<PAGE>
DELAWARE(SM)
INVESTMENTS
------------ Delaware Strategic Income Fund
Current Income
2000 ANNUAL REPORT
[CURRENT INCOME ARTWORK]
<PAGE>
A TRADITION OF SOUND INVESTING SINCE 1929
-----------------------------------------
TABLE OF CONTENTS
------------------
Letter to Shareholders 1
Portfolio Management
Review 3
Performance Summary 9
Financial Statements
Statement of Net Assets 10
Statement of Operations 14
Statements of Changes in
Net Assets 15
Financial Highlights 16
Notes to Financial
Statements 20
Report of Independent
Auditors 24
A Commitment To Our Investors
Experienced
[] Our seasoned investment professionals average more than 15 years' experience.
[] We began managing investments in 1929 and opened our first mutual fund in
1938. Over the past 70 years, we have weathered a full range of economic and
market environments.
Disciplined
[] We follow strict investment policies and clear buy/sell guidelines.
[] We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
[] We clearly articulate our investment policies and follow them consistently.
[] Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage approximately
$45 billion in assets as of June 30, 2000.
Comprehensive
[] 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 (23 single-state funds)
o International equity o International fixed-income
o Balanced
[] 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
"SOME WALL STREET
ANALYSTS HAVE PREDICTED
THE EVENTUAL DEMISE OF
THE 30-YEAR BOND
ALTOGETHER, OR AT LEAST
AS A BAROMETER FOR
FIXED-INCOME MARKETS."
September 11, 2000
Recap of Events - When we last reported to you on February 18 of this year, the
U.S. was about to complete its record 107th consecutive month of growth, the
domestic stock market was booming, and the Federal Reserve Board had just
announced another in a series of interest rate hikes intended to stem inflation.
That period of monetary tightening lasted throughout our entire fiscal year,
with the Fed bumping up rates five separate times between July 31, 1999 and July
31, 2000 (Source: Bloomberg). This made for challenging times in domestic bond
markets, where more often than not during the year demand fell short of supply.
In January 2000, the U.S. Treasury announced that it will buy back some of its
long-term debt issues and reduce the issuance of new debt over time using the
U.S. budget surplus. As a result of market reactions to the announcement, bond
traders for the first time since 1990 found themselves facing an inverted yield
curve -- a somewhat uncommon environment in which yields on longer term bonds
are lower than those for shorter term securities. Historically, such a scenario
has generally been a precursor to recession in the U.S., yet many economists
believe that in this case, the lower yields on long bonds are a product of the
Treasury's buyback program, not an imminent recession. With the Treasury buying
back long-term bonds, some Wall Street analysts have predicted the eventual
demise of the 30-year bond altogether, or at least as a barometer for
fixed-income markets (Source: Bloomberg).
During your Fund's fiscal year, the yield on 30-year U.S. Treasury bonds
decreased from 6.12% on July 31, 1999 to 5.78% on July 31, 2000. Two-year
Treasury notes, meanwhile were yielding 6.28% on July 31, 2000 (Source:
Bloomberg).
Total Return
For Period Ended July 31, 2000 One Year
--------------------------------------------------------------------------------
Delaware Strategic Income Fund Class A -2.67%
--------------------------------------------------------------------------------
Lipper Multi-Sector Funds Average (125 funds) +2.86%
Lehman Brothers Aggregate Bond Index +5.97%
--------------------------------------------------------------------------------
All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of distributions. Performance information for
all Fund classes can be found on page 9. The Lehman Brothers Aggregate Bond
Index is an unmanaged index that generally tracks world bond markets. The Lipper
category represents the average of all multi-sector funds tracked by Lipper
(Source: Lipper). You cannot invest directly in an index. Past performance does
not guarantee future results.
1
<PAGE>
"THE IMPRESSION ON WALL
STREET AS OF THIS
WRITING IS THAT THE U.S.
ECONOMY IS APPROACHING
A MORE MODERATE
GROWTH RATE, WITHOUT
INFLATION, AS DESIRED BY
THE FED."
[CURRENT INCOME ARTWORK]
Throughout our fiscal year, foreign bond markets were also a difficult place to
reap returns. Uncommonly wide fluctuations among currency exchange rates made
the period a difficult one. Still, many key foreign bond markets continued to
experience growth and emerging markets, hit hard by the effects of the Asian
crisis of 1998, showed signs of recovery. Economic strength abounded in many
euro zone nations, yet the euro itself continued to slip against the dollar
throughout much of our fiscal year, and as of this writing remains below parity.
The European Central Bank, which sets interest rates, currently remains in a
tightening mode of its own, as the weak euro and high oil prices late in the
fiscal year caused inflation to threaten key euro zone economies such as
Germany.
Delaware Strategic Income Fund had a return of -2.67% (Class A shares at net
asset value with distributions reinvested) for the year ended July 31, 2000. Its
benchmark, the Lehman Brothers Aggregate Bond Index, rose 5.97% for the same
period. Your Fund's return trailed the average return of its peers in the Lipper
Multi-Sector Funds class, which was +2.86% for the same period.
Market Outlook - Fixed-income investors fought an uphill battle during the Fed's
extended campaign of interest rate hikes. The impression on Wall Street as of
this writing is that the U.S. economy is approaching a more moderate growth
rate, without inflation, as desired by the Fed (Source: Barron's). However, a
"soft landing" for the domestic economy and an autumn stock market rally would
likely keep bond markets in the shadow of equity investments. Regardless of
whether the Fed steps to the sidelines, we believe that the current landscape is
easier to read than it was six months ago. In our opinion, economic fundamentals
remain strong in the U.S. and in many other parts of the world. In addition, we
would not be surprised to see U.S. interest rates decline over the next 18
months.
We believe that fixed-income funds like Delaware Strategic Income Fund will
continue to play a role in well-diversified portfolios. On the pages that
follow, your Fund's portfolio managers explain the Fund's positioning during the
fiscal year and provide their outlook for investment opportunities. We thank you
for your continued confidence, and your commitment to Delaware Investments.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
------------------------------------- --------------------------------------
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Family of Funds Delaware Investments Family of Funds
2
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
---------------------------
Paul C. Grillo, Jr.
Senior Portfolio Manager
Delaware Management Company
Christopher Moth
Senior Portfolio Manager
Delaware Investment Advisers Ltd.
Joanna Bates
Senior Portfolio Manager
Delaware Investment Advisers Ltd.
September 11, 2000
Portfolio Highlights
Delaware Strategic Income Fund is a multi-sector fund that seeks high current
income and total return by investing primarily in:
o Investment-grade U.S. government and corporate bonds
o High-yield U.S. corporate bonds
o Investment-grade foreign government and corporate bonds
These three types of bonds may react differently to economic and market
conditions during a particular period. By spreading the Fund's assets among
three types of bonds, we strive to reduce the effect that such events might have
on the Fund. You should keep in mind, however, that high-yield bonds involve
greater risk than investment-grade bonds, and that investments in foreign bonds
also carry their own additional risks.
Delaware Strategic Income Fund generated a -2.67% return for the 12 months ended
July 31, 2000 (Class A shares at net asset value with distributions reinvested).
The disappointing performance stems from difficulties we encountered in the
high-yield markets, as well as in some foreign markets.
During the year, our allocation to U.S. investment grade bonds remained
practically unchanged. It stands at 21% as of July 31, 2000, compared to 22% on
July 31, 1999. As of our fiscal year-end, foreign bonds made up 31% of the
portfolio, up from 27% on July 31, 1999. High-yield bonds made up 41%, up from
37% on July 31, 1999. In the past, the Fund has held some U.S. equities, but as
of July 31, 2000, it was not invested in common stocks.
Throughout the year, fixed-income investors were faced with a rising interest
rate environment, and during the second half of the year an inverted yield curve
as well. Investors may note from the chart on page 8, that in steering the Fund
through this environment, we decreased the Fund's average duration -- a common
measure of a bond or bond fund's sensitivity to interest rates -- since July 31,
1999.
3
<PAGE>
"WE THINK INVESTOR
DISINTEREST CAN BE
BLAMED FOR SOME OF THE
ROUGH GOING IN THE
HIGH-YIELD MARKET."
[CURRENT INCOME ARTWORK]
U.S. High-Yield Bonds
For most of our fiscal year, high-yield bond markets continued to experience the
doldrums that set in during 1998. Rising interest rates and a lack of liquidity
made it nearly impossible to find advantageous positions in the high-yield
markets. In addition, default rates on high-yield bond issues began to rise
(Source: Bloomberg). When demand for new bond issues is weak, banks are
generally reluctant to lend to high-yield issuers. We believe that such a
situation eventually took its toll on the weakest tier of high-yield issuers.
We think investor disinterest can be blamed for some of the rough going in the
high-yield market. The booming stock market in the fall of 1999 and early 2000
kept many investors focused on equities. High-yield returns, meanwhile,
correlated closely to the credit quality of bond issuers. This created a
two-tiered market, in which it seemed at times that individual high-yield
investments either performed quite well or performed very poorly, with little
middle ground.
However, by June, the scenario began to change. A resurgent stock market may
have begun pulling high-yield markets along for the ride. Returns for high-yield
bonds were higher in June than they had been for 19 months. As a result, flows
into high-yield mutual funds increased (Source: AMG Data Services), sparking a
snapback in some bond prices.
Unfortunately, the rally was short-lived, and by mid-July it seemed to have
stalled. We thought conditions in the high-yield markets were generally poor
throughout our fiscal year, even during the June rally. As a result of that
belief, we adjusted our portfolio to be more market-neutral during the fiscal
year. This meant bringing our sector allocation closer in line with common
high-yield benchmarks and increasing our holdings in bond issues rated B by
ratings services such as Moody's and Standard & Poor's. The heavy weighting in
bonds rated B is designed to create higher income -- the primary investment
objective of your Fund.
The high default rates and our movement to a portfolio that more closely
mirrored our benchmark index has led us to lighten our allocation to some
industries, especially certain cyclical ones. For example, the Fund's overall
allocation to chemical companies, as well as to metals and mining, was reduced
during the fiscal year. As of July 31, 2000, we had increased our allocations to
cable, media and publishing concerns from 2.17% of the portfolio to 7.54%, and
to telecommunications company bonds which were increased from 0.80% to 13.32%.
4
<PAGE>
The June rally returned some hope to the high-yield markets. We've noticed
predictions of a major, prolonged rally becoming more prevalent. We believe the
outlook for the high-yield market is in fact becoming more promising, and that a
turnaround could evolve in the next year.
U.S. Investment-Grade Bonds
During the first six months of the fiscal year, we decreased our holdings in
U.S. Treasury obligations slightly as gathering global economic strength in 1999
reduced demand for these securities. We believe that the Treasury's buyback
program, rising interest rates, and stock market woes during the spring all
contributed to a change in the second half of our fiscal year, however. Demand
for Treasuries increased significantly over much of that time before peaking in
July. The rally in the Treasury markets pushed yields downward as prices rose,
and when we purchased Treasuries we looked to longer term debt issues because of
the price performance often found there. By July 31, 2000, the portfolio's
allocation to Treasury obligations was 2.35%.
The increased demand in the Treasury markets during much of 2000 came at the
expense of certain non-Treasury classes, such as collateralized mortgage
obligations (CMOs) -- securities that are derived from pools of mortgages and
offered by private sector financing companies and government-sponsored home loan
corporations. As our fiscal third quarter progressed, Treasuries began to
outperform CMOs that had comparable durations, and we sold some of our CMO
positions, bringing the allocation of CMOs down from 2.86% of the overall
portfolio as of July 31, 1999 to 1.46% on July 31, 2000.
Throughout the fiscal year we also gradually increased our allocation to agency
mortgage-backed securities -- issued by U.S. government-sponsored mortgage
lenders, as well as the Government National Mortgage Association, known as
Ginnie Mae. During the fiscal year our allocation to such debt securities
increased from 6.35% of the overall portfolio on July 31, 1999 to 7.75% on July
31, 2000.
5
<PAGE>
Top Ten Foreign Countries
As of July 31, 2000
----------------------------------------------
South Africa 6.81%
----------------------------------------------
Sweden 4.16%
----------------------------------------------
Poland 2.90%
----------------------------------------------
New Zealand 2.27%
----------------------------------------------
Canada 2.26%
----------------------------------------------
Italy 1.67%
----------------------------------------------
Mexico 1.65%
----------------------------------------------
Greece 1.36%
----------------------------------------------
United Kingdom 1.33%
----------------------------------------------
Austria 1.28%
----------------------------------------------
[CURRENT INCOME ARTWORK]
Foreign Bonds
A consistently strong U.S. dollar and worldwide currency fluctuations
characterized our fiscal year. We believe that both situations contributed to
the poor performance of non-U.S. bond markets when taken as a whole.
We continue to hold bonds from many of the same countries as we did one year
ago, namely South Africa, Canada, the United Kingdom, Australia, and New
Zealand. It was a somewhat disappointing year for bond investors in Australia,
where we hold bond issues from the Queensland Treasury, and in New Zealand,
where we hold New Zealand government bonds. Many investors began looking to
these markets for value in the wake of the Russian ruble devaluation and the
collapse of global hedge fund Long Term Capital Management, both of which
occurred in 1998. We believe that bond markets in Australia and New Zealand may
have finally begun feeling the effects of that demand, and of having been
somewhat oversold.
We continue to monitor currency rates, and remain concerned about various
currency fluctuations against the U.S. dollar. Since U.S. investors measure
their results in U.S. dollars, currency fluctuations can add or subtract from
returns. Our strategy with regard to currency has been to seek those currencies
we believe to be undervalued -- in countries where we feel the fundamental
economic picture is sound and the potential for currency appreciation exists.
The euro, except for a brief rally in June 2000, declined through most of our
fiscal year. As of this writing, the euro is moving even lower and is close to
reaching its lowest point since its introduction in January 1999. However, we
continue to keep a wait-and-see attitude with regard to the stabilization of the
euro. We have invested only lightly in euro-denominated bonds, and then only in
countries with traditionally weak currencies such as Italy and Spain, where the
difference between euro-denominated investments and those denominated in local
currency is not significant in our view. In Europe, we continue to invest in
Swedish government bonds, as well as in corporate debt issues from multinational
companies such as Britain's Halifax and Germany's Deutsche Telekom
International.
6
<PAGE>
"AMONG FOREIGN BONDS,
WE BELIEVE THERE ARE
MANY OPPORTUNITIES
TO PROSPER FROM
UNDERVALUED CURRENCIES
AND STRENGTHENING
ECONOMIES AROUND
THE WORLD."
During the year, we also increased our exposure to government bond issues of
Poland, a nation that is pro-European Union. Poland has adopted progressive
economic policies -- a change that we believe could increase the value of the
nation's currency as well as the government's bond issues over time. Greece is
another emerging market in which we invest, and one that we believe is a bit
further along in its market reforms. Significantly, Greece was accepted into the
European Monetary Union during the year.
We have avoided investments in Japanese bonds, which we believe are generally
overvalued. Also among our largest weightings are Canada, where the Canadian
dollar is relatively strong, and South Africa, where the bond market had a
decent year despite a weak rand.
Outlook
We believe that if the Federal Reserve Board manages to engineer the soft
landing desired, the chances of a mass flight to fixed-income securities is less
likely, and bond funds may continue to struggle for their returns. While the Fed
has yet to give the word, analysts and investors alike seem to agree that
interest rate increases are finished for the year. A healthy, non-inflationary
U.S. economy with less robust growth may in fact be upon us.
Still, we believe many characteristics of the current environment suggest that
better times are coming for multi-sector bond funds like Delaware Strategic
Income Fund. For one, we believe that long-hurting high-yield investors seem
eager to stage a longer rally after the brief one we experienced earlier this
summer. If nothing else, many investors seem to expect a rally based purely on
market cycles turning in favor of high-yield bonds. We believe there are
indicators suggesting a rally is possible during the next year. Many analysts
point to the similarities between the current period of rising interest rates
and 1994, when seven increases moved short-term rates upward by 3.00%.
High-yield markets rallied throughout the following year.
We believe there are both similarities and differences between the two periods.
For instance, we continue to favor telecommunications, a sector which did not
fare well during 1994 and 1995, but one which has a much more diverse makeup in
2000. For the near term, we will keep our high-yield portfolio market-neutral,
in line with our benchmark's sector allocations. We are currently holding firm
in our belief that the catalyst for any rally will almost certainly be a
definitive announcement from the Fed ending rate hikes.
7
<PAGE>
Portfolio Highlights and Asset Mix
As of July 31, 2000
Foreign Bonds 31%
Repurchase
Agreements 7%
U.S. High-Yield
Bonds 41%
[GRAPHIC OMITTED]
U.S. Investment
Grade Bonds 21%
July 31, 2000 July 31, 1999
--------------------------------------------------------------------------------
Average Quaity A A
--------------------------------------------------------------------------------
Current 30-Day
SEC Yield* 8.95% 8.32%
--------------------------------------------------------------------------------
Average Effective
Duration** 3.1 years 4.8 years
--------------------------------------------------------------------------------
Average Effective
Maturity*** 6.9 years 7.4 years
--------------------------------------------------------------------------------
*For Class A shares measured according to the Securities and Exchange
Commission Guidelines. For Class B, Class C, and Institutional Class shares,
the 30-day SEC current yields as of July 31, 2000 were 8.64%, 8.63% and
9.68%, respectively.
**Average effective duration is a common measure of a bond or bond fund's
sensitivity to interest rates.
***Average effective maturity is the average time remaining until scheduled
replacement by issuers of portfolio securities.
[CURRENT INCOME ARTWORK]
<PAGE>
Investment-grade bonds, meanwhile, will continue to play a large role in the
portfolio. This includes corporate issues, U.S. Treasuries, and mortgage-backed
securities. Treasuries seem to have peaked in July, and we anticipate a
continued cooling of demand. Meanwhile, we feel there is a likelihood that the
inversion of the yield curve will reverse sometime in 2000. A return to a more
normal yield environment where long-term rates are higher than short-term rates,
in our opinion, would be healthy for both the investment grade and high-yield
sections of our portfolio.
Among foreign bonds, we believe there are many opportunities to prosper from
undervalued currencies and strengthening economies around the world. We think
the effects of 1998's crises are finally working themselves out of the markets
and we remain encouraged by the progress we see in emerging European markets,
such as Greece and Poland. The value of the euro remains a trouble spot, and we
anticipate that we will continue to look for stabilization of the common
European currency before investing in euro-denominated bonds. We also remain
concerned about possible effects posed by the strength of the U.S. dollar over
the long term, but will look to take advantage of undervalued currencies in the
meantime. With non-U.S. bond markets growing in size worldwide (Source:
Bloomberg), we continue to believe that a portfolio of U.S. and foreign bonds
provides diversification that can reduce aggregate risk and increase the
opportunity to achieve high current income.
8
<PAGE>
FUND BASICS
-----------
Fund Objective
The Fund seeks high current
income and total return.
Total Fund Assets
$31.87 million
Number of Holdings
117
Fund Start Date
October 1, 1996
Your Fund Management
Paul C. Grillo, Jr. joined Delaware Investments in 1993, after serving as a
Mortgage Strategist and Trader at Dreyfus Corporation. He holds a bachelor's
degree from North Carolina State University and an MBA from Pace University. He
is a Chartered Financial Analyst.
Christopher Moth joined Delaware International Advisers Ltd. 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
International Advisers Ltd. 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
<PAGE>
DELAWARE STRATEGIC INCOME FUND PERFORMANCE
------------------------------------------
Growth of a $10,000 Investment
October 1, 1996 through July 31, 2000
Strategic Income Fund - Growth of $10,000
Strategic Income Lehman Bros.
Fund Class A Aggregate Bond Index
------------ --------------------
10/31/96 $ 9,521 $10,000
7/31/97 $10,351 $10,669
7/31/98 $10,969 $11,508
7/31/99 $10,663 $11,793
7/31/00 $10,401 $12,496
Chart assumes $10,000 invested on October 1, 1996 and includes the effect of a
4.75% maximum front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to differing charges and
expenses. Past performance is not a guarantee of future results.
Average Annual Total Returns
Through July 31, 2000 Lifetime Three Years One Year
--------------------------------------------------------------------------------
Class A (Est. 10/1/96)
Excluding Sales Charge +2.69% +0.18% -2.67%
Including Sales Charge +1.41% -1.41% -7.25%
--------------------------------------------------------------------------------
Class B (Est. 10/1/96)
Excluding Sales Charge +1.90% -0.62% -3.63%
Including Sales Charge +1.58% -1.40% -7.18%
--------------------------------------------------------------------------------
Class C (Est. 10/1/96)
Excluding Sales Charge +1.96% -0.55% -3.41%
Including Sales Charge +1.96% -0.55% -4.30%
--------------------------------------------------------------------------------
Delaware Strategic Income Fund invests a portion of its portfolio in high-yield
bonds, which involves greater risks than investing in higher quality
fixed-income securities. The Fund also invests in foreign bonds, which involves
additional, country-specific risks. Return and share value will fluctuate so
that shares, when redeemed, may be worth more or less than the original cost.
All results include reinvestment of distributions and sales charges as shown
below. Past performance is not a guarantee of future results. Performance for
Class B and C shares, excluding sales charge, assumes either contingent sales
charges were not applied or the investment was not redeemed.
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 contingent
deferred sales charge of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
The average annual total returns for the lifetime, three-year and one-year
periods ended July 31, 2000 for Delaware Strategic Income Fund Institutional
Class were +2.93%, +0.40% and -2.45%, respectively.
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.
Nasdaq Symbol Institutional Class: DISIX
9
<PAGE>
Statement of Net Assets
DELAWARE STRATEGIC INCOME FUND
------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount* Value
July 31, 2000 (U.S.$)
-------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds - 44.96%
Automobile & Automotive Parts - 0.69%
Holley Performance 12.25% 9/15/07 .............. $ 350,000 $ 218,750
-----------
218,750
-----------
Banking, Finance & Insurance - 0.23%
Banco Santander-Chile 6.50% 11/1/05 ............ 75,000 71,655
-----------
71,655
-----------
Building & Materials - 1.87%
Henry 10.00% 4/15/08 ........................... 400,000 274,000
K Hovanian Enterprises 9.125% 5/1/09 ........... 350,000 322,000
-----------
596,000
-----------
Cable, Media & Publishing - 7.54%
Adelphia Communications
9.375% 11/15/09 .............................. 350,000 320,250
American Media Operation
10.25% 5/1/09 ................................ 300,000 298,500
Echostar Digital Broadcasting Systems
9.25% 2/1/06 ................................. 300,000 291,750
Muzak 9.875% 3/15/09 ........................... 400,000 358,000
PSINet 10.00% 2/15/05 .......................... 300,000 244,500
Charter Communications Holdings
10.00% 4/1/09 ................................ 350,000 341,250
Sinclair Broadcast Group 10.00% 9/30/05 ........ 300,000 293,250
United Pan-Europe Communications
11.25% 2/1/10 ................................ 300,000 258,000
-----------
2,405,500
-----------
Chemicals - 2.03%
General Chemical 10.625% 5/1/09 ................ 400,000 346,000
Lyondell Chemicals 9.625% 5/1/07 ............... 300,000 300,375
-----------
646,375
-----------
Energy - 4.97%
First Wave Marine 11.00% 2/1/08 ................ 350,000 208,250
Frontier Oil 11.75% 11/15/09 ................... 350,000 361,375
Osprey Trust 8.31% 1/15/03 ..................... 200,000 201,463
PSEG Energy 10.00% 10/1/09 ..................... 150,000 160,238
Parker Drilling 9.75% 11/15/06 ................. 300,000 291,000
****Universal Compression 9.875% 2/15/08 ........... 500,000 363,750
-----------
1,586,076
-----------
Environmental Services - 1.09%
Allied Waste 10.00% 8/1/09 ..................... 400,000 348,500
-----------
348,500
-----------
Food, Beverage & Tobacco - 1.80%
Big V Supermarkets 11.00% 2/15/04 .............. 350,000 274,750
Fleming 10.625% 7/31/07 ........................ 350,000 300,125
-----------
574,875
-----------
Industrial Machinery - 1.31%
Alliance Laundry Systems 9.625% 5/1/08 ......... 200,000 168,500
National Equipment 10.00% 11/30/04 ............. 300,000 247,500
-----------
416,000
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount* Value
(U.S.$)
-------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds (continued)
Leisure, Lodging & Entertainment - 2.40%
Hollywood Casino 11.25% 5/1/07 ................. $ 400,000 $ 410,000
Venetian Casino 12.25% 11/15/04 ................ 350,000 354,375
-----------
764,375
-----------
Metals & Mining - 0.99%
Algoma Steel 12.375% 7/15/05 ................... 350,000 315,000
-----------
315,000
-----------
Packaging & Containers - 0.73%
Riverwood International 10.875% 4/1/08 ......... 250,000 231,250
-----------
231,250
-----------
Retail - 1.17%
Advance Stores 10.25% 4/15/08 .................. 450,000 373,500
-----------
373,500
-----------
Telecommunications - 13.32%
Bellsouth Capital Funding
7.875% 2/15/30 ............................... 200,000 200,210
Covad Communications Group
12.00% 2/15/10 ............................... 250,000 186,250
Deutsche Telekom International
8.00% 6/15/10 ................................ 150,000 151,103
KMC Telecom Holdings 13.50% 5/15/09 ............ 425,000 378,781
Level 3 Communications 11.25% 3/15/10 .......... 400,000 386,000
Metromedia Fiber Network
10.00% 11/15/08 .............................. 300,000 294,000
****Microcell Telecommunications
14.00% 6/1/06 ................................ 350,000 329,000
****Nextel Communications 10.65% 9/15/07 ........... 450,000 354,375
****Nextel Partners 11.00% 3/15/10 ................. 300,000 297,750
Nextlink Communications
10.75% 11/15/08 .............................. 300,000 295,125
****Telecorp PCS 11.625% 4/15/09 ................... 650,000 435,500
Voicestream Wireless 10.375% 11/15/09 .......... 300,000 324,000
Winstar Communications 12.75% 4/15/10 .......... 350,000 324,625
Williams Communications Group
10.875% 10/1/09 .............................. 300,000 288,000
-----------
4,244,719
-----------
Textiles, Apparel & Furniture - 1.72%
McNaughton Apparel Group
12.50% 6/1/05 ................................ 350,000 323,313
Tommy Hilfiger USA 6.85% 6/1/08 ................ 325,000 223,405
-----------
546,718
-----------
Transportation - 1.89%
Avis Rent A Car 11.00% 5/1/09 .................. 400,000 424,000
Stagecoach Holdings 8.625% 11/15/09 ............ 200,000 177,144
-----------
601,144
-----------
Miscellaneous - 1.21%
YankeeNets 12.75% 3/1/07 ....................... 400,000 387,000
-----------
387,000
-----------
Total Corporate Bonds (cost $15,223,683) ....... 14,327,437
-----------
</TABLE>
10
<PAGE>
Statement of Net Assets (continued)
Principal Market
Amount* Value
Delaware Strategic Income Fund (U.S.$)
--------------------------------------------------------------------------------
Foreign Bonds - 31.65%
Australia - 1.80%
Queensland Treasury Global
8.00% 8/14/01 ............................. AUD 670,000 $ 394,191
8.00% 5/14/03 ............................. 300,000 180,657
----------
574,848
----------
Austria - 1.28%
Bank of Austria 10.875% 11/17/04 ............ 383,000 251,195
Republic of Austria 7.25% 5/3/07 ............ DEM 300,000 155,251
----------
406,446
----------
Canada - 2.26%
Electric Power Development
10.375% 9/27/01 ........................... CAD 200,000 140,349
Government of Canada
10.25% 3/15/14 ............................ 400,000 374,183
Ontario Province 6.25% 12/3/08 .............. NZD 500,000 208,273
----------
722,805
----------
Greece - 1.36%
Hellenic Republic
8.60% 3/26/08 ............................. GRD 70,000,000 221,110
8.70% 4/8/05 .............................. 70,000,000 212,541
----------
433,651
----------
Italy - 1.67%
Buoni Poliennali Del Tes 9.50% 2/1/01 ....... EUR 258,228 244,626
Buoni Poliennali Del Tes
12.00% 1/1/03 ............................. 273,722 290,581
----------
535,207
----------
Japan - 0.17%
Kansai International Airport
8.00% 7/2/03 .............................. CAD 80,000 55,925
----------
55,925
----------
Mexico - 1.65%
United Mexican States
7.375% 7/6/06 ............................. EUR 250,000 233,136
8.25% 2/24/09 ............................. 600,000 292,662
----------
525,798
----------
Netherlands - 0.88%
Bank Nederlandse Gemeenten
9.125% 9/27/04 ............................ CAD 380,000 279,241
----------
279,241
----------
New Zealand - 2.27%
New Zealand Government
8.00% 11/15/06 ............................ NZD 1,500,000 723,699
----------
723,699
----------
Norway - 0.29%
Kingdom of Norway 8.375% 1/27/03 ............ CAD 130,000 91,218
----------
91,218
----------
<PAGE>
Principal Market
Amount* Value
(U.S.$)
--------------------------------------------------------------------------------
Foreign Bonds (continued)
Poland - 2.90%
Poland Government
6.00% 5/24/09 ......................... PLZ 1,000,000 $ 150,700
12.00% 10/12/03 ....................... 3,700,000 772,157
----------
922,857
----------
South Africa - 6.81%
Electric Supply Communication
11.00% 6/1/08 ......................... ZAR 4,500,000 553,247
Republic of South Africa
12.50% 1/15/02 ........................ 4,300,000 628,723
12.50% 12/21/06 ....................... 2,000,000 275,725
13.00% 8/31/10 ........................ 2,800,000 387,058
Transnet 16.50% 4/1/10 .................. 2,000,000 324,580
----------
2,169,333
----------
Spain - 0.57%
Spanish Government 5.15% 7/30/09 ........ EUR 200,000 181,085
----------
181,085
----------
Supranational - 2.25%
International Bank of Reconstruction &
Development 5.50% 11/3/08 ............... NZD 600,000 242,218
International Finance 6.75% 7/15/09 ..... 1,100,000 474,035
----------
716,253
----------
Sweden - 4.16%
Swedish Government
8.00% 8/15/07 ......................... SWK 8,000,000 1,007,023
10.25% 5/5/03 ......................... 2,600,000 319,389
----------
1,326,412
----------
United Kingdom - 1.33%
Halifax 5.625% 7/23/07 .................. DEM 900,000 422,788
----------
422,788
----------
Total Foreign Bonds (cost $12,292,249) .. 10,087,566
----------
Agency Mortgage-Backed Securities - 7.75%
Federal Home Loan Mortgage Corporation
6.50% 1/25/15 ......................... 50,000 48,728
8.00% 3/1/30 .......................... 598,016 601,193
Federal National Mortgage Association
8.00% 8/1/30 .......................... 80,000 80,330
Government National Mortgage Association
7.50% 11/15/29 ........................ 795,110 789,643
8.00% 9/15/26 ......................... 14,186 14,372
8.00% 12/15/29 ........................ 867,572 876,248
9.50% 9/15/17 ......................... 23,513 24,652
10.00% 7/15/17 ........................ 31,298 32,814
----------
Total Agency Mortgage-Backed
Securities (cost $2,453,477) ............ 2,467,980
----------
11
<PAGE>
Statement of Net Assets (continued)
Principal Market
Amount* Value
Delaware Strategic Income Fund (U.S.$)
--------------------------------------------------------------------------------
Agency Obligations - 3.63%
Federal Home Loan Mortgage Corporation
7.375% 5/15/03 ................................ $ 150,000 $ 151,712
Federal National Mortgage Association
6.625% 9/15/09 ................................ 65,000 62,840
7.25% 1/15/10 ................................. 720,000 726,652
++ 6.985% 6/1/17 ................................. 700,000 216,971
----------
Total Agency Obligations (cost $1,157,980) ....... 1,158,175
----------
Asset-Backed Securities - 1.27%
Countrywide Home Equity Loan-Series 97-1 A4
6.95% 5/25/21 ................................. 139,452 138,166
MBNA Master Credit Card Trust 1996-K
Class A 6.7488% 3/15/06 ....................... 50,000 50,054
NationsCredit Grantor Trust-Series 97-1 A
6.75% 8/15/13 ................................. 134,494 132,545
Philadelphia, Pennsylvania Authority For
Industrial Development Tax Claim
Revenue-Class A 6.488% 6/15/04 ................ 88,423 82,537
----------
Total Asset-Backed Securities
(cost $414,979) ............................... 403,302
----------
Collateralized Mortgage Obligations - 1.46%
Federal National Mortgage Association
6.50% 7/25/28 ................................. 174,590 171,371
Government National Mortgage Association
6.85% 12/20/25 ................................ 100,000 96,424
Residential Accredit Loans Series 98-QS9 A3
6.75% 7/25/28 ................................. 200,000 197,164
----------
Total Collateralized Mortgage Obligations
(cost $477,488) ............................... 464,959
----------
Commercial Mortgage Backed
Securities - 1.23%
DLJ Commercial Mortgage Series 99-CG1 A1B
6.46% 1/10/09 ................................. 150,000 140,133
Lehman Large Loan Series 97-LLI A1
6.79% 6/12/04 ................................. 186,776 184,791
Nomura Asset Securities-Commercial
Series 93-1 A1 6.68% 12/15/01 ................. 69,026 67,732
----------
Total Commercial Mortgage Backed
Securities (cost $402,742) .................... 392,656
----------
U.S. Treasury Obligations - 2.35%
U.S. Treasury Bond
+ 8.875% 8/15/17 ................................ 225,000 289,336
8.125% 8/15/19 ................................ 180,000 219,938
10.75% 8/15/05 ................................ 200,000 238,125
----------
Total U.S. Treasury Obligations
(cost $730,961) ................................ 747,399
----------
<PAGE>
Principal Market
Amount* Value
(U.S.$)
--------------------------------------------------------------------------------
Preferred Stock - 1.84%
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 - 1.84%
Nextel Communications Pik 13.00% ................ 4 416
Nextlink Communications Pik 14.00% .............. 1,129 54,180
Pegasus Communications Pik 12.75% ............... 7 675
Dobson Preferred Pik 12.25% ..................... 9 844
Dobson Preferred Pik 13.00% ..................... 5,325 531,169
---------
587,284
---------
Total Preferred Stock (cost $602,519) ........... 587,334
---------
Warrants - 0.05%
Banking, Finance & Insurance - 0.00%
** American Banknote ............................... 300 300
---------
300
---------
Telecommunications - 0.05%
** Pegasus Communications .......................... 100 17,200
---------
17,200
---------
Total Warrants (cost $3,765) .................... 17,500
---------
Principal
Amount
---------
Repurchase Agreements - 7.34%
With Chase Manhattan 6.54% 8/1/00
(dated 7/31/00, collateralized by $817,000
U.S. Treasury Notes 5.875% due 11/15/04,
market value $816,331) ........................ $ 795,000 795,000
With PaineWebber 6.54% 8/1/00
(dated 7/31/00, collateralized by $506,000
U.S. Treasury Notes 6.50% due 8/31/01
market value $520,174 and $21,000
U.S. Treasury Notes 5.875% due 11/30/01,
market value $21,474 and $253,000
U.S. Treasury Notes 6.625% due 3/31/02,
market value $259,186) ....................... 785,000 785,000
With Prudential Securities 6.50% 8/1/00
(dated 7/31/00, collateralized by $506,000
U.S. Treasury Notes 7.75% due 2/15/01,
market value $528,054 and $246,000
U.S. Treasury Notes 5.00% due 4/30/01,
market value $246,972) ....................... 760,000 760,000
---------
Total Repurchase Agreements
(cost $2,340,000) ............................. 2,340,000
---------
12
<PAGE>
Statement of Net Assets (continued)
Delaware Strategic Income Fund
--------------------------------------------------------------------------------
Total Market Value of Securities - 103.53%
(cost $36,099,843) ......................... $32,994,308
Liabilities Net of Receivables and
Other Assets***** - (3.53%) ................ (1,126,622)
-----------
Net assets applicable to 7,382,180 shares
outstanding - 100.00% ...................... $31,867,686
-----------
Net Asset Value - Delaware Strategic Income
Fund A Class
($12,238,558 / 2,833,975 shares) ........... $4.32
-----
Net Asset Value - Delaware Strategic Income
Fund B Class
($14,183,792 / 3,286,493 shares) ........... $4.32
-----
Net Asset Value - Delaware Strategic Income
Fund C Class
($4,401,658 / 1,019,812 shares) ............ $4.32
-----
Net Asset Value - Delaware Strategic Income
Fund Institutional Class
($1,043,678 / 241,900 shares) .............. $4.31
-----
<PAGE>
Components of Net Assets at July 31, 2000:
Shares of beneficial interest (unlimited
authorization - no par) ................................ $43,183,761
Distributions in excess of net
investments income*** .................................. (407,843)
Accumulated net realized loss on
investments ............................................ (7,789,920)
Net unrealized depreciation of investments
and foreign currencies ................................. (3,118,312)
-----------
Total net assets .......................................... $31,867,686
-----------
----------------
*Principal amount is stated in the currency in which each bond is
denominated.
AUD - Australian Dollars
CAD - Canadian Dollars
DEM - German Deutsche Marks
EUR - European Monetary Units
GRD - Greek Drakmas
NZD - New Zealand Dollars
PLZ - Polish Zloty
SWK - Swedish Kroner
ZAR - South African Rand
Pik - Payment In Kind
**Non-income producing security for the year ended July 31, 2000.
***Undistributed net investment income includes net realized gains
(losses) on foreign currencies. Net realized gains on foreign
currencies are distributed as net investment income in accordance with
provisions of the Internal Revenue Code.
****Zero coupon security as of July 31, 2000. The coupon shown is the step-up
rate.
*****Of this amount, $1,895,914 represents payable for security purchased at
July 31, 2000.
+Fully or partially pledged as collateral for financial futures contracts.
++Zero coupon security as of July 31, 2000. The coupon shown is the effective
yield for the security.
Net Asset Value and Offering Price Per Share -
Delaware Strategic Income Fund
Net asset value A Class (A) .................................... $4.32
Sales charge (4.75% of offering price or
5.09% of the amount invested
per share) (B) .............................................. 0.22
-----
Offering price ................................................. $4.54
-----
--------------
(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
13
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Year Ended July 31, 2000 Delaware Strategic Income Fund
----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest .................................................. $ 3,555,943
Dividends ................................................. 447,303 $ 4,003,246
------- -----------
Expenses:
Distribution expense ...................................... 257,884
Management fees ........................................... 254,595
Dividend disbursing and
transfer agent fees and expenses ....................... 202,600
Reports and statements to shareholders .................... 49,087
Registration fees ......................................... 25,200
Custodian fees ............................................ 23,708
Accounting and administration fees ........................ 15,929
Taxes (other than taxes on income) ........................ 6,090
Amortization of organization expenses ..................... 4,990
Professional fees ......................................... 3,430
Trustees' fees ............................................ 1,828
Other ..................................................... 1,201
-------
846,542
Less expenses absorbed or waived .......................... (291,690)
Less expenses paid indirectly ............................. (903)
-------
Total expenses ............................................ 553,949
-----------
Net Investment Income ..................................... 3,449,297
-----------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies:
Net realized loss on:
Investments ............................................... (4,173,408)
Options written ......................................... (19,903)
Futures contracts ....................................... (14,884)
Foreign currencies ...................................... (686,179)
-----------
Net realized loss ......................................... (4,894,374)
Net change in unrealized appreciation/depreciation of
investments and foreign currencies ..................... 57,987
-----------
Net Realized and Unrealized Loss on Investments and Foreign
Currencies .............................................. (4,836,387)
-----------
Net Decrease in Net Assets Resulting from Operations ...... ($1,387,090)
-----------
</TABLE>
See accompanying notes
14
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Strategic Income Fund
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
7/31/00 7/31/99
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment income .......................................................................... $3,449,297 $4,067,113
Net realized loss on investments and foreign currencies ........................................ (4,894,374) (3,493,604)
Net change in unrealized appreciation/depreciation of investments and foreign currencies ....... 57,987 (2,017,723)
------------------------------
Net decrease in net assets resulting from operations ........................................... (1,387,090) (1,444,214)
------------------------------
Distributions to Shareholders from:
Net investment income:
A Class ...................................................................................... (1,191,011) (1,600,246)
B Class ...................................................................................... (1,208,162) (1,425,098)
C Class ...................................................................................... (389,409) (492,978)
Institutional Class .......................................................................... (176,998) (356,403)
In excess of net investment income:
A Class ...................................................................................... (165,181) --
B Class ...................................................................................... (174,208) --
C Class ...................................................................................... (54,566) --
Institutional Class .......................................................................... (13,888) --
Net realized gain on investments:
A Class ...................................................................................... -- (122,311)
B Class ...................................................................................... -- (119,046)
C Class ...................................................................................... -- (41,353)
Institutional Class .......................................................................... -- (24,621)
------------------------------
(3,373,423) (4,182,056)
------------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ...................................................................................... 2,831,086 8,415,676
B Class ...................................................................................... 3,279,768 10,423,650
C Class ...................................................................................... 876,713 3,326,511
Institutional Class .......................................................................... 773,260 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 ...................................................................................... 933,011 1,148,752
B Class ...................................................................................... 808,839 940,245
C Class ...................................................................................... 303,940 315,465
Institutional Class .......................................................................... 190,588 379,006
------------------------------
9,997,205 27,109,963
------------------------------
Cost of shares repurchased:
A Class ...................................................................................... (8,460,925) (7,525,928)
B Class ...................................................................................... (7,206,187) (5,474,721)
C Class ...................................................................................... (2,677,527) (1,619,498)
Institutional Class .......................................................................... (3,997,655) (403,637)
------------------------------
(22,342,294) (15,023,784)
------------------------------
Increase (decrease) in net assets derived from capital share transactions ...................... (12,345,089) 12,086,179
------------------------------
Net Increase (Decrease) in Net Assets .......................................................... (17,105,602) 6,459,909
Net Assets:
Beginning of period ............................................................................ 48,973,288 42,513,379
------------------------------
End of period .................................................................................. $31,867,686 $48,973,288
==============================
</TABLE>
See accompanying notes
15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Strategic Income Fund A Class
------------------------------------------------------------------------------------------------------------------------------------
10/1/96(1)
Year Ended to
7/31/00 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(2) ....................................................... 0.413 0.462 0.444 0.337
Net realized and unrealized gain (loss) on investments and foreign currencies .. (0.540) (0.607) (0.104) 0.204
---------------------------------------------
Total from investment operations ............................................... (0.127) (0.145) 0.340 0.541
---------------------------------------------
Less dividends and distributions:
Dividends from net investment income ........................................... (0.356) (0.440) (0.440) (0.341)
Distributions in excess of net investment income ............................... (0.057) -- -- --
Distributions from net realized gain on investments ............................ -- (0.035) (0.120) --
---------------------------------------------
Total dividends and distributions .............................................. (0.413) (0.475) (0.560) (0.341)
---------------------------------------------
Net asset value, end of period ................................................... $4.320 $4.860 $5.480 $5.70
=============================================
Total return(3) .................................................................. (2.67%) (2.77%) 6.23% 10.11%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................................ $12,238 $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 ...................................... 1.75% 1.55% 1.73% 2.12%
Ratio of net investment income to average net assets ........................... 9.20% 8.97% 7.93% 7.76%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........................... 8.45% 8.42% 7.20% 6.64%
Portfolio turnover ............................................................. 127% 156% 175% 183%
</TABLE>
----------------------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended July 31, 1998, 1999, and 2000 was
based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. See accompanying
notes
16
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Strategic Income Fund B Class
------------------------------------------------------------------------------------------------------------------------------------
10/1/96(1)
Year Ended to
7/31/00 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(2) ....................................................... 0.378 0.424 0.402 0.308
Net realized and unrealized gain (loss) on investments and foreign currencies .. (0.540) (0.607) (0.100) 0.203
---------------------------------------------
Total from investment operations ............................................... (0.162) (0.183) 0.302 0.511
---------------------------------------------
Less dividends and distributions:
Dividends from net investment income ........................................... (0.325) (0.402) (0.402) (0.311)
Distributions in excess of net investment income ............................... (0.053) -- -- --
Distributions from net realized gain on investments ............................ -- (0.035) (0.120) --
---------------------------------------------
Total dividends and distributions .............................................. (0.378) (0.437) (0.522) (0.311)
---------------------------------------------
Net asset value, end of period ................................................... $4.320 $4.860 $5.480 $5.700
=============================================
Total return(3) ................................................................ (3.63%) (3.31%) 5.32% 9.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................................ $14,184 $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 ...................................... 2.50% 2.30% 2.48% 2.87%
Ratio of net investment income to average net assets ........................... 8.45% 8.22% 7.18% 7.01%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........................... 7.70% 7.67% 6.45% 5.89%
Portfolio turnover ............................................................. 127% 156% 175% 183%
</TABLE>
----------------------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended July 31, 1998, 1999, and 2000 was
based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. See accompanying
notes
17
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Strategic Income Fund C Class
------------------------------------------------------------------------------------------------------------------------------------
10/1/96(1)
Year Ended to
7/31/00 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(2) ......................................................... 0.378 0.424 0.402 0.313
Net realized and unrealized gain (loss) on investments and foreign currencies .... (0.540) (0.607) (0.100) 0.198
--------------------------------------------
Total from investment operations ................................................. (0.162) (0.183) 0.302 0.511
--------------------------------------------
Less dividends and distributions:
Dividends from net investment income ............................................. (0.325) (0.402) (0.402) (0.311)
Distributions in excess of net investment income ................................. (0.053) -- -- --
Distributions from net realized gain on investments .............................. -- (0.035) (0.120) --
--------------------------------------------
Total dividends and distributions ................................................ (0.378) (0.437) (0.522) (0.311)
--------------------------------------------
Net asset value, end of period ..................................................... $4.320 $4.860 $5.480 $5.700
============================================
Total return(3) .................................................................... (3.41%) (3.32%) 5.32% 9.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......................................... $4,402 $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 ........................................ 2.50% 2.30% 2.48% 2.87%
Ratio of net investment income to average net assets ............................. 8.45% 8.22% 7.18% 7.01%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ............................. 7.70% 7.67% 6.45% 5.89%
Portfolio turnover ............................................................... 127% 156% 175% 183%
</TABLE>
----------------------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended July 31, 1998, 1999, and 2000 was
based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge. See accompanying
notes
18
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Strategic Income Institutional Class
------------------------------------------------------------------------------------------------------------------------------------
10/1/96(1)
Year Ended to
7/31/00 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(2) ....................................................... 0.424 0.475 0.458 0.367
Net realized and unrealized gain (loss) on investments and foreign currencies .. (0.540) (0.603) (0.111) 0.187
--------------------------------------------
Total from investment operations ............................................... (0.116) (0.128) 0.347 0.554
--------------------------------------------
Less dividends and distributions:
Dividends from net investment income ........................................... (0.365) (0.457) (0.457) (0.354)
Distributions in excess of net investment income ............................... (0.059) -- -- --
Distributions from net realized gain on investments ............................ -- (0.035) (0.120) --
--------------------------------------------
Total dividends and distributions .............................................. (0.424) (0.492) (0.577) (0.354)
--------------------------------------------
Net asset value, end of period ................................................... $4.310 $4.850 $5.470 $5.700
============================================
Total return(3) .................................................................. (2.45%) (2.46%) 6.36% 10.36%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................................ $1,044 $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 ...................................... 1.50% 1.30% 1.48% 1.87%
Ratio of net investment income to average net assets ........................... 9.45% 9.22% 8.18% 7.90%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly ........................... 8.70% 8.67% 7.45% 6.78%
Portfolio turnover ............................................................. 127% 156% 175% 183%
</TABLE>
----------------------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended July 31, 1998, 1999, and 2000 was
based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
See accompanying notes
19
<PAGE>
Notes to Financial Statements
July 31, 2000
--------------------------------------------------------------------------------
Delaware Group Income Funds (the "Company"), is organized as a Delaware business
trust and offers five funds: Delaware Corporate Bond Fund, Delaware Delchester
Fund, Delaware Extended Duration Bond Fund, Delaware High-Yield Opportunities
Fund and Delaware Strategic Income Fund. These financial statements and related
notes pertain to the Delaware Strategic Income Fund (the "Fund"). The Fund is a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Fund offers four classes of shares. The A Class carries a
maximum front-end sales charge of 4.75%. The B Class carries a back-end deferred
sales charge, the C Class carries a level load deferred sales charge and the
Institutional Class has no sales charge.
The investment objective of the Fund is to seek to provide investors with high
current income and total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation - All equity securities are valued at the last quoted sales
price as of the regular close of the New York Stock Exchange on the valuation
date. Securities listed on a foreign exchange are valued at the last quoted
sales price before the Fund is valued. Securities not traded or securities not
listed on an exchange are valued at the mean of the last quoted bid and asked
prices. Long-term debt securities are valued by an independent pricing service
and such prices are believed to reflect the fair value of such securities. Money
market instruments having less than 60 days to maturity are valued at amortized
cost, which approximates market value. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
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
<PAGE>
--------------------------------------------------------------------------------
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.
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 daily. 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
accounting principles generally accepted in the United States 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 and pays
dividends from net investment income 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 commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $903 for the period ended July 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. There were
no earnings credits for the period ended July 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".
20
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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 $1.5 billion and 0.50% on the average daily net assets in
excess of $2.5 billion. DMC has entered into a sub-advisory agreement with
Delaware International Advisors Ltd. (DIAL) with respect to the management of
the investments in foreign securities. DIAL will receive a fee equal to one
third of the investment management fees and other expenses.
DMC has elected to waive that portion of its management fee and reimburse the
Fund to the extent that annual operating expenses, exclusive of taxes, interest,
brokerage commissions, extraordinary expenses and distribution expenses exceed
0.75% of average daily net assets of the Fund through September 30, 2001.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, accounting and administrative
services. The Fund pays DSC a monthly fee based on the number of shareholder
accounts, shareholder transactions and average net assets, subject to certain
minimums. At July 31, 2000, the Fund had a liability for such fees and other
expenses payable to DSC of $17,405.
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. At July 31, 2000, the Fund had a
liability for distribution fees and other expenses payable to DMC and affiliates
of $21,442.
For the period ended July 31, 2000, DDLP earned $7,390 for commissions on sales
of the Fund A Class shares.
Certain officers of DMC, DSC, DDLP and DIAL are officers, trustees and/or
employees of the Fund. These officers, trustees and employees are paid no
compensation by the Fund.
3. Investments
For the period ended July 31, 2000, the Fund made purchases of $47,921,455 and
sales of $58,244,979 of investment securities other than U.S. government
securities and temporary cash investments.
At July 31, 2000, net unrealized depreciation for federal income tax purposes
aggregated $3,122,642 of which $211,878 related to unrealized appreciation of
securities and $3,334,520 related to unrealized depreciation of securities. At
July 31, 2000, the aggregate cost of securities for federal income tax purposes
was $36,116,950
<PAGE>
--------------------------------------------------------------------------------
For federal income tax purposes, the Fund had accumulated capital losses at July
31, 2000 as follows:
Year of
Expiration
2008
----------
$4,111,328
4. Capital Shares
Transactions in capital stock shares were as follows:
Year Ended
7/31/00 7/31/99
Shares sold:
A Class ........................................ 617,140 1,884,581
B Class ........................................ 714,034 2,003,638
C Class ........................................ 190,656 638,499
Institutional Class ............................ 171,608 159,578
Shares issued upon reinvestment of
dividends from net investment income
and net realized gain on investments:
A Class ........................................ 204,284 222,980
B Class ........................................ 176,704 182,505
C Class ........................................ 66,523 61,246
Institutional Class ............................ 41,256 73,777
---------- ----------
2,182,205 5,226,804
---------- ----------
Shares repurchased:
A Class ........................................ (1,844,994) (1,511,156)
B Class ........................................ (1,577,164) (1,062,264)
C Class ........................................ (583,482) (316,532)
Institutional Class ............................ (867,552) (24,928)
---------- ----------
(4,873,192) (2,914,880)
---------- ----------
Net increase (decrease) ......................... (2,690,987) 2,311,924
========== ==========
5. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $683,500,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one-third of their net assets under the agreement.
Prior to October 8, 1999, the Fund has a committed line of credit of $1,600,000.
No amount was outstanding at July 31, 2000, or at any time during the period.
21
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
6. Foreign Currency Exchange Contracts
The Fund will generally enter into forward foreign currency exchange 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 exchange 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 at the time it was
closed.
The use of forward foreign currency exchange 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 exchange 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 exchange contracts were outstanding at July 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. (In some cases,
due to the form of the futures agreement, initial margin is held in a segregated
account with the Fund's custodian, rather than directly with the broker.)
Subsequent payments are received from the broker or paid to the broker (or added
to the segregated account) 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.
<PAGE>
--------------------------------------------------------------------------------
Financial futures contracts open at July 31, 2000 were as follows:
Notional Expiration Unrealized
Contracts Cost Amount Date Gain
--------- ----------- ---------- -----------
4 U.S. Treasury 5yr. Notes $397,687 9/00 $875
8. Options Written
During the year ended July 31, 2000, the Fund entered into options contracts in
accordance with its investment objectives. When the Fund writes an option, a
premium is received and a liability is recorded and adjusted on a daily basis to
reflect 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 received and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is treated as a realized gain or
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 realized
a 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.
Transactions in options written during the period ended July 31, 2000 for the
Fund were as follows:
Number Premiums
of contracts received
------------ --------
Options outstanding at
July 31, 1999 55 $18,072
Options written -- --
Options terminated in closing
purchase transaction (55) ($18,072)
---- --------
Options written outstanding
at July 31, 2000 -- --
10. 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.
22
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Market and Credit Risk (continued)
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.
11. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in early 2001. Please
consult your tax advisor for proper treatment of this information.
For the period ended July 31, 2000, the Fund designates as long-term capital
gains and ordinary income distributions paid during the year as follows:
(A) (B)
Long-Term Ordinary (C)
Capital Gains Income Total (D)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
-- 100% 100% 13%
(A) and (B) are based on a percentage of the Fund's total distributions.
(D) is based on a percentage of ordinary income of the Fund.
-------------------------
(1) Qualifying dividends represent dividends that qualify for the corporate
dividends received deduction.
23
<PAGE>
Report of Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Delaware Group Income Funds - Delaware Strategic Income Fund
We have audited the accompanying statement of net assets of Delaware Strategic
Income Fund (the "Fund") as of July 31, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2000, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Strategic Income Fund at July 31, 2000, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 2000
24
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
More 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.
BUILDING BLOCKS
OF A DIVERSIFIED PORTFOLIO
--------------------------------------------------------------------------------
AGGRESSIVE GROWTH EQUITY FUNDS
----------------------------------------------
GROWTH EQUITY FUNDS
----------------------------------------------
TAX- INTERNATIONAL ASSET
TAXABLE EXEMPT AND GLOBAL ALLOCATION
MODERATE GROWTH BOND BOND FUNDS FUNDS
EQUITY FUNDS FUNDS FUNDS
--------------------------------------------------------------------------------
STABILITY OF PRINCIPAL
<TABLE>
<CAPTION>
<S> <C> <C>
[] Growth of Capital [] International and Global [] Tax-Exempt Income
o Technology and Innovation o Emerging Markets Fund o National High-Yield
Fund o New Pacific Fund Municipal Bond Fund
o Select Growth Fund o Overseas Equity Fund o Tax-Free USA Fund
o Trend Fund o International Equity Fund o Tax-Free Insured Fund
o Growth Opportunities Fund* o Global Equity Fund o Tax-Free USA
o Small Cap Value Fund o Global Bond Fund Intermediate Fund
o U.S. Growth Fund o State Tax-Free Funds**
o Tax-Efficient Equity Fund [] Current Income
o Social Awareness Fund o Delchester Fund [] Stability of Principal
o High-Yield o Cash Reserve
[] Total Return Opportunities Fund o Tax-Free Money Fund
o Blue Chip Fund o Strategic Income Fund
o Devon Fund o Corporate Bond Fund
o Growth and Income Fund o Extended Duration [] Asset ALlocation
o Decatur Equity Income Fund Bond Fund o Foundation Funds
o REIT Fund o American Government Growth Portfolio
o Balanced Fund Bond Fund Balanced Portfolio
o U.S. Government Income Portfolio
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, Oregon, Pennsylvania and Wisconsin. Insured and
intermediate bond funds are available in selected states.
(C)Delaware Distributors, L.P.
<PAGE>
DELAWARE(SM) For Shareholders
INVESTMENTS 1.800.523.1918
---------------------
Philadelphia o London For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
This annual report is for the information of Delaware Strategic Income Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for 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 Janet 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. Delaware Distributors, L.P.
King of Prussia, PA AFFILIATED OFFICERS Philadelphia, PA
David K. Downes Charles E. Haldeman, Jr. Shareholder Servicing, Dividend
President and Chief Executive Officer President and Chief Executive Officer Disbursing and Transfer Agent
Delaware Investments Family of Funds Delaware Management Holdings, Inc. Delaware Service Company, Inc.
Philadelphia, PA Philadelphia, PA Philadelphia, PA
John H. Durham Richard J. Flannery 1818 Market Street
Private Investor Executive Vice President Philadelphia, PA 19103-3682
Horsham, PA and General Counsel
Delaware Investments Family of Funds
Anthony D. Knerr Philadelphia, PA
Consultant, Anthony Knerr & Associates
New York, NY Bruce D. Barton
President and Chief Executive Officer
Ann R. Leven Delaware Distributors, L.P.
Former Treasurer, National Gallery of Art Philadelphia, PA
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(3648) Printed in the USA
AR-125 [7/00] PPL 9/00 (J6279)
