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DELAWARE(SM)
INVESTMENTS
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Delaware Delchester Fund
Current Income
2000 SEMI-ANNUAL REPORT
[Current income artwork]
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A TRADITION OF SOUND INVESTING SINCE 1929
TABLE OF CONTENTS
Letter to Shareholders 1
Portfolio
Management Review 3
Performance Summary 5
Financial Statements
Statement of Net Assets 6
Statement of Operations 10
Statements of Changes in
Net Assets 11
Financial Highlights 12
Notes to Financial
Statements 16
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 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 over 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 (24 single-state funds)
o International equity o International fixed-income
o Balanced
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 - The clouds that have hung over the high-yield bond market
since the late summer months of 1998, when the Russian government defaulted on
some loans and triggered a global flight to quality, gave little indication of
clearing over the last six months. Although many of the world's economies
appeared well on their way to recovery, investors still seemed concerned about
the credit quality of their bond investments. We believe that this reduced the
appeal of many higher yielding, higher risk bonds, like those in the Delaware
Delchester Fund portfolio.
Throughout the latter half of 1999, equity investments held investor interest,
flourishing in the wake of first and second quarter advances that brought both
the Dow Jones Industrial Average and the S&P 500 Index to record highs. Mutual
funds investing in large company growth stocks and especially technology-related
stocks produced double-digit returns and gave investors little incentive to
consider opportunities in the high-yield bond market.
During the third calendar quarter of 1999, high-yield bond prices fell as higher
interest rates and stock market volatility reduced investor demand during a
period of abundant new bond supply. When supply is greater than demand, prices
generally fall.
The balance of supply and demand improved slightly during the fourth quarter due
to a seasonal end-of-year decline in new bond issuance. This helped relieve some
of the downward pressure on high-yield bond prices.
"ALTHOUGH MANY OF THE WORLD'S ECONOMIES APPEARED WELL ON THEIR WAY TO RECOVERY,
INVESTORS STILL SEEMED CONCERNED ABOUT THE CREDIT QUALITY OF THEIR BOND
INVESTMENTS."
[Current income artwork]
Performance Overview
Average Total Returns
<TABLE>
<CAPTION>
For Periods Ended January 31, 2000 Six Months Lifetime*
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<S> <C> <C>
Delaware Delchester Fund A Class -4.60% +8.91%
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Lipper High Current Yield Fund Average +0.34% (358 funds) +8.94% (4 funds)
Salomon Smith Barney High-Yield Bond Index -1.39% N/A
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</TABLE>
All performance shown above is at net asset value and assumes reinvestment of
distributions. Performance information for all Fund classes can be found on page
5. The Salomon Smith Barney High-Yield Bond Index is an unmanaged measure of
U.S. high-yield corporate bonds. The Lipper category represents the average
returns of high-yield bond funds tracked by Lipper Analytical Services. Source:
Lipper Analytical Services. You cannot invest directly in an index. Past
performance does not guarantee future results.
*August 20, 1970 (commencement of operations).
1
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Delaware Delchester Fund focuses on high-yield corporate bonds that offer as
high a current income as is consistent with providing a reasonable amount of
safety to principal. Over the last six months, the Fund significantly
underperformed its benchmark, the Salomon Smith Barney High-Yield Bond Index and
comparable high-yield bond funds tracked by Lipper Analytical Services, largely
due to our focus on income potential.
We typically prefer bonds that pay a cash dividend over those that either don't
pay current interest or pay interest in the form of additional bonds. This led
us to invest more heavily in some companies that had high current income
potential but delivered disappointing price performance in the short term.
Although Delaware Delchester Fund's investment strategy ran counter to
prevailing market trends over the last six months, we remain committed to our
approach. Over its lifetime, Delaware Delchester Fund's focus on high current
income has proven effective, delivering a competitive return relative to its
peers in the Lipper High Current Yield Fund Average.
Market Outlook - The possibility for higher interest rates and heavy new bond
supply could create a challenging environment for high-yield bonds in the near
future. During the second half of 2000, however, we believe interest rates will
stabilize or possibly fall. This could make high-yield bonds a more attractive
investment and help ease the current liquidity crunch.
In the pages that follow, your Fund's portfolio managers, Paul Matlack and
Gerald Nichols, provide more details on your Fund's performance and discuss how
we have fine-turned our investment approach to meet the challenges of today's
high-yield bond market. We are striving to take full advantage of every
opportunity in the high-yield market place. We value your investment with
Delaware and look forward to helping you reach your financial goals.
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
"OVER ITS LIFETIME, DELAWARE DELCHESTER FUND'S FOCUS ON HIGH CURRENT INCOME HAS
PROVEN EFFECTIVE, DELIVERING A COMPETITIVE RETURN RELATIVE TO ITS PEERS."
2
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[Current income artwork]
Paul A. Matlack
Senior Portfolio Manager
Gerald T. Nichols
Senior Portfolio Manager
February 18, 2000
"DEMAND FOR HIGH-YIELD BONDS IN 1999 WAS NOT NEARLY SUFFICIENT TO MEET THE
AVAILABLE SUPPLY, WHICH CONTRIBUTED TO WEAK PRICE PERFORMANCE."
PORTFOLIO MANAGEMENT REVIEW
The Fund's Results
Over the last six months, high-yield bonds continued to wrestle with market
conditions that began nearly 18 months ago when economic problems in Asia became
a global concern. Despite a booming U.S. economy and a similar recovery
overseas, demand for higher risk investments remained weak. In calendar year
1999, approximately $5 billion was invested in high-yield bond mutual funds,
compared to more than $19 billion in 1998 (Source: Chase Securities).
Fortunately, the supply of new high-yield bonds being issued also fell last
year. New bond issues totaled nearly $100 billion in calendar 1999, down from
$150 billion in 1998 (Source: Chase Securities). Still, demand for high-yield
bonds in 1999 was not nearly sufficient to absorb the available supply, which
contributed to the generally weak price performance.
Liquidity, or the ability to sell a security without significant loss of value,
continued to be one of the Fund's biggest hurdles. Securities dealers appeared
reluctant to commit capital to increase their inventory of high-yield bonds.
This reluctance, in our opinion, probably stems from losses incurred during the
summer of 1998, when high-yield bonds fell sharply. Rising interest rates, which
generally reduce the value of all types of bonds, may have also encouraged
dealers to reduce their high-yield bond inventories, adding to liquidity
problems. As a result, we found it increasingly difficult to sell bonds that we
no longer considered attractive.
Portfolio Highlights
Over the last six months, we've implemented some changes that we believe will
position Delaware Delchester Fund for improved performance, including reducing
the number of bonds in the portfolio. We desire to hold approximately 100 bonds
in the Delaware Delchester Fund. As of January 31, 2000, we held 107 bonds, down
from a high of about 160. We think a more concentrated portfolio, comprised of
fewer holdings that are larger in size, will allow us to focus our research and
analysis on those companies that show the most potential. As we reduced our
holdings, we placed a high priority on securities that, in our opinion, have
stronger investor appeal and will be easier to sell if we experience adverse
market conditions. We think this fine-tuning will help Delaware Delchester
Fund's performance in a less liquid market environment.
Historically, Delaware Delchester Fund has focused on bonds rated "B" or "BB" by
Standard and Poor's. We are currently working to tighten that focus on B-rated
bonds. Although higher rated bonds (BB) performed better during a brief
high-yield bond recovery in the fall of 1998, we believe B-rated bonds, in
general, are currently undervalued and offer sufficient liquidity in today's
market.
3
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Portfolio Characteristics
January 31, 2000
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Current 30-Day SEC Yield* 10.99%
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Average Effective Duration 4.4 years
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Average Effective Maturity 6.7 years
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Portfolio Turnover 92%
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Number of Securities 137
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* For Class A shares measured according to Securities and Exchange Commission
(SEC) guidelines. Current 30-day SEC yield as of 1/31/00 for Class B and C
shares was 10.79%. The Institutional Class yield was 11.83%.
Top Industry Sectors
January 31, 2000
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Competitive Local
Exchange Carriers 11.22%
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Cable, Media & Publishing 7.63%
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Long Distance Services 6.93%
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Chemicals 6.45%
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Data/Internet Services 5.44%
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Includes all sectors representing more than 5% of the portfolio. The remaining
62.33% of the portfolio is diversified among 22 different sectors.
In the past, we have purchased bonds that offered a high level of income from
issuers who, in our opinion, were likely to be able to pay back their debt,
regardless of what industry they were in. Though we have always diversified the
fund's holdings across a number of industries, we are now looking even more
closely at how much we have committed to each industry as we select bonds. Our
objective is to make sure that we are not too heavily invested in any particular
industry, and consequently vulnerable to an unexpected downturn. We also want to
make sure that we have adequate exposure to a wider range of high-yield bond
sectors so that we are positioned to benefit when an industry outperforms.
Outlook
Outward appearances point to a positive economic climate for high-yield bonds.
The U.S. economy extended its current record to 107 consecutive months of
economic expansion. Foreign economies are also well on their way back from the
recession that touched nearly every country outside of the U.S.
Despite robust U.S. and global economic growth and periodic bouts of concern
over rising labor costs, inflation has remained surprisingly benign.
Productivity gains appear to be the factor keeping inflation in check. In fact,
according to the U.S. Department of Labor, U.S. worker productivity - a way of
measuring output per hour worked - rose at a faster-than-expected rate of 5%
during the fourth quarter of 1999. Despite a tight labor market, labor costs in
1999 declined in both the third and fourth quarters, largely due to these
productivity gains.
Last year, rising default rates were a concern in the high-yield bond market. In
1999, 86 domestic high-yield bond issuers defaulted on their loans compared to
46 issuers in 1998. We believe that higher interest rates contributed to the
increase by cutting into the profit margins of less financially secure
companies. Nevertheless, in our view, a strong global economy and low inflation
should help reduce the default rate in 2000 by providing a positive backdrop for
companies issuing high-yield debt.
Despite their recent slump, we believe high-yield bonds remain an attractive
long-term investment. Because their performance is affected by both interest
rates (similar to bonds) and the economic climate for businesses (similar to
stocks), high-yield bonds occupy a unique niche in your investment portfolio and
provide broader diversification. In return for the higher risk they entail,
high-yield bonds typically offer the highest income of any fixed-income
alternative. High-yield bonds also add a layer of asset class diversification
that can help reduce the volatility risk of your overall portfolio.
4
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Delaware Delchester Fund
FUND BASICS
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Fund Objective
Seeks as high a current income as is consistent with providing reasonable
safety.
Assets Under Management
$1.02 million
Number of Holdings
137
Fund Start Date
August 20, 1970
Your Fund Managers
Paul A. Matlack is a graduate of the University of Pennsylvania and received his
MBA in Finance from George Washington University. Mr. Matlack previously worked
at Mellon Bank and Provident National Bank before joining Delaware in 1989.
Gerald T. Nichols is a graduate of the University of Kansas, where he received a
BS in Business Administration and an MS in finance. Prior to joining Delaware in
1989, Mr. Nichols worked at Waddell & Reed, Inc. and as an investment officer
for a merchant banking firm.
Both Mr. Matlack and Mr. Nichols are CFA charterholders.
NASDAQ Symbols
Class A DETWX
Class B DHYBX
Class C DELCX
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FUND PERFORMANCE
Average Annual Returns
Through January 31, 2000 Lifetime 10 Years Five Years One Year
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Class A (Est. 8/20/70)
Excluding Sales Charge +8.91% +8.72% +6.26% -5.51%
Including Sales Charge +8.73% +8.20% +5.24% -9.95%
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Class B (Est. 5/2/94)
Excluding Sales Charge +4.23% +5.48% -6.20%
Including Sales Charge +4.13% +5.21% -9.61%
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Class C (Est. 11/29/95)
Excluding Sales Charge +3.94% -6.20%
Including Sales Charge +3.94% -7.05%
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Delaware Delchester Fund invests primarily in high-yield bonds, which involve
greater risk than higher quality bonds. Returns reflect reinvestment of
distributions and any applicable sales charges as noted below. Return and share
value will fluctuate so that shares, when redeemed, may be worth more or less
than the original share price. Class B and C results excluding sales charges
assume either that contingent sales charges did not apply or the investment was
not redeemed. Past performance is not a guarantee of future results.
Class A shares have a front-end maximum sales charge of 4.75% and a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee, and a deferred sales charge of up to 4% if
redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution service fee. If shares are redeemed
within 12 months, a 1% contingent deferred sales charge applies.
Institutional Class shares are available without sales charge only to certain
eligible institutional accounts. Performance prior to 6/1/92 is based on Class A
performance, adjusted to eliminate the sales charges, but not the asset-based
distribution charge.
Average Annual Returns
Through January 31, 2000 Lifetime 10 Years Five Years One Year
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Institutional Class (Est. 6/1/92) +9.02% +8.99% +6.53% -5.26%
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NASDAQ Symbol Institutional
Class: DETIX
(current income artwork)
5
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Statement of Net Assets
DELAWARE DELCHESTER FUND
- ------------------------
Principal Market
January 31, 2000 (Unaudited) Amount Value
- --------------------------------------------------------------------------------
Corporate Bonds - 86.25%
Automobile & Auto Parts - 2.11%
**Holley Performance Products sr notes
12.25% 9/15/07 ................................ $11,000,000 $10,491,250
+Safety Components International sr sub nts
10.125% 7/15/07 ............................... 8,400,000 2,436,000
Venture Holdings sr sub nts
12.00% 6/1/09 ................................. 10,000,000 8,700,000
-----------
21,627,250
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Banking, Finance & Insurance - 0.71%
Willis Corroon co guarantee
9.00% 2/1/09 .................................. 9,000,000 7,290,000
-----------
7,290,000
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Building & Materials - 1.83%
Formica sr sub nts 10.875% 3/1/09 .............. 11,300,000 10,000,500
K Hovnanian Enterprises co guarantee
9.125% 5/1/09 ................................. 9,300,000 8,730,375
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18,730,875
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Bundled Services - 1.09%
**21st Century Telecom Group sr disc nts
12.25% 2/15/08 ................................ 9,500,000 6,590,625
RCN sr nts 10.125% 1/15/10 ..................... 4,600,000 4,508,000
-----------
11,098,625
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Cable, Media & Publishing - 7.63%
**Charter Communications sr disc nts
11.75% 1/15/10 ................................ 18,200,000 10,556,000
Echostar Dbs sr nts 9.25% 2/1/06 ............... 14,800,000 14,578,000
**PX Escrow sr disc nts 9.625% 2/1/06 ............ 9,500,000 4,666,875
+Pegasus Communications sr nts
9.625% 10/15/05 ............................... 7,000,000 6,825,000
Sinclair Broadcast Group sr sub nts
8.75% 12/15/07 ................................ 13,800,000 12,247,500
Sullivan Graphics sr sub nts
12.75% 8/1/05 ................................. 9,975,000 10,349,063
+Telewest sr nts 9.875% 2/1/10 .................. 9,000,000 9,067,500
**United International Holdings sr disc nts
10.75% 2/15/08 ................................ 14,600,000 9,709,000
-----------
77,998,938
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Chemicals - 6.45%
Aqua Chemical sr sub nts
11.25% 7/1/08 ................................. 9,200,000 5,152,000
Geo Specialty Chemicals sr sub nts
10.125% 8/1/08 ................................ 3,400,000 3,128,000
Huntsman sr sub nts 9.50% 7/1/07 ............... 11,000,000 10,395,000
Koppers Industry co guarantee
9.875% 12/1/07 ................................ 6,700,000 6,256,125
LaRoche Industries sr sub nts
9.50% 9/15/07 ................................. 16,500,000 5,445,000
+Lyondell Chemical sr sub nts
10.875% 5/1/09 ................................ 13,000,000 12,935,000
<PAGE>
Principal Market
Amount Value
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Corporate Bonds (continued)
Chemicals (continued)
+Sterling Chemical co guarantee
12.375% 7/15/06 ............................... $ 5,900,000 $ 6,165,500
ZSC Special Chemical co guarantee
11.00% 7/1/09 ................................. 16,000,000 16,480,000
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65,956,625
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Computers & Technology - 1.82%
Unisys sr nts 11.75% 10/15/04 .................. 8,600,000 9,374,000
Unisys sr nts 12.00% 4/15/03 ................... 8,700,000 9,287,250
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18,661,250
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Competitive Local Exchange Carriers - 11.22%
**GST USA co guarantee
13.875% 12/15/05 .............................. 18,500,000 14,152,500
+Hyperion Telecommunications sr nts
12.25% 9/1/04 ................................. 12,000,000 12,780,000
**KMC Telecom Holdings sr disc nts
12.50% 2/15/08 ................................ 33,000,000 18,480,000
+KMC Telecom Holdings sr nts
13.50% 5/15/09 ................................ 3,700,000 3,718,500
Metromedia Fiber sr nts 10.00%
11/15/08 ...................................... 16,950,000 17,034,750
Metromedia Fiber sr nts
10.00% 12/15/09 ............................... 2,700,000 2,727,000
Nextlink Communications sr disc nts
10.75% 11/15/08 ............................... 14,600,000 14,746,000
**Nextlink Communications sr disc nts
12.125% 12/1/09 ............................... 11,750,000 6,815,000
**Teligent sr disc nts 11.50% 3/1/08 ............. 16,000,000 9,640,000
+Teligent sr nts 11.50% 12/1/07 ................. 15,000,000 14,625,000
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114,718,750
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Consumer Products - 3.48%
+Buhrman US sr sub nts
12.25% 11/1/09 ................................ 9,700,000 9,894,000
Derby Cycle sr nts 10.00% 5/15/08 .............. 8,900,000 4,717,000
Desa International co guarantee
9.875% 12/15/07 ............................... 9,200,000 6,923,000
Drypers sr nts 10.25% 6/15/07 .................. 10,575,000 8,565,750
**Iron Age sr disc nts 12.125% 5/1/09 ............ 4,000,000 1,080,000
+Revlon Consumer Products sr sub nts
8.625% 2/1/08 ................................. 10,000,000 4,400,000
------------
35,579,750
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Data/Internet Services - 5.44%
+Covad Communication Group sr nts
12.50% 2/15/09 ................................ 11,550,000 12,012,000
Globix sr nts 12.50% 2/1/10 .................... 8,000,000 8,060,000
PSINet sr nts 10.50% 12/1/06 ................... 6,000,000 6,075,000
PSINet sr nts 11.00% 8/1/09 .................... 14,000,000 14,455,000
Verio sr nts 10.625% 11/15/09 .................. 14,550,000 15,095,625
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55,697,625
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6
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Statement of Net Assets (continued)
Principal Market
Delaware Delchester Fund Amount Value
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Corporate Bonds (continued)
Electronics & Electrical Equipment - 1.13%
Protection One co guarantee
7.375% 8/15/05 ............................. $14,850,000 $11,583,000
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11,583,000
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Enhanced Specialized Mobile Radio/
Personal Communication Services - 4.45%
AMSC Acquisition co guarantee
12.25% 4/1/08 .............................. 2,700,000 2,079,000
+**Microcell Telecommunications sr disc nts
14.00% 6/1/06 .............................. 13,700,000 12,330,000
+**Nextel Partners sr disc nts
14.00% 2/1/09 .............................. 13,500,000 8,994,375
**Telecorp PCS co guarantee
11.625% 4/15/09 ............................ 18,500,000 11,793,750
Voicestream Wire sr nts
10.375% 11/15/09 ........................... 10,000,000 10,300,000
-----------
45,497,125
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Energy - 4.70%
Chesapeake Energy co guarantee
9.625% 5/1/05 .............................. 9,400,000 8,836,000
First Wave Marine sr nts
11.00% 2/1/08 .............................. 5,100,000 3,646,500
Frontier Oil sr nts 11.75% 11/15/09 ......... 13,500,000 13,095,000
+RBF Finance co guarantee
11.375% 3/15/09 ............................ 14,900,000 15,794,000
**Universal Compression sr disc nts
9.875% 2/15/08 ............................. 11,000,000 6,710,000
-----------
48,081,500
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Environmental Services - 2.06%
+Allied Waste sr sub nts
10.00% 8/1/09 .............................. 15,000,000 13,162,500
Norcal Waste System co guarantee
13.50% 11/15/05 ............................ 7,400,000 7,908,750
-----------
21,071,250
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Food, Beverage & Tobacco - 3.26%
+Ameriking sr nts 10.75% 12/1/06 ............. 6,850,000 6,233,500
Carrols co guarantee 9.50% 12/1/08 .......... 8,200,000 7,318,500
Chiquita Brands International sr nts
9.625% 1/15/04 ............................. 1,800,000 1,390,500
Chiquita Brands International sr nts
10.00% 6/15/09 ............................. 4,900,000 3,650,500
DiGiorgio sr nts 10.00% 6/15/07 ............. 10,500,000 9,660,000
Fresh Foods co guarantee
10.75% 6/1/06 .............................. 6,200,000 5,115,000
-----------
33,368,000
-----------
Healthcare & Pharmaceuticals - 1.82%
+Alaris Medical sr disc nts
11.125% 8/1/08 ............................. 11,800,000 4,602,000
Fresenius Medical Care co guarantee
9.00% 12/1/06 .............................. 100,000 95,000
<PAGE>
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
Healthcare & Pharmaceuticals (continued)
Insight Health Services co guarantee
9.625% 6/15/08 .............................. $ 9,100,000 $ 8,463,000
Kinetic Concepts co guarantee
9.625% 11/1/07 .............................. 7,200,000 5,427,000
-----------
18,587,000
-----------
Industrial Machinery - 0.57%
+Indesco International sr sub nts
9.75% 4/15/08 ............................... 3,600,000 1,449,000
+Tokheim co guarantee 11.375% 8/1/08 .......... 8,300,000 4,399,000
-----------
5,848,000
-----------
Leisure, Lodging & Entertainment - 4.86%
+Cinemark USA Series C sr sub nts
9.625% 8/1/08 ............................... 7,300,000 6,351,000
Florida Panthers co guarantee
9.875% 4/15/09 .............................. 10,750,000 10,212,500
+Hollywood Casino co guarantee
11.25% 5/1/07 ............................... 8,300,000 8,569,750
+Majestic Star co guarantee
10.875% 7/1/06 .............................. 8,000,000 7,810,000
+Outboard Marine co guarantee
10.75% 6/1/08 ............................... 9,000,000 7,020,000
+Regal Cinemas sr sub nts 9.50% 6/1/08 ........ 12,800,000 8,864,000
+United Artists Theatre sr sub nts
9.75% 4/15/08 ............................... 8,800,000 880,000
-----------
49,707,250
-----------
Long Distance Services - 6.93%
+BTI Telecom sr nts 10.50% 9/15/07 ............ 9,025,000 8,325,563
+Call-Net Enterprises sr disc nts
10.80% 5/15/09 .............................. 14,250,000 7,053,750
+Global Crossing sr nts
9.50% 11/15/09 .............................. 14,700,000 14,185,500
Pathnet sr nts 12.25% 4/15/08 ................ 4,900,000 3,172,750
RSL Communications co guarantee
12.25% 11/15/06 ............................. 9,000,000 9,213,750
**Viatel sr disc nts 12.50% 4/15/08 ............ 15,925,000 9,694,344
Viatel sr nts 11.50% 3/15/09 ................. 8,656,000 8,179,920
Worldwide Fiber sr nts
12.00% 8/1/09 ............................... 10,500,000 11,077,500
-----------
70,903,077
-----------
Metals & Mining - 4.00%
+Algoma Steel mtg 12.375% 7/15/05 ............. 13,550,000 12,669,250
+Doe Run Resources co guarantee
11.25% 3/15/05 .............................. 9,000,000 8,538,750
+Great Lakes Carbon co guarantee
10.25% 5/15/08 .............................. 10,250,000 9,635,000
Jorgensen Earle sr nts 9.50% 4/1/05 .......... 7,500,000 7,190,625
Metallurg co guarantee
11.00% 12/1/07 .............................. 3,200,000 2,884,000
-----------
40,917,625
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7
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Delchester Fund Amount Value
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
Packaging & Containers - 1.11%
**SF Holdings Group sr disc nts
12.75% 3/15/08 ............................... $ 9,250,000 $ 5,110,625
Stone Container sr sub deb
12.25% 4/1/02 ................................ 6,225,000 6,256,125
-----------
11,366,750
-----------
Paper & Forest Products - 1.99%
Doman Industries Limited sr nts
8.75% 3/15/04 ................................ 13,300,000 11,670,750
MAXXAM Group sr nts 12.00% 8/1/03 ............. 9,400,000 8,695,000
-----------
20,365,750
-----------
Retail - 3.01%
Advance Stores co guarantee
10.25% 4/15/08 ............................... 9,200,000 7,958,000
+Fleming co guarantee 10.50% 12/1/04 ........... 10,400,000 9,503,000
Frank's Nursery & Crafts sr sub nts
10.25% 3/1/08 ................................ 11,200,000 5,180,000
Leslie's Poolmart sr nts
10.375% 7/15/04 .............................. 9,450,000 8,127,000
-----------
30,768,000
-----------
Textiles, Apparel & Furniture - 0.50%
Globe Manufacturing co guarantee
10.00% 8/1/08 ................................ 10,750,000 5,052,500
-----------
5,052,500
-----------
Transportation & Shipping - 3.20%
Avis Rent A Car co guarantee
11.00% 5/1/09 ................................ 16,375,000 16,989,063
+Budget Group Inc sr nts 9.125% 4/1/06 ......... 9,150,000 8,418,000
+Sea Containers sr nts 10.75% 10/15/06 ......... 7,400,000 7,326,000
-----------
32,733,063
-----------
Utilities - 0.88%
Trench Electric & Trench co guarantee
10.25% 12/15/07 .............................. 12,000,000 8,985,000
-----------
8,985,000
-----------
Total Corporate Bonds
(cost $982,549,571) 882,194,578
-----------
U.S. Treasury Obligations - 3.28%
U.S. Treasury Note 6.125% 9/30/00 ............. 33,560,000 33,544,794
-----------
Total U.S. Treasury Obligations
(cost $33,672,593) 33,544,794
-----------
Convertible Bonds - 0.38%
+Premier Graphics co guarantee
11.50% 12/1/05 ............................... 6,600,000 3,894,000
-----------
Total Convertible Bonds
(cost $6,600,000) 3,894,000
-----------
<PAGE>
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Common Stock - 0.01%
*Farley ...................................... 2,000 $ --
*GLI Holdings ................................ 8,000 --
*SF Holdings ................................. 18,500 18,500
----------
Total Common Stock
(cost $4,318) .............................. 18,500
----------
Preferred Stock - 6.28%
Dobson Communications pik ................... 60,473 6,168,291
*Eagle-Picher Holdings ....................... 101,000 3,838,000
+E.Spire Communications pik .................. 130,561 3,982,113
Intermedia Communication pik ................ 167,248 16,808,414
Nebco Evans Holding pik ..................... 80,016 2,240,448
+Nextel Communications pik ................... 232,666 24,080,931
Nextel Communications pik ................... 10 1,010
Peagasus Communications pik ................. 45,000 4,792,500
Pegasus Communications pik .................. 23,120 2,358,209
*TCR Holdings CLASS B ........................ 52,152 522
*TCR Holdings CLASS C ........................ 28,683 287
*TCR Holdings CLASS D ........................ 75,619 756
*TCR Holdings CLASS E ........................ 156,454 1,565
----------
Total Preferred Stock
(cost $81,009,211 ) ........................ 64,273,046
----------
Warrants & Rights - 0.18%
*Aladdin Gaming Warrants ..................... 495,000 495
*American Banknote ........................... 134,181 107,500
*American Mobile Satellite ................... 9,957 92,750
*Cellnet Data Systems ........................ 127,140 97,650
*Electronic Retailing System ................. 13,200 1,980
*Gothic Energy ............................... 19,600 19,600
*KMC Telecom Holdings ........................ 14,000 350,000
*McCaw International ......................... 1,188 28,037
*Millenium Seacarriers ....................... 19,000 38
*Pathnet ..................................... 4,900 49,000
*Spincycle ................................... 5,000 50
*Terex ....................................... 55,200 1,104,000
----------
Total Warrants & Rights
(cost $1,250,344) .......................... 1,851,100
----------
Convertible Preferred Stock - 1.14%
PSINet ...................................... 156,000 7,234,500
Global Crossing ............................. 16,000 4,456,000
----------
Total Convertible Preferred Stock
(cost $11,800,000) ......................... 11,690,500
----------
8
<PAGE>
Statement of Net Assets (continued)
Market
Delaware Delchester Fund Value
- --------------------------------------------------------------------------------
Total Market Value of Securities - 97.52%
(cost $1,116,886,037) ................................... $ 997,466,518
Receivables and Other Assets
Net of Liabilities - 2.48% ............................... 25,394,062
--------------
Net assets applicable to 204,222,030 Shares
outstanding - 100.00% .................................... $1,022,860,580
==============
Net Asset Value - Delchester Fund A Class
($661,968,845 / 132,167,139 Shares) ...................... $5.01
--------------
Net Asset Value - Delchester Fund B Class
($285,802,411 / 57,062,689 Shares) ....................... $5.01
--------------
Net Asset Value - Delchester Fund C Class
($46,155,255 / 9,215,279 Shares) ......................... $5.01
--------------
Net Asset Value - Delchester Fund Institutional Class
($28,934,069 / 5,776,923 Shares) ......................... $5.01
--------------
- ----------------------
*Non-Income producing security for the period ended January 31, 2000.
**Zero coupon security as of January 31, 2000. The coupon shown is the step-up
rate.
+Security is partially or fully on loan.
Summary of Abbreviations:
co guarantee - company guaranteed
deb - debenture
disc - discount
mtg - mortgage
nts - notes
pik - payment-in-kind
sr - senior
sub - subordinated
<PAGE>
Components of Net Assets at January 31, 2000:
Shares of Beneficial Interest (unlimited authorization -
no par) .................................................. $1,464,101,150
Distributions in excess of net investment income .......... (524,026)
Accumulated net realized loss on investments .............. (321,297,025)
Net unrealized depreciation of investments ................ (119,419,519)
--------------
Total net assets .......................................... $1,022,860,580
==============
Net Asset Value and Offering Price Per Share -
Delchester Fund
Net asset value A Class (A) ............................... $5.01
Sales charge (4.75% of offering price or 4.99% of the
amount invested per share) (B) ........................... 0.25
-----
Offering price ............................................ $5.26
=====
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended January 31, 2000 (Unaudited) Delaware Delchester Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest ...................................................................... $63,423,070
Dividends ..................................................................... 3,207,977 $ 66,631,047
----------- -------------
Expenses:
Management fees ............................................................... 3,515,987
Distribution expense .......................................................... 2,869,333
Dividend disbursing and transfer agent fees and expenses ...................... 1,206,000
Accounting and administration ................................................. 349,200
Registration fees ............................................................. 214,372
Reports and statements to shareholders ........................................ 168,000
Taxes (other than taxes on income) ............................................ 62,600
Professional fees ............................................................. 54,000
Custodian fees ................................................................ 19,094
Trustees' fees ................................................................ 13,800
Other ......................................................................... 46,201 8,518,587
----------- -------------
Less expenses paid indirectly ................................................. (15,095)
-------------
Total Expenses ................................................................ 8,503,492
-------------
Net Investment Income ......................................................... 58,127,555
-------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments .............................................. (113,190,174)
Net change in unrealized appreciation / depreciation of investments ........... (2,389,187)
-------------
Net Realized and Unrealized Loss on Investments ............................... (115,579,361)
-------------
Net Decrease in Net Assets Resulting from Operations .......................... $ (57,451,806)
=============
</TABLE>
See accompanying notes
10
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Delchester Fund
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Year
1/31/00 Ended
(Unaudited) 7/31/99
<S> <C> <C>
Decrease in Net Assets from Operations:
Net investment income ......................................................... $ 58,127,555 $ 136,414,875
Net realized loss on investments .............................................. (113,190,174) (116,092,305)
Net change in unrealized appreciation / depreciation of investments ........... (2,389,187) (133,695,167)
-------------- --------------
Net decrease in net assets resulting from operations .......................... (57,451,806) (113,372,597)
-------------- --------------
Distributions to Shareholders from:
Net investment income:
A Class ..................................................................... (39,195,018) (93,848,121)
B Class ..................................................................... (15,625,948) (34,447,633)
C Class ..................................................................... (2,731,698) (5,567,284)
Institutional Class ......................................................... (1,829,791) (4,285,105)
-------------- --------------
(59,382,455) (138,148,143)
-------------- --------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ..................................................................... 71,106,322 262,422,657
B Class ..................................................................... 31,347,095 144,465,555
C Class ..................................................................... 7,635,174 39,555,223
Institutional Class ......................................................... 10,710,001 37,514,075
Net asset value of shares issued upon reinvestment of distributions
from net investment income:
A Class ..................................................................... 18,760,669 46,328,049
B Class ..................................................................... 6,397,793 14,801,100
C Class ..................................................................... 1,434,438 3,200,182
Institutional Class ......................................................... 1,757,636 3,912,815
-------------- --------------
149,149,128 552,199,656
-------------- --------------
Cost of shares repurchased:
A Class ..................................................................... (166,365,212) (385,857,248)
B Class ..................................................................... (69,548,542) (120,695,619)
C Class ..................................................................... (19,831,220) (21,113,944)
Institutional Class ......................................................... (18,756,936) (49,182,137)
-------------- --------------
(274,501,910) (576,848,948)
-------------- --------------
Decrease in net assets derived from capital share transactions ................ (125,352,782) (24,649,292)
-------------- --------------
Net decrease in net assets .................................................... (242,187,043) (276,170,032)
Net Assets:
Beginning of period ........................................................... 1,265,047,623 1,541,217,655
-------------- --------------
End of period ................................................................. $1,022,860,580 $1,265,047,623
============== ==============
</TABLE>
See accompanying notes
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Delchester Fund A Class
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended
1/31/00(2) Year Ended
(Unaudited) 7/31/99 7/31/98 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $5.540 $6.650 $6.570 $6.140 $6.280
Income (loss) from investment operations:
Net investment income ................................... 0.272 0.597 0.608 0.598 0.628
Net realized and unrealized gain (loss) on investments .. (0.524) (1.102) 0.070 0.430 (0.141)
----------------------------------------------------------
Total from investment operations ........................ (0.252) (0.505) 0.678 1.028 0.487
----------------------------------------------------------
Less dividends:
Dividends from net investment income .................... (0.278) (0.605) (0.598) (0.598) (0.627)
----------------------------------------------------------
Total dividends ......................................... (0.278) (0.605) (0.598) (0.598) (0.627)
----------------------------------------------------------
Net asset value, end of period ............................ $5.010 $5.540 $6.650 $6.570 $6.140
==========================================================
Total return(1) ........................................... (4.60%) (7.65%) 10.73% 17.53% 8.10%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $661,969 $813,787 $1,060,136 $1,030,328 $973,939
Ratio of expenses to average net assets ................. 1.25% 1.10% 1.06% 1.04% 1.02%
Ratio of net investment income to average net assets .... 10.36% 10.12% 9.16% 9.48% 10.11%
Portfolio turnover ...................................... 92% 85% 117% 154% 108%
</TABLE>
- ----------------------
(1) 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.
(2) Ratios have been annualized and total return has not been annualized.
See accompanying notes
12
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Delchester Fund A Class
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended
1/31/00(2) Year Ended
(Unaudited) 7/31/99 7/31/98 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $5.540 $6.650 $6.570 $6.140 $6.280
Income (loss) from investment operations:
Net investment income ................................... 0.253 0.557 0.556 0.550 0.581
Net realized and unrealized gain (loss) on investments .. (0.524) (1.103) 0.072 0.430 (0.141)
---------------------------------------------------------
Total from investment operations ........................ (0.271) (0.546) 0.628 0.980 0.440
---------------------------------------------------------
Less dividends:
Dividends from net investment income .................... (0.259) (0.564) (0.548) (0.550) (0.580)
---------------------------------------------------------
Total dividends ......................................... (0.259) (0.564) (0.548) (0.550) (0.580)
---------------------------------------------------------
Net asset value, end of period ............................ $5.010 $5.540 $6.650 $6.570 $6.140
=========================================================
Total return(1) ........................................... (4.95%) (8.34%) 9.91% 16.66% 7.30%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $285,802 $349,960 $376,463 $273,499 $176,266
Ratio of expenses to average net assets ................. 1.98% 1.85% 1.81% 1.79% 1.77%
Ratio of net investment income to average net assets .... 9.63% 9.37% 8.41% 8.73% 9.36%
Portfolio turnover ...................................... 92% 85% 117% 154% 108%
</TABLE>
- ----------------------
(1) 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.
(2) Ratios have been annualized and total return has not been annualized.
See accompanying notes
13
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period was as follows: Delaware Delchester Fund C Class
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended 11/29/95(2)
1/31/00(3) Year Ended to
(Unaudited) 7/31/99 7/31/98 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $5.540 $6.650 $6.570 $6.140 $6.210
Income (loss) from investment operations:
Net investment income .................................... 0.253 0.566 0.555 0.550 0.385
Net realized and unrealized gain (loss) on investments ... (0.524) (1.111) 0.073 0.430 (0.069)
---------------------------------------------------------
Total from investment operations ......................... (0.271) (0.545) 0.628 0.980 0.316
---------------------------------------------------------
Less dividends:
Dividends from net investment income ..................... (0.259) (0.565) (0.548) (0.550) (0.386)
---------------------------------------------------------
Total dividends .......................................... (0.259) (0.565) (0.548) (0.550) (0.386)
---------------------------------------------------------
Net asset value, end of period ............................. $5.010 $5.540 $6.650 $6.570 $6.140
=========================================================
Total return(1) ............................................ (4.95%) (8.34%) 9.91% 16.66% 5.20%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $46,155 $62,613 $50,945 $19,094 $4,953
Ratio of expenses to average net assets .................. 1.98% 1.85% 1.81% 1.79% 1.77%
Ratio of net investment income to average net assets ..... 9.63% 9.37% 8.41% 8.73% 9.36%
Portfolio turnover ....................................... 92% 85% 117% 154% 108%
</TABLE>
- ----------------------
(1) 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.
(2) Commencement of operations; ratios have been annualized and total return has
not been annualized.
(3) Ratios have been annualized and total return has not been annualized.
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 Delchester Fund Institutional Class
- -------------------------------------------------------------------------------------------------------------------------
Six Months Ended
1/31/00(2) Year Ended
(Unaudited) 7/31/99 7/31/98 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $5.540 $6.650 $6.570 $6.140 $6.280
Income (loss) from investment operations:
Net investment income .................................... 0.279 0.613 0.620 0.614 0.644
Net realized and unrealized gain (loss) on investments ... (0.524) (1.104) 0.075 0.429 (0.142)
---------------------------------------------------------
Total from investment operations ......................... (0.245) (0.491) 0.695 1.043 0.502
---------------------------------------------------------
Less dividends:
Dividends from net investment income ..................... (0.285) (0.619) (0.615) (0.613) (0.642)
---------------------------------------------------------
Total dividends .......................................... (0.285) (0.619) (0.615) (0.613) (0.642)
---------------------------------------------------------
Net asset value, end of period ............................. $5.010 $5.540 $6.650 $6.570 $6.140
=========================================================
Total return(1) ............................................ (4.47%) (7.42%) 11.00% 17.82% 8.37%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $28,934 $38,687 $53,673 $44,065 $59,513
Ratio of expenses to average net assets .................. 0.98% 0.85% 0.81% 0.79% 0.77%
Ratio of net investment income to average net assets ..... 10.63% 10.37% 9.41% 9.73% 10.36%
Portfolio turnover ....................................... 92% 85% 117% 154% 108%
</TABLE>
- ----------------------
(1) 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.
(2) Ratios have been annualized and total return has not been annualized.
See accompanying notes
15
<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 Delchester Fund, the Delaware High-Yield Opportunities
Fund, the Delaware Strategic Income Fund, the Delaware Corporate Bond Fund and
the Delaware Extended Duration Bond Fund. These financial statements and related
notes pertain to the Delaware Delchester Fund (the "Fund"). The Fund offers four
classes of shares. The A Class carries a front-end sales charge of 4.75%. The B
Class carries a back-end deferred sales charge. The C Class carries a level load
deferred sales charge and the Institutional Class has no sales charge.
The investment objective of the Fund is to seek as high a current income as is
consistent with providing reasonable safety.
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 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. 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.
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.
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.
<PAGE>
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. The Fund declares and pays
dividends from net investment income daily and capital gains, if any, 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 $13,201 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 $1,894 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, 0.60% on the next $500 million, 0.55% on
the next $1,500 million and 0.50% on net assets over 2,500 million. At January
31, 2000, the Fund had a liability for Investment Management fees and other
expenses payable to DMC of $569,788.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services for
the Fund. The Fund pays DSC a monthly fee based on the number of shareholder
accounts, shareholder transactions and average net assets, subject to certain
minimums. At January 31, 2000, the Fund had a liability for such fees and other
expenses payable to DSC of $65,158.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class. No distribution expenses are paid
by the Institutional Class. At January 31, 2000, the Fund had a liability for
distribution fees and other expenses payable to DDLP of $489,041.
16
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates
(continued)
For the six months ended January 31, 2000, DDLP earned $71,973 for commissions
on sales of the Fund A Class shares.
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.
3. Investments
During the six months ended January 31, 2000, the Fund made purchases of
$423,662,519 and sales of $694,484,439 of investment securities other than U.S.
government securities and temporary cash investments.
The cost of investments for federal income tax purposes approximates cost for
book purposes. At January 31, 2000, the aggregate cost of securities for federal
income tax purposes was $1,116,886,037. At January 31, 2000, net unrealized
depreciation for federal income tax purposes aggregated $119,419,519 of which
$12,143,581 related to unrealized appreciation of securities and $131,563,100
related to unrealized depreciation of securities.
For federal income tax purposes, the Fund had a capital loss carryforward at
January 31, 2000 of $102,204,548, which may be carried forward and applied
against future capital gains. The capital loss carryforward expires as follows:
2002 - $3,628,131, 2003 - $87,593,579, and 2007 - $10,982,838.
4. Capital Shares
Transactions in capital shares were as follows:
Six Months Ended Year
1/31/00 Ended
(Unaudited) 7/31/99
Shares sold:
A Class .................................... 13,640,167 45,019,162
B Class .................................... 6,030,748 24,566,824
C Class .................................... 1,456,152 6,698,639
Institutional Class ........................ 2,030,530 6,430,933
Shares issued upon reinvestment of
distributions from net investment income
A Class .................................... 3,610,194 7,889,317
B Class .................................... 1,231,002 2,524,327
C Class .................................... 275,729 546,980
Institutional Class ........................ 338,457 666,501
----------- -----------
28,612,979 94,342,683
----------- -----------
Shares repurchased:
A Class .................................... (32,015,453) (65,467,458)
B Class .................................... (13,385,936) (20,540,987)
C Class .................................... (3,821,736) (3,604,913)
Institutional Class ........................ (3,577,083) (8,187,222)
----------- -----------
(52,800,208) (97,800,580)
----------- -----------
Net decrease ............................... (24,187,229) (3,457,897)
=========== ===========
<PAGE>
5. Lines of Credit
The Fund has a committed line of credit for $56,300,000. No amount was
outstanding at January 31, 2000, or at any time during the fiscal year.
6. Market and Credit Risk
The Fund may invest in high-yield fixed-income securities, which carry ratings
of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher
yielding securities may be accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 10% 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.
7. Securities Lending
The Fund may participate, along with other funds in the Delaware Investments
Family of Funds, in a Security Lending Agreement ("Lending Agreement"). Security
Loans made pursuant to the Lending Agreement are required at all times to be
secured by U.S. Treasury obligations and/or cash collateral at least equal to
100% of the market value of the securities. Cash collateral received is invested
in fixed-income securities, with a weighted average maturity not to exceed 90
days, rated in one of the top tiers by Standard & Poors Rating Group or Moody's
Investor Service, Inc. or repurchase agreements collateralized by such
securities. However, in the event of default or bankruptcy by the lending agent,
realization and/or retention of the collateral may be subject to legal
proceedings. In the event that the borrower fails to return loaned securities
and the collateral received is insufficient to cover the value of the loaned
securities and provided such collateral is not the result of investment losses,
the lending agent has agreed to pay the amount of the shortfall to the Fund or,
at the discretion of the lending agent, replace the loaned securities. The
market value of securities on loan and the related collateral received at
January 31, 2000 was $93,089,382 and $98,868,621, respectively. Net Income from
securities lending was $72,786 and is included in interest income on the
statement of operations.
17
<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 Delchester Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for Delaware Delchester 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.
BOARD OF TRUSTEES
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman,
Citadel Constructors, Inc.
King of Prussia, PA
David K. Downes
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
John H. Durham
Private Investor
Horsham, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Retired
Fredericksburg, VA
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, Minnesota
AFFILIATED OFFICERS
Charles E. Haldeman, Jr.
President and Chief Executive Officer
Delaware Management Holdings, Inc.
Philadelphia, PA
Richard J. Flannery
Executive Vice President and
General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
<PAGE>
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
(2799) Printed in the USA
SA-024 [--] PP 3/00 (J5622)
