total Preferred Stock
(cost $895,989) ............................ 921,985
----------
Warrants - 0.00%
Banking, Finance & Insurance - 0.00%
**American Banknote ........................... 3,744 3,000
----------
Total Warrants (cost $3,015) ................ 3,000
----------
<PAGE>
Market
Principal Value
Amount* (U.S.$)
- --------------------------------------------------------------------------------
Repurchase Agreements - 2.05%
With Chase Manhattan 5.68% 2/1/00
(dated 1/31/00, collateralized by
$175,000 U.S. Treasury Notes
8.00% due 5/15/01, market value
$181,452 and $89,000 U.S. Treasury
Notes 5.25% due 5/31/01,
market value $88,125) .......................... $264,000 $ 263,000
With J.P. Morgan Securities 5.68% 2/01/00
(dated 1/31/00, collateralized by
$185,000 U.S. Treasury Notes 5.50%
due 3/31/03, market value $182,117
and $82,000 U.S. Treasury Notes
5.75% due 4/30/03, market value $81,584) ....... 258,000 258,000
With PaineWebber 5.68% 2/01/00
(dated 1/31/00, collateralized by
$65,000 U.S. Treasury Notes 7.50% due
11/15/01, market value $66,550 and
$54,000 U.S. Treasury Notes 6.625% due
4/30/02, market value $55,361 and
$65,000 U.S. Treasury Notes 4.25% due
11/15/03, market value $60,402 and
$77,000 U.S. Treasury Notes 7.875% due
11/15/04, market value $81,377)................. 258,000 259,000
-----------
Total Repurchase Agreements
(cost $780,000) ................................ 780,000
-----------
Total Market Value of Securities - 97.43%
(cost $40,977,452) ............................. $37,110,672
Receivables and Other Assets
Net of Liabilities 2.57% ...................... 979,874
-----------
Net Assets Applicable to 8,341,718
Shares (no par value)
Outstanding - 100.00% ......................... $38,090,546
===========
9
<PAGE>
Statement of Net Assets (continued)
Delaware Strategic Income Fund
- --------------------------------------------------------------------------------
Net Asset Value - Strategic Income Fund A Class
($15,257,243 / 3,341,905 shares)............. $4.57
-----
Net Asset Value - Strategic Income Fund B Class
($16,558,964 / 3,626,120 shares)............. $4.57
-----
Net Asset Value - Strategic Income Fund C Class
($5,365,574 / 1,174,503 shares) ............. $4.57
-----
Net Asset Value - Strategic Income Fund
Institutional Class
($908,765 / 199,190 shares) ................. $4.56
-----
- ---------------------
*Principal amount is stated in the currency in which each bond is
denominated.
A$ - Australian Dollars
Gbp - British Pounds
C$ - Canadian Dollars
Dem - German Deutschemark
Eu - European Monetary Unit
Grd - Greek Drakma
Itl - Italian Lira
NZ$ - New Zealand Dollars
Plz - Polish Zloty
Sa - South African Rand
Sk - Swedish Kroner
$ - U.S. Dollars
**Non-income producing security for the period ended January 31, 2000
***Undistributed net investment income includes net realized gains (losses)
on foreign currencies. Net realized gains (losses) on foreign currencies
are treated as income in conjunction with provisions of the Internal
Revenue Code net investment which treats them as ordinary income.
****Zero coupon security as of January 31, 2000. The coupon shown is the step-up
rate.
+Zero coupon security as of January 31, 2000. The coupon shown is the
effective rate.
Summary of Abbreviations:
co. guarantee - company guarantee
debs - debentures
disc - discount
mtg - mortgage
pik - payment-in-kind
sec - secured
sr - senior
sub - subordinated
unsec - unsecured
<PAGE>
- --------------------------------------------------------------------------------
Components of Net Assets At January 31, 2000:
Shares of Beneficial Interest
(unlimited authorization - no par) .............. $47,475,398
Distributions in excess of
net investments income*** ...................... (162,628)
Accumulated net realized loss on investments,
options written and futures contracts ........... (5,336,009)
Net unrealized depreciation of
investments, futures contracts and
foreign currencies............................... (3,886,215)
-----------
Total net assets .................................. $38,090,546
===========
Net Asset Value and Offering Price per Share -
Strategic Income Fund
Net asset value A Class (A) ........................ $4.57
Sales charge (4.75% of offering price or 5.03%
of the amount invested per share) (B)............ 0.23
-----
Offering price ..................................... $4.80
=====
- ---------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
10
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 2000 (Unaudited) Delaware Stategic Income Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments at market (cost $40,977,452) .................. $37,110,672
Dividends and interest receivable ......................... 942,205
Receivable for securities sold ............................ 796,050
Cash and foreign currencies ............................... 179,727
Subscriptions receivable .................................. 79,232
Other assets .............................................. 26,674
-----------
Total assets ........................................... $39,134,560
-----------
Liabilities:
Payable for securities purchased .......................... 780,680
Liquidations payable ...................................... 123,032
Distributions payable ..................................... 93,183
Other accounts payable and accrued expenses ............... 47,119
Total liabilities ...................................... 1,044,014
-----------
Total Net Assets .......................................... $38,090,546
===========
</TABLE>
See accompanying notes
11
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended January 31, 2000 (Unaudited) Delaware Strategic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest .......................................................................................... $1,927,059
Dividends ......................................................................................... 111,016 $2,038,075
---------- ----------
Expenses:
Management fees ................................................................................... 144,216
Distribution expense .............................................................................. 143,627
Dividend disbursing and transfer agent fees and expenses .......................................... 74,100
Registration fees ................................................................................. 16,200
Reports and statements to shareholders ............................................................ 16,200
Custodian fees .................................................................................... 13,110
Accounting and administration ..................................................................... 8,986
Professional fees ................................................................................. 4,070
Amortization of organization expenses ............................................................. 2,502
Taxes (other than taxes on income) ................................................................ 1,860
Trustees' fees .................................................................................... 369
Other ............................................................................................. 6,036 431,276
---------- ----------
Less expenses absorbed or waived .................................................................. (110,433)
Less expenses paid indirectly ..................................................................... (9,628)
----------
Total Expenses .................................................................................... 311,215
----------
Net Investment Income ............................................................................. 1,726,860
----------
Net Realized and Unrealized Loss on Investments, Futures Contracts, Options Written
and Foreign Currencies:
Net realized loss on:
Investments ..................................................................................... (1,871,253)
Options written ................................................................................. (4,678)
Futures contracts ............................................................................... (24,181)
Foreign currencies .............................................................................. (28,668)
----------
Net realized loss ............................................................................... (1,928,780)
----------
Net change in unrealized appreciation/depreciation of investments, futures contracts
and foreign currencies .......................................................................... (709,916)
----------
Net Realized and Unrealized Loss on Investments, Futures Contracts, Options Written
and Foreign Currencies: ......................................................................... (2,638,696)
----------
Net Decrease in Net Assets Resulting from Operations .............................................. ($911,836)
==========
</TABLE>
See accompanying notes
12
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Strategic Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended 1/31/2000 Ended
(Unaudited) 7/31/99
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment income ............................................................................. $ 1,726,860 $ 4,067,113
Net realized loss on investments, options written, futures contracts
and foreign currencies .......................................................................... (1,928,780) (3,493,604)
Net change in unrealized appreciation/depreciation of investments,
futures contracts and foreign currencies ........................................................ (709,916) (2,017,723)
--------------------------
Net decrease in net assets resulting from operations .............................................. (911,836) (1,444,214)
--------------------------
Distributions to Shareholders from:
Net investment income:
A Class ........................................................................................ (764,596) (1,600,246)
B Class ........................................................................................ (761,043) (1,425,098)
C Class ........................................................................................ (244,256) (492,978)
Institutional Class ............................................................................ (147,559) (356,403)
Net realized gain on investments:
A Class ........................................................................................ - (122,311)
B Class ........................................................................................ - (119,046)
C Class ........................................................................................ - (41,353)
Institutional Class ............................................................................ - (24,621)
--------------------------
(1,917,454) (4,182,056)
--------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ........................................................................................ 2,059,190 8,415,676
B Class ........................................................................................ 1,904,557 10,423,650
C Class ........................................................................................ 554,579 3,326,511
Institutional Class ............................................................................ 318,903 2,160,658
Net asset value of shares issued upon reinvestment of distributions
from net investment income and net realized gain on investments:
A Class ........................................................................................ 525,860 1,148,752
B Class ........................................................................................ 446,367 940,245
C Class ........................................................................................ 168,629 315,465
Institutional Class ............................................................................ 144,493 379,006
--------------------------
6,122,578 27,109,963
--------------------------
Cost of shares repurchased:
A Class ........................................................................................ (5,012,741) (7,525,928)
B Class ........................................................................................ (3,950,345) (5,474,721)
C Class ........................................................................................ (1,531,226) (1,619,498)
Institutional Class ............................................................................ (3,681,718) (403,637)
--------------------------
(14,176,030) (15,023,784)
--------------------------
Increase/(Decrease) in net assets derived from capital share transactions ......................... (8,053,452) 12,086,179
--------------------------
Net increase/(decrease) in net assets ............................................................. (10,882,742) 6,459,909
Net Assets:
Beginning of period ............................................................................... 48,973,288 42,513,379
--------------------------
End of period ..................................................................................... $38,090,546 $48,973,288
==========================
</TABLE>
See accompanying notes
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Strategic Income Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended(1)
1/31/00 Year Ended 10/1/96(2) to
(Unaudited) 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period $4.860 $5.480 $5.700 $5.500
Income (loss) from investment operations:
Net investment income(3) ................................................... 0.193 0.462 0.444 0.337
Net realized and unrealized gain (loss) on investments,
futures contracts, options written and foreign currencies ................ (0.270) (0.607) (0.104) 0.204
--------------------------------------------
Total from investment operations ........................................... (0.077) (0.145) 0.340 0.541
--------------------------------------------
Less dividends and distributions:
Dividends from net investment income ....................................... (0.213) (0.440) (0.440) (0.341)
Distributions from net realized gain on investments ........................ none (0.035) (0.120) none
--------------------------------------------
Total dividends and distributions .......................................... (0.213) (0.475) (0.560) (0.341)
--------------------------------------------
Net asset value, end of period ................................................ $4.570 $4.860 $5.480 $5.700
============================================
Total return(4) ............................................................... (1.60%) (2.77%) 6.23% 10.11%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................... $15,257 $18,757 $17,871 $9,144
Ratio of expenses to average net assets .................................... 1.00% 1.00% 1.00% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................................. 1.50% 1.55% 1.73% 2.12%
Ratio of net investment income to average net assets ....................... 8.16% 8.97% 7.93% 7.76%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....................... 7.64% 8.42% 7.20% 6.64%
Portfolio turnover ......................................................... 93% 156% 175% 183%
</TABLE>
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(3) Per share information for the years ended July 31, 1998, 1999 and the six
months ended January 31, 2000 was based on the average shares outstanding
method.
(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
14
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Strategic Income Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended(1)
1/31/00 Year Ended 10/1/96(2) to
(Unaudited) 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................................... $4.860 $5.480 $5.700 $5.500
Income (loss) from investment operations:
Net investment income(3) ................................................... 0.175 0.424 0.402 0.308
Net realized and unrealized gain (loss) on investments,
futures contracts, options written and foreign currencies ................ (0.270) (0.607) (0.100) 0.204
--------------------------------------------
Total from investment operations ........................................... (0.095) (0.183) 0.302 0.511
--------------------------------------------
Less dividends and distributions:
Dividends from net investment income ....................................... (0.195) (0.402) (0.402) (0.311)
Distributions from net realized gain on investments ........................ none (0.035) (0.120) none
--------------------------------------------
Total dividends and distributions .......................................... (0.195) (0.437) (0.522) (0.311)
--------------------------------------------
Net asset value, end of period ................................................ $4.570 $4.860 $5.480 $5.700
============================================
Total return(4) ............................................................... (1.98%) (3.31%) 5.32% 9.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................... $16,559 $19,318 $15,602 $6,878
Ratio of expenses to average net assets .................................... 1.75% 1.75% 1.75% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................................. 2.25% 2.30% 2.48% 2.87%
Ratio of net investment income to average net assets ....................... 7.41% 8.22% 7.18% 7.01%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....................... 6.89% 7.67% 6.45% 5.89%
Portfolio turnover ......................................................... 93% 156% 175% 183%
</TABLE>
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(3) Per share information for the years ended July 31, 1998, 1999 and the six
months ended January 31, 2000 was based on the average shares outstanding
method.
(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
15
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Strategic Income Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended(1)
1/31/00 Year Ended 10/1/96(2) to
(Unaudited) 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................................... $4.860 $5.480 $5.700 $5.500
Income (loss) from investment operations:
Net investment income(3) ................................................... 0.175 0.424 0.402 0.313
Net realized and unrealized gain (loss) on investments,
futures contracts, options written and foreign currencies ................ (0.270) (0.607) (0.100) 0.198
-------------------------------------------
Total from investment operations ........................................... (0.095) (0.183) 0.302 0.511
-------------------------------------------
Less dividends and distributions:
Dividends from net investment income ....................................... (0.195) (0.402) (0.402) (0.311)
Distributions from net realized gain on investments ........................ none (0.035) (0.120) none
-------------------------------------------
Total dividends and distributions .......................................... (0.195) (0.437) (0.522) (0.311)
-------------------------------------------
Net asset value, end of period ................................................ $4.570 $4.860 $5.480 $5.700
===========================================
Total return(4) ............................................................... (1.98%) (3.32%) 5.32% 9.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................... $5,366 $6,548 $5,276 $1,944
Ratio of expenses to average net assets .................................... 1.75% 1.75% 1.75% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................................. 2.25% 2.30% 2.48% 2.87%
Ratio of net investment income to average net assets ....................... 7.41% 8.22% 7.18% 7.01%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....................... 6.89% 7.67% 6.45% 5.89%
Portfolio turnover ......................................................... 93% 156% 175% 183%
</TABLE>
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(3) Per share information for the years ended July 31, 1998, 1999 and the six
months ended January 31, 2000 was based on the average shares outstanding
method.
(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
16
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Strategic Income Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended(1)
1/31/00 Year Ended 10/1/96(2) to
(Unaudited) 7/31/99 7/31/98 7/31/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................................... $4.850 $5.470 $5.700 $5.500
Income (loss) from investment operations:
Net investment income(3) ................................................... 0.199 0.475 0.458 0.367
Net realized and unrealized gain (loss) on investments,
futures contracts, options written and foreign currencies ................ (0.270) (0.603) (0.111) 0.187
-------------------------------------------
Total from investment operations ........................................... (0.071) (0.128) 0.347 0.554
-------------------------------------------
Less dividends and distributions:
Dividends from net investment income ....................................... (0.219) (0.457) (0.457) (0.354)
Distributions from net realized gain on investments ........................ none (0.035) (0.120) none
-------------------------------------------
Total dividends and distributions .......................................... (0.219) (0.492) (0.577) (0.354)
-------------------------------------------
Net asset value, end of period ................................................ $4.560 $4.850 $5.470 $5.700
===========================================
Total return(4) ............................................................... (1.48%) (2.46%) 6.36% 10.36%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................... $909 $4,350 $3,764 $3,405
Ratio of expenses to average net assets .................................... 0.75% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly .................................. 1.25% 1.30% 1.48% 1.87%
Ratio of net investment income to average net assets ....................... 8.41% 9.22% 8.18% 7.90%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ....................... 7.89% 8.67% 7.45% 6.78%
Portfolio turnover ......................................................... 93% 156% 175% 183%
</TABLE>
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(3) Per share information for the years ended July 31, 1998, 1999 and the six
months ended January 31, 2000 was based on the average shares outstanding
method.
(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
17
<PAGE>
Notes to Financial Statements
January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Delaware Group Income Funds (the "Company") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Company is organized as a Delaware Business Trust and offers five
series: the Delaware Corporate Bond Fund, the Delaware Extended Duration Bond
Fund, the Delaware Delchester Fund, the Delaware High-Yield Opportunities Fund
and the Delaware Strategic Income Fund. These financial statements and related
notes pertain to the Delaware Strategic Income Fund (the "Fund"). The Fund
offers four classes of shares. The Delaware Strategic Income Fund A Class
carries a front-end sales charge of 4.75%. The Delaware Strategic Income Fund B
Class carries a back-end deferred sales charge. The Delaware Strategic Income
Fund C Class carries a level load deferred sales charge and the Delaware
Strategic Income Fund Institutional Class has no sales charge.
The investment objective of the Fund is to seek to provide investors with high
current income and total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. Securities listed on a foreign
exchange are valued at the last quoted sales price before the Fund is valued.
Long-term debt securities are valued by an independent pricing service and such
prices are believed to reflect the fair value of such securities. Money market
instruments having less than 60 days to maturity are valued at amortized cost,
which approximates market value. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Trustees.
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.
Repurchase Agreements - The 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 the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 102% 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.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
<PAGE>
Foreign Currency Transactions - Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. The value
of all assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate of such currencies against the U.S.
dollar as of 12:00 PM EST. Transaction gains or losses resulting from changes in
exchange rates during the reporting period or upon settlement of the foreign
currency transaction are reported in operations for the current period. The Fund
isolates that portion of gains and losses on investments in debt securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices. The Fund reports certain foreign currency related
transactions as components of realized gains (losses) for financial reporting
purposes, whereas such components are treated as ordinary income (loss) for
federal income tax purposes.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Original issue discounts are accreted to interest
income over the lives of the respective securities. Withholding taxes on foreign
interest have been provided for in accordance with the Fund's understanding of
the applicable country's tax rules and rates. The Fund declares dividends daily
from net investment income and pays such dividends monthly and declares and pays
distributions from net realized gain on investment transactions, if any,
semi-annually.
Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $1,018 for the six months ended
January 31, 2000. In addition, the Fund receives earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. These credits were $8,610 for the six months ended January 31,
2000. The expenses paid under the above arrangements are included in their
respective expense captions on the Statement of Operations with the
corresponding expense offset shown as "Expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC), the Investment Manager of the Fund, an
annual fee which is calculated daily at the rate of 0.65% on the first $500
million of average daily net assets of the Fund, 0.60% on the next $500 million,
0.55% on the next $1,500 million and 0.50% on the average daily net assets in
excess $2,500 million. DMC has entered into a sub-advisory agreement with
Delaware International Advisors Ltd. (DIAL) with respect to the management of
the investments in foreign securities. DIAL will receive a fee equal to one
third of the investment management fees and other expenses.
18
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates
(continued)
DMC has elected to waive that portion of its management fee and reimburse the
Fund to the extent that annual operating expenses, exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and distribution expenses exceed
0.75% of average daily net assets of the Fund through June 30, 2000.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services. The
Fund pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class.
On January 31, 2000, the Fund had liabilities payable to affiliates as follows:
Dividend disbursing, Other
Investment transfer agent, expenses
management accounting fees payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates
-------------- -------------------- --------------
$2,568 $0 $0
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Fund. These officers, trustees and employees are paid no compensation by the
Fund.
For the six months ended January 31, 2000, DDLP earned $5,449 for commissions on
sales of the Fund A Class shares.
3. Investments
For the six months ended January 31, 2000, the Fund made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:
Purchases ................................................... $19,577,904
Sales ....................................................... $25,224,444
The cost of investments for federal income tax purposes approximates cost for
book purposes. The aggregate cost of securities and unrealized appreciation
(depreciation) were as follows:
Cost of investments ......................................... $40,977,452
============
Aggregate unrealized appreciation ........................... $179,770
Aggregate unrealized depreciation ........................... ($4,046,550)
------------
Net unrealized depreciation ................................. ($3,866,780)
============
<PAGE>
- --------------------------------------------------------------------------------
4. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
1/31/00 7/31/99
Shares sold:
A Class 441,378 1,884,581
B Class 403,155 2,003,638
C Class 118,112 638,499
Institutional Class 68,355 159,578
Shares issued upon reinvestment
of dividends from net investment
income and net realized gain
on investments:
A Class 112,129 222,980
B Class 95,156 182,505
C Class 35,955 61,246
Institutional Class 30,747 73,777
---------- ----------
1,304,987 5,226,804
---------- ----------
Shares repurchased:
A Class (1,069,147) (1,511,156)
B Class (845,110) (1,062,264)
C Class (325,679) (316,532)
Institutional Class ( 796,500) (24,928)
---------- ----------
(3,036,436) (2,914,880)
---------- ----------
Net Increase (Decrease) (1,731,449) 2,311,924
========== ==========
5. Line of Credit
The Fund has a committed line of credit of $2,400,000. No amount was outstanding
at January 31, 2000, or at any time during the fiscal year.
6. Foreign Exchange Contracts
The Fund will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. The Fund may enter into these contracts
to fix the U.S. dollar value of a security that it has agreed to buy or sell for
the period between the date the trade was entered into and the date the security
is delivered and paid for. They may also be used to hedge the U.S. dollar value
of securities it already owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. The change in market value is recorded
by the Fund as an unrealized gain or loss. When the contract is closed, a
realized gain or loss is recorded equal to the difference between the value of
the contract at the time it was opened and the value of the time it was closed.
19
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
6. Foreign Exchange Contracts (continued)
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's securities, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the value
of the currency increase. In addition, the Fund could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
No forward foreign currency contracts were outstanding at January 31, 2000.
7. Futures Contracts
The Fund invests in financial futures contracts for the purpose of hedging its
existing portfolio securities against fluctuations in fair value caused by
changes in prevailing market rates. Upon entering into a futures contract, the
Fund deposits cash or pledges U.S. government securities to a broker, equal to
the minimum "initial margin" requirements of the exchange on which the contract
is traded. Subsequent payments are received from or paid to the broker each day,
based on the daily fluctuation in the market value of the contract. These
receipts or payments are known as "variation margin" and are recorded daily by
the Fund as unrealized gains or losses until the contracts are closed. When the
contracts are closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risk may arise upon entering into futures
contracts from potential imperfect correlation between the futures contracts and
the underlying securities and from the possibility of an illiquid secondary
market for these instruments.
No financial futures contracts were outstanding at January 31, 2000.
8. Options Written
During the six months ended January 31, 2000, the Fund entered into options
contracts in accordance with its investment objectives. When the Fund writes an
option, the premium received is recorded as a liability and is subsequentily
adjusted to the current market value of the option written. Premiums received
from writing options that expire unexercised are treated by the Fund on the
expiration date as realized gains from investments. The difference between the
premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium is less than the amount paid for the closing purhase transactions, as a
realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security in determining whether the
Fund has a realized gain or loss. If a put option is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The Fund as
writer of an option bears the market risk of an unfavorable change in the price
of the security underlying the written option.
<PAGE>
- --------------------------------------------------------------------------------
Transactions in options written during the six months ended January 31, 2000 for
the Fund were as follows:
Number Premiums
of contracts received
Options outstanding at
July 31, 1999 15 $ 7,247
Options written - -
Options terminated in closing
purchase transaction (15) (7,247)
--- -------
Options written outstanding at
January 31, 2000 - -
9. Market and Credit Risk
Some countries in which the Fund may invest require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Fund may
be inhibited. In addition, a significant portion of the aggregate market value
of equity securities listed on the major securities exchanges in emerging
markets are held by a smaller number of investors. This may limit the number of
shares available for acquisition or disposition by the Fund.
The Fund invests in high-yield fixed income securities which carry ratings of BB
or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund invests in securities whose value is derived from an underlying pool of
mortgages or consumer loans. Prepayment of these loans may shorten the stated
maturity of the respective obligation and may result in a loss of premium, if
any has been paid.
The Fund may invest up to 15 % of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect the Fund's ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities.
20
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
<TABLE>
<CAPTION>
<S> <C> <C>
Growth of Capital International Tax-Exempt Income
o Select Growth Fund Diversification o National High-Yield
o Trend Fund o Emerging Markets Fund Municipal Bond Fund
o Growth Opportunities o New Pacific Fund o Tax-Free USA Fund
Fund* o Overseas Equity Fund o Tax-Free Insured Fund
o Small Cap Value Fund o International Equity Fund o Tax-Free USA
o U.S. Growth Fund o Global Equity Fund Intermediate Fund
o Growth Stock Fund o Global Bond Fund o State Tax-Free Funds**
o Tax-Efficient Equity Fund Stability of Principal
o Social Awareness Fund Current Income o Cash Reserve
o Delchester Fund o Tax-Free Money Fund
Total Return o High-Yield
o Blue Chip Fund Opportunities Fund Asset Allocation
o Devon Fund o Strategic Income Fund o Foundation Funds
o Growth and Income Fund o Corporate Bond Fund Growth Portfolio
o Decatur Equity o Extended Duration Balanced Portfolio
Income Fund Bond Fund Income Portfolio
o REIT Fund o American Government
o Balanced Fund Bond Fund
o U.S. Government
Securities Fund
o Limited-Term
Government Fund
</TABLE>
* Formerly known as DelCap Fund
** Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, New Jersey,
New Mexico, New York, Ohio, Oregon, Pennsylvania and Wisconsin. Insured and
intermediate bond funds are available in selected states.
(C)Delaware Distributions, L.P.
<PAGE>
DELAWARE(SM)
INVESTMENTS
- -------------
Philadelphia o London
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
This semi-annual report is for the information of Delaware Strategic Income Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for Delaware Strategic Income Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives and operating policies of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BOARD OF TRUSTEES Charles E. Peck Investment Manager
Retired Delaware Management Company
Wayne A. Stork Fredericksburg, VA Philadelphia, PA
Chairman
Delaware Investments Family of Funds Jan L. Yeomans International Affiliate
Philadelphia, PA Vice President and Treasurer Delaware International Advisers Ltd.
3M Corporation London, England
Walter P. Babich St. Paul, MN
Board Chairman, National Distributor
Citadel Constructors, Inc. AFFILIATED OFFICERS Delaware Distributors, L.P.
King of Prussia, PA Philadelphia, PA
Charles E. Haldeman, Jr.
David K. Downes President and Chief Executive Officer Shareholder Servicing, Dividend
President and Chief Executive Officer Delaware Management Holdings, Inc. Disbursing and Transfer Agent
Delaware Investments Family of Funds Philadelphia, PA Delaware Service Company, Inc.
Philadelphia, PA Philadelphia, PA
Richard J. Flannery
John H. Durham Executive Vice President and 1818 Market Street
Private Investor General Counsel Philadelphia, PA 19103-3682
Horsham, PA Delaware Investments Family of Funds
Philadelphia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates Bruce D. Barton
New York, NY President and Chief Executive Officer
Delaware Distributors, L.P.
Ann R. Leven Philadelphia, PA
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(2786) Printed in the USA
SA-125 [1/00] PP 3/00 (J5628)
