UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-2071
Exact name of registrant as specified in charter: Delaware Group Income Funds
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: July 31
Date of reporting period: January 31, 2006
Item 1. Reports to Stockholders
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
[GRAPHIC]
- -------------------------
FIXED INCOME MARCH 31, 2006
- --------------------------------------------------------------------------------
DELAWARE CORPORATE
BOND FUND
DELAWARE EXTENDED
DURATION BOND FUND
--------------------------------------------------
Get shareholder reports
and prospectuses online
instead of in the mail. Visit
www.delawareinvestments.com/edelivery.
--------------------------------------------------
This brochure accompanies a semiannual report for
the information of Delaware Corporate Bond Fund
and Delaware Extended Duration Bond Fund
shareholders, but it may be used with prospective
investors when preceded or accompanied by a
current prospectus for Delaware Corporate Bond
Fund and Delaware Extended Duration Bond Fund. You
should consider the investment objectives, risks,
charges, and expenses of the investment carefully
before investing. Delaware Corporate Bond Fund and
Delaware Extended Duration Bond Fund prospectus
contains this and other important information
about the Fund. Prospectuses for all funds in the
Delaware Investments(R) Family of Funds are
available from your financial advisor, online at
www.delawareinvestments.com, or by phone at 800
523-1918. Please read the prospectus carefully
before you invest or send money. The figures in
the semiannual report for Delaware Corporate Bond
Fund and Delaware Extended Duration Bond Fund
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC]
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
POWERED BY RESEARCH(R) EXPERIENCE DELAWARE INVESTMENTS
OUR MISSION:
Delaware Investments is committed to the pursuit
of consistently superior asset management and
unparalleled client service. We strongly believe
in our investment process, the consistent results
we seek to deliver, and the value we can add for
our clients.
OUR HISTORY:
Delaware Investments traces its roots to an
investment advisory firm founded in 1929. We
quickly learned how important consistent
performance was to our clients, particularly in
tough times, and continued to apply those lessons
when we launched our first mutual fund in 1938.
Delaware has managed money through 75 years of
market cycles, and our dedication to consistent
performance over the long term endures to this
day.
OUR PRINCIPLES:
CLIENTS FIRST
We believe that placing clients' interests ahead
of our own is always the right thing to do. We
offer a focused lineup of products that is aligned
with our core asset management competencies rather
than with popular trends. Some of the largest
pension plans, endowments and foundations have
entrusted their investments to Delaware
Investments. Our institutional heritage and
expertise serve us well when crafting mutual funds
and managed account portfolios for individual
investors.
PASSION FOR PERFORMANCE
Our results-oriented culture puts investors first
and begins with our passion for performance. We
seek to deliver consistently superior returns over
the long term, and to do it in every asset class.
This means we look at three-year and five-year
track records as starting points in seeking to
deliver long-term outperformance.
PEOPLE WE'RE PROUD OF
We recognize that smart, accomplished people are a
competitive advantage. Our research analysts add
value to our investors' portfolios, just as our
award-winning operations team adds value for
shareholders. At Delaware Investments, we are more
than just committed -- we are passionate about our
mission. That culture of passion flows through
everything we do.
POWERED BY RESEARCH
Whether it's credit research on a corporate bond
or a company visit for a small-cap consumer growth
name, our deep teams of sector experts eat, sleep
and breathe fundamental research. We believe that
fundamental research is the key to achieving
consistently superior returns over the long term.
STRENGTH IN PARTNERSHIP
Delaware Investments is the financial engine of
the Lincoln Financial Group(R) family. Like our
parent company, we understand the power of
partnerships in a knowledge-based industry. We
collaborate with a wide variety of financial
services organizations to provide the very best in
investment products and services.
(C)2006 Delaware Distributors, L.P.
Delaware Investments is the marketing name for
Delaware Management Holdings, Inc. and its
subsidiaries.
Lincoln Financial Group is the marketing name for
Lincoln National Corporation and its affiliates.
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
ii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: February 7, 2006
In the six months ended January 31, 2006, investors received mixed signals about
the direction of the U.S. economy, which during the period was absorbing the
effects of Hurricanes Rita and Katrina. Fixed income investors found themselves
facing an unusual interest rate environment, as the shrinking difference between
short-term and long-term interest rates produced a condition sometimes referred
to by economists as a "flattening yield curve." This condition in the past has
sometimes preceded a recession, although many economists have recently noted the
limits of its predictive nature and voiced optimism about the economic outlook
for 2006.
January 31 marked not only the close of the six-month period for your Fund, but
the end of Alan Greenspan's term as acting Chairman of the U.S. Federal Reserve.
New Chairman Ben Bernanke takes over at a time when the Fed is deliberating
about monetary policy and how much further to raise its short-term interest rate
target in 2006.
The past six months have underscored an important lesson: No one can accurately
and consistently predict the course of financial markets or the direction of
interest rates, and attempts to do so are very often counterproductive. I
encourage you to work with your financial advisor to consider building a
portfolio that's diversified across the major investment asset classes--stocks,
bonds, and short-term reserves -- keeping the allocations appropriate for your
personal circumstances and risk tolerance. It is our belief at Delaware
Investments that a long-term perspective is always healthy, and we remind you
that fixed income investment vehicles may serve to balance investments in
stocks, which are historically more volatile.
If you are interested in acquiring more information about creating a
well-diversified investment plan, speak with your advisor or visit our Web site,
which includes more information about our funds and several interactive tools
that you might find useful.
Thank you as always for entrusting your hard-earned dollars to Delaware
Investments.
Sincerely,
/s/ Jude T. Driscoll
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
FAMILY OF FUNDS
COMPLETE INFORMATION ON ANY FUND OFFERED BY DELAWARE INVESTMENTS CAN BE FOUND IN
EACH FUND'S CURRENT PROSPECTUS. PROSPECTUSES FOR ALL FUNDS IN THE DELAWARE
INVESTMENTS(R) FAMILY OF FUNDS ARE AVAILABLE FROM YOUR FINANCIAL ADVISOR, ONLINE
AT WWW.DELAWAREINVESTMENTS.COM, OR BY PHONE AT 800 523-1918. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
GROWTH-EQUITY GROUP
Delaware American Services Fund
Delaware Growth Opportunities Fund
Delaware Large Cap Growth Fund
(formerly Delaware Diversified Growth Fund)
Delaware Select Growth Fund
Delaware Small Cap Growth Fund
Delaware Trend Fund
Delaware U.S. Growth Fund
VALUE-EQUITY GROUP
Delaware Dividend Income Fund
Delaware Large Cap Value Fund
Delaware REIT Fund
Delaware Small Cap Value Fund
Delaware Value Fund
CORE-EQUITY GROUP
Delaware Balanced Fund
Delaware Foundation Funds
Delaware Aggressive Allocation Portfolio
(formerly Delaware Growth Allocation Portfolio)
Delaware Moderate Allocation Portfolio
(formerly Delaware Balanced Allocation Portfolio)
Delaware Conservative Allocation Portfolio
(formerly Delaware Income Allocation Portfolio)
Delaware Small Cap Core Fund
(formerly Delaware Small Cap Contrarian Fund
INTERNATIONAL GROUP
Delaware International Small Cap Value Fund
Delaware International Value Equity Fund
FIXED INCOME GROUP
Corporate and Government
Delaware American Government Bond Fund
Delaware Corporate Bond Fund
Delaware Delchester Fund
Delaware Diversified Income Fund
Delaware Extended Duration Bond Fund
Delaware High-Yield Opportunities Fund
Delaware Inflation Protected Bond Fund
Delaware Limited-Term Government Fund
Money Market
Delaware Cash Reserve Fund
Delaware Tax-Free Money Fund
Municipal (National Tax-Exempt)
Delaware National High-Yield Municipal Bond Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free USA Intermediate Fund
Municipal (State-Specific Tax-Exempt)
Delaware Tax-Free Arizona Insured Fund
Delaware Tax-Free California Fund
Delaware Tax-Free Colorado Fund
Delaware Tax-Free Florida Insured Fund
Delaware Tax-Free Idaho Fund
Delaware Minnesota High-Yield Municipal Bond Fund
Delaware Tax-Free Minnesota Fund
Delaware Tax-Free Minnesota Insured Fund
Delaware Tax-Free Minnesota Intermediate Fund
Delaware Tax-Free Missouri Insured Fund
Delaware Tax-Free New York Fund
Delaware Tax-Free Oregon Insured Fund
Delaware Tax-Free Pennsylvania Fund
GROWING STRONG TOGETHER
Lincoln Financial Group, through its affiliates, is a proven industry leader in
identifying and delivering sophisticated financial planning and product
solutions for the creation, protection, and enjoyment of wealth.
Delaware Investments is an asset management company committed to fundamental,
style-specific investment research across multiple asset classes.
ROOTED IN HISTORY
o The strength of both organizations today is a result of 100 years of
Lincoln history, 75+ years of Delaware Investments(R) history, and the
past 10 years together.
o Delaware Investments is recognized as an integral part of Lincoln
Financial Group's ability to offer a broad variety of high-quality
financial solutions to investors.
o Together, they provide investors with the resources of a larger financial
services organization and the expertise, insight, and discipline of a
highly-respected investment management firm.
- --------------------------------------------------------------------------------
Simplify your life. [E:DELIVERY LOGO]
MANAGE YOUR INVESTMENTS ONLINE !
Get Account Access, Delaware Investments'(R) secure Web site that allows you to
conduct your business online. Gain 24-hour access to your account and one of the
highest levels of Web security available.
You also get:
o Hassle-Free Investing -- Make online purchases and redemptions at any
time.
o Simplified Tax Processing -- Automatically retrieve your Delaware
Investments(R) accounts' 1099 information and have it entered directly
into your 1040 tax return. Available only with Turbo Tax(R) software.
o Less Mail Clutter -- Get instant access to your fund materials online with
Delaware eDelivery.
Register for Account Access today! Visit www.delawareinvestments.com, select
Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, to assist with any questions.
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iv
- --------------------------------------------------------------------------------
FIXED INCOME [DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
Semiannual Report JANUARY 31, 2006
- --------------------------------------------------------------------------------
DELAWARE CORPORATE BOND FUND
DELAWARE EXTENDED DURATION BOND FUND
[POWERED BY RESEARCH(R) LOGO]
Table
OF CONTENTS
- --------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- --------------------------------------------------------------------------------
SECTOR/COUNTRY ALLOCATION 2
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Statements of Net Assets 4
Statements of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 29
- --------------------------------------------------------------------------------
ABOUT THE ORGANIZATION 34
- --------------------------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C)2006 Delaware Distributors, L.P.
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Disclosure For the Period August 1, 2005 to January 31, 2006
- --------------------------------------------------------------------------------
OF FUND EXPENSES
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or
other distributions; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution and/or service (12b-1) fees; and other
Fund expenses. The following examples are intended to help you understand your
ongoing costs (in dollars) of investing in a Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The Examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period August 1, 2005 to January 31, 2006.
Actual Expenses
The first section of the tables shown, "Actual Fund Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
Hypothetical Example for Comparison Purposes
The second section of the tables shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Funds' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Funds' actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Funds and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of each table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. Each Fund's actual expenses shown in the tables reflect fee waivers in
effect. The expenses shown in each table assume reinvestment of all dividends
and distributions.
Delaware Corporate Bond Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 8/1/05 to
8/1/05 1/31/06 Ratio 1/31/06*
- --------------------------------------------------------------------------------
Actual Fund Return
Class A $ 1,000.00 $ 1,001.30 0.80% $ 4.04
Class B 1,000.00 999.30 1.55% 7.81
Class C 1,000.00 997.60 1.55% 7.75
Class R 1,000.00 1,000.10 1.05% 5.29
Institutional Class 1,000.00 1,004.30 0.55% 2.78
- --------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,021.17 0.80% $ 4.08
Class B 1,000.00 1,017.39 1.55% 7.88
Class C 1,000.00 1,017.44 1.55% 7.83
Class R 1,000.00 1,019.91 1.05% 5.35
Institutional Class 1,000.00 1,022.43 0.55% 2.80
- --------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 8/1/05 to
8/1/05 1/31/06 Ratio 1/31/06*
- --------------------------------------------------------------------------------
Actual Fund Return
Class A $ 1,000.00 $ 992.40 0.80% $ 4.02
Class B 1,000.00 988.60 1.55% 7.77
Class C 1,000.00 990.30 1.55% 7.73
Class R(1) 1,000.00 996.40 1.05% 5.28
Institutional Class 1,000.00 993.60 0.55% 2.76
- --------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,021.17 0.80% $ 4.08
Class B 1,000.00 1,017.39 1.55% 7.88
Class C 1,000.00 1,017.44 1.55% 7.73
Class R(1) 1,000.00 1,019.46 1.05% 5.35
Institutional Class 1,000.00 1,022.43 0.55% 2.80
- --------------------------------------------------------------------------------
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
(1) Commencement of operation was October 1, 2005. For purposes of this
analysis, Class R shares' annualized expense ratio was applied to the
period of August 1, 2005 to January 31, 2006. However, the ending account
value for "Actual Fund Return" uses the performance since inception and is
not annualized.
1
- --------------------------------------------------------------------------------
Sector/Country Allocation As of January 31, 2006
- --------------------------------------------------------------------------------
DELAWARE CORPORATE BOND FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector/Country of Net Assets
- --------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations 0.58%
- --------------------------------------------------------------------------------
Collateralized Bond Obligations 0.63%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 2.32%
- --------------------------------------------------------------------------------
Corporate Bonds 80.74%
- --------------------------------------------------------------------------------
Banking 7.69%
Basic Industry 5.83%
Brokerage 4.14%
Capital Goods 0.35%
Communications 8.84%
Consumer Cyclical 11.02%
Consumer Non-Cyclical 7.64%
Electric 8.61%
Energy 4.65%
Financials 4.95%
Industrial 0.08%
Insurance 10.24%
Natural Gas 3.29%
Real Estate 0.90%
Technology 0.48%
Transportation 2.03%
- --------------------------------------------------------------------------------
Foreign Agencies 1.12%
- --------------------------------------------------------------------------------
Municipal Bonds 2.44%
- --------------------------------------------------------------------------------
Non-Agency Asset-Backed Securities 0.80%
- --------------------------------------------------------------------------------
Non-Agency Collateralized Mortgage Obligations 2.75%
- --------------------------------------------------------------------------------
Regional Agency 0.42%
- --------------------------------------------------------------------------------
Regional Authority 0.43%
- --------------------------------------------------------------------------------
Senior Secured Loans 1.57%
- --------------------------------------------------------------------------------
Percentage
Sector/Country of Net Assets
- --------------------------------------------------------------------------------
Sovereign Debt 2.90%
- --------------------------------------------------------------------------------
Brazil 0.49%
El Salvador 0.19%
Germany 0.49%
Poland 0.10%
Russia 0.17%
Sweden 0.57%
United Kingdom 0.50%
Uruguay 0.15%
Venezuela 0.24%
- --------------------------------------------------------------------------------
Supranational Banks 0.01%
- --------------------------------------------------------------------------------
U.S. Treasury Obligations 2.26%
- --------------------------------------------------------------------------------
Preferred Stock 0.15%
- --------------------------------------------------------------------------------
Warrant 0.00%
- --------------------------------------------------------------------------------
Repurchase Agreements 1.15%
- --------------------------------------------------------------------------------
Total Market Value of Securities 100.27%
- --------------------------------------------------------------------------------
Liabilities Net of Receivables and Other Assets (0.27%)
- --------------------------------------------------------------------------------
Total Net Assets 100.00%
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Sector/Country Allocation As of January 31, 2006
- --------------------------------------------------------------------------------
DELAWARE EXTENDED DURATION BOND FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector/Country of Net Assets
- --------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations 0.27%
- --------------------------------------------------------------------------------
Agency Mortgage-Backed Securities 0.31%
- --------------------------------------------------------------------------------
Agency Obligations 0.28%
- --------------------------------------------------------------------------------
Collateralized Bond Obligations 0.12%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 1.63%
- --------------------------------------------------------------------------------
Corporate Bonds 82.27%
- --------------------------------------------------------------------------------
Banking 8.64%
Basic Industry 6.17%
Brokerage 4.25%
Capital Goods 0.20%
Communications 12.10%
Consumer Cyclical 8.66%
Consumer Non-Cyclical 9.04%
Electric 9.68%
Energy 5.38%
Financials 4.35%
Industrial 0.07%
Insurance 9.13%
Natural Gas 0.68%
Real Estate 0.34%
Technology 1.70%
Transportation 1.88%
- --------------------------------------------------------------------------------
Foreign Agencies 1.01%
- --------------------------------------------------------------------------------
Municipal Bonds 2.06%
- --------------------------------------------------------------------------------
Non-Agency Asset-Backed Securities 0.28%
- --------------------------------------------------------------------------------
Non-Agency Collateralized Mortgage Obligations 0.12%
- --------------------------------------------------------------------------------
Regional Agency 0.46%
- --------------------------------------------------------------------------------
Regional Authority 0.38%
- --------------------------------------------------------------------------------
Senior Secured Loans 1.72%
- --------------------------------------------------------------------------------
Percentage
Sector/Country of Net Assets
- --------------------------------------------------------------------------------
Sovereign Debt 2.42%
- --------------------------------------------------------------------------------
Brazil 0.44%
El Salvador 0.15%
Germany 0.45%
Poland 0.09%
Russia 0.09%
Sweden 0.53%
United Kingdom 0.45%
Venezuela 0.22%
- --------------------------------------------------------------------------------
Supranational Banks 0.01%
- --------------------------------------------------------------------------------
U.S. Treasury Obligations 4.06%
- --------------------------------------------------------------------------------
Preferred Stock 0.13%
- --------------------------------------------------------------------------------
Warrant 0.00%
- --------------------------------------------------------------------------------
Repurchase Agreements 3.03%
- --------------------------------------------------------------------------------
Total Market Value of Securities 100.56%
- --------------------------------------------------------------------------------
Liabilities Net of Receivables and Other Assets (0.56%)
- --------------------------------------------------------------------------------
Total Net Assets 100.00%
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations - 0.58%
- --------------------------------------------------------------------------------
Fannie Mae Series 2003-122 AJ
4.50% 2/25/28 USD 574,859 $ 562,922
Freddie Mac Reference
Series R004 AL 5.125% 12/15/13 705,000 701,178
Freddie Mac Series 2890 PC
5.00% 7/15/30 1,095,000 1,069,493
GNMA Series 2003-5 B
4.486% 10/16/25 250,000 244,016
------------
Total Agency Collateralized Mortgage
Obligations (cost $2,629,021) 2,577,609
------------
- --------------------------------------------------------------------------------
=@Collateralized Bond Obligations - 0.63%
- --------------------------------------------------------------------------------
#Alliance Capital Funding CBO
Series 1 A3 144A 5.84% 2/15/10 125,695 125,695
Golden Tree High Yield Opportunities
CDO Series 1 C1 9.404% 10/31/07 320,000 322,971
#Juniper CBO Series 1999-1A A1 144A
6.83% 4/15/11 805,831 813,386
#Magnetite Asset Investor CDO
Series 3 C1 144A 8.786% 1/31/08 500,000 506,541
#Putnam CBO II Limited 144A
6.875% 11/8/09 182,057 183,877
o#RHYNO CBO Delaware Series 1997-1
A2 144A 6.33% 9/15/09 337,848 338,534
#Travelers Funding Limited CBO
Series 1A A2 144A 6.35% 2/18/14 500,000 507,450
------------
Total Collateralized Bond Obligations
(cost $2,855,048) 2,798,454
------------
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities - 2.32%
- --------------------------------------------------------------------------------
Banc of America Commercial
Mortgage Securities
Series 2005-1 A3 4.877% 11/10/42 430,000 425,499
oSeries 2005-2 A5 4.857% 7/10/43 475,000 460,692
#Bear Stearns Commercial Mortgage
Securities Series 2004-ESA E 144A
5.064% 5/14/16 855,000 854,266
o~~Commercial Mortgage Pass Through
Certificates Series 2005-C6 A5A
5.116% 6/10/44 710,000 701,938
General Electric Capital Commercial
Mortgage Trust Series 2005-C2 A2
4.706% 5/10/43 440,000 432,478
Greenwich Capital Commercial Funding
Series 2005-GG3 A2 4.305% 8/10/42 200,000 194,340
Series 2005-GG5 A2 5.117% 4/10/37 1,800,000 1,797,889
JPMorgan Chase Commercial
Mortgage Securities
Series 2002-C2 A2 5.05% 12/12/34 620,000 613,800
oSeries 2005-CB11 A4 5.335% 8/12/37 2,770,000 2,774,300
Lehman Brothers-UBS Commercial
Mortgage Trust Series 2006-C1A A2
5.084% 2/15/31 440,000 438,763
Merrill Lynch Mortgage Trust
#Series 2002-MW1 J 144A 5.695% 7/12/34 130,000 125,867
Series 2005-CIP1 A2 4.96% 7/12/38 820,000 812,569
#Tower Series 2004-2A A 144A
4.232% 12/15/14 615,000 593,202
------------
Total Commercial Mortgage-Backed
Securities (cost $10,338,553) 10,225,603
------------
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds - 80.74%
- --------------------------------------------------------------------------------
Banking - 7.69%
o#Banco Santander 144A 4.81% 12/9/09 USD 730,000 $ 727,847
oBarclays Bank 6.278% 12/29/49 1,300,000 1,295,938
BB&T Capital Trust I 5.85% 8/18/35 1,655,000 1,636,363
o#BNP Paribas 144A 5.186% 6/29/49 1,240,000 1,193,671
Citigroup
5.875% 2/22/33 560,000 572,242
6.625% 6/15/32 330,000 369,650
#Corestates Capital Trust I 144A
8.00% 12/15/26 505,000 533,949
Deustche Bank 8.00% 9/29/06 ISK 40,300,000 640,725
Fifth Third Bank 4.75% 2/1/15 USD 1,675,000 1,613,799
Frost National Bank 6.875% 8/1/11 225,000 240,932
o#HBOS 144A 5.92% 9/29/49 1,100,000 1,101,382
#ICICI Bank 144A 5.75% 11/16/10 2,255,000 2,265,621
#Mizuho Financial Group 144A
5.79% 4/15/14 1,205,000 1,236,096
Popular North America 4.25% 4/1/08 650,000 636,996
Popular North America Capital Trust I
6.564% 9/15/34 1,350,000 1,359,106
o#Rabobank Capital Funding II 144A
5.26% 12/29/49 1,410,000 1,387,353
oRBS Capital Trust I 4.709% 12/29/49 525,000 496,186
o#Resona Preferred Global Securities
Cayman 144A 7.191% 12/29/49 6,600,000 6,957,093
o#Skandinaviska Enskilda 144A
8.125% 9/29/49 550,000 560,397
#Sovereign Bancorp 144A 4.80% 9/1/10 1,990,000 1,944,497
o#Sumitomo Mitsui Banking 144A
5.625% 7/29/49 1,610,000 1,600,617
o#United Overseas Bank 144A
5.375% 9/3/19 945,000 931,944
oWachovia Capital Trust III
5.80% 8/29/49 3,280,000 3,290,242
Western Financial 9.625% 5/15/12 1,120,000 1,260,000
------------
33,852,646
------------
Basic Industry - 5.83%
Abitibi-Consolidated
6.95% 12/15/06 467,000 472,838
7.875% 8/1/09 1,025,000 1,004,500
Alcan 5.75% 6/1/35 625,000 603,916
Barrick Gold 5.80% 11/15/34 1,550,000 1,493,017
Bowater 9.00% 8/1/09 1,315,000 1,359,381
Donohue Forest Products
7.625% 5/15/07 2,130,000 2,161,950
Georgia-Pacific 8.875% 5/15/31 2,812,000 2,910,419
Huntsman International
10.125% 7/1/09 1,085,000 1,127,044
IMC Global 7.375% 8/1/18 300,000 310,125
Ispat Inland 9.75% 4/1/14 1,360,000 1,570,800
Lubrizol 4.625% 10/1/09 2,045,000 2,002,679
Newmont Gold 8.91% 1/5/09 140,387 146,107
Newmont Mining 5.875% 4/1/35 1,645,000 1,607,489
Norske Skog 8.625% 6/15/11 1,368,000 1,320,120
Placer Dome 6.45% 10/15/35 1,275,000 1,331,948
Sherwin-Williams 6.85% 2/1/07 681,000 694,024
Southern Peru 7.50% 7/27/35 2,395,000 2,404,901
Stone Container
9.25% 2/1/08 825,000 851,813
9.75% 2/1/11 1,395,000 1,415,925
4
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Basic Industry (continued)
Vale Overseas 6.25% 1/11/16 USD 570,000 $ 572,850
Witco 6.875% 2/1/26 325,000 313,625
------------
25,675,471
------------
Brokerage - 4.14%
Amvescap 4.50% 12/15/09 2,430,000 2,375,677
E Trade Financial 8.00% 6/15/11 385,000 402,325
#E Trade Financial 144A 8.00% 6/15/11 1,060,000 1,107,700
Goldman Sachs
5.25% 10/15/13 1,855,000 1,838,468
6.125% 2/15/33 745,000 774,141
6.345% 2/15/34 2,420,000 2,517,273
Jefferies Group 6.25% 1/15/36 1,090,000 1,074,766
LaBranche & Company 9.50% 5/15/09 1,600,000 1,712,000
Lehman Brothers Holdings
4.50% 7/26/10 1,530,000 1,494,206
o#Lehman Brothers Holdings E-Capital
Trust I 144A 5.15% 8/19/65 400,000 401,548
Merrill Lynch 5.00% 1/15/15 500,000 488,535
Morgan Stanley
o4.54% 11/24/06 350,000 350,465
4.75% 4/1/14 1,210,000 1,153,321
5.05% 1/21/11 1,255,000 1,247,991
5.375% 10/15/15 1,300,000 1,292,797
------------
18,231,213
------------
Capital Goods - 0.35%
Allied Waste North America
9.25% 9/1/12 907,000 986,363
#Sealed Air 144A 5.375% 4/15/08 400,000 400,738
York International 6.625% 8/15/06 165,000 166,093
------------
1,553,194
------------
Communications - 8.84%
AT&T Wireless Services
7.875% 3/1/11 725,000 810,909
8.75% 3/1/31 2,855,000 3,752,303
BellSouth 4.20% 9/15/09 2,140,000 2,072,079
Citizens Communications
7.625% 8/15/08 915,000 958,463
9.25% 5/15/11 655,000 723,775
Comcast 6.50% 11/15/35 2,165,000 2,175,827
COX Communications 4.625% 1/15/10 2,145,000 2,073,321
CSC Holdings
8.125% 7/15/09 40,000 40,800
8.125% 8/15/09 730,000 744,600
10.50% 5/15/16 380,000 406,125
GTE Hawaiian Telephone 7.375% 9/1/06 1,165,000 1,176,650
#Hanarotelecom 144A 7.00% 2/1/12 950,000 936,399
Insight Midwest 10.50% 11/1/10 1,390,000 1,471,663
Liberty Media
o5.991% 9/17/06 1,233,000 1,240,928
8.25% 2/1/30 690,000 687,328
8.50% 7/15/29 1,300,000 1,310,872
MCI
6.908% 5/1/07 1,520,000 1,539,000
7.688% 5/1/09 670,000 692,613
News America 6.20% 12/15/34 2,475,000 2,424,319
Nextel Communications 6.875% 10/31/13 995,000 1,044,068
SBC Communications 4.125% 9/15/09 2,700,000 2,602,534
Sprint Capital 8.75% 3/15/32 1,695,000 2,223,242
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Communications (continued)
Telecom Italia Capital
4.00% 1/15/10 USD 1,315,000 $ 1,250,306
6.00% 9/30/34 1,825,000 1,733,856
Telefonos de Mexico 4.50% 11/19/08 1,825,000 1,788,735
Time Warner Entertainment
8.375% 3/15/23 1,025,000 1,190,013
US Unwired 10.00% 6/15/12 480,000 546,000
Vodafone Group 5.375% 1/30/15 1,325,000 1,317,630
------------
38,934,358
------------
Consumer Cyclical - 11.02%
ArvinMeritor 6.625% 6/15/07 765,000 755,438
AutoNation 9.00% 8/1/08 915,000 987,056
Corrections Corporation of America
7.50% 5/1/11 950,000 984,438
oDaimlerChrysler Holdings
4.78% 10/31/08 2,370,000 2,379,655
DR Horton 5.25% 2/15/15 2,630,000 2,467,240
Ford Motor 7.45% 7/16/31 4,115,000 3,055,388
Ford Motor Credit
5.625% 10/1/08 1,075,000 977,911
5.70% 1/15/10 1,725,000 1,527,075
6.625% 6/16/08 1,410,000 1,327,497
Fortune Brands
5.375% 1/15/16 1,160,000 1,141,544
5.875% 1/15/36 900,000 874,051
#Galaxy Entertainment 144A
9.875% 12/15/12 1,205,000 1,241,150
General Motors 8.375% 7/15/33 1,660,000 1,236,700
General Motors Acceptance Corporation
6.75% 12/1/14 4,120,000 3,911,042
6.875% 9/15/11 4,365,000 4,172,145
8.00% 11/1/31 4,240,000 4,335,123
Hilton Hotels 7.625% 5/15/08 1,070,000 1,118,052
#Johnson (SC) & Son 144A 5.75% 2/15/33 515,000 508,380
Johnson Controls 5.00% 11/15/06 1,208,000 1,205,485
Kohl's 7.25% 6/1/29 425,000 473,116
Lodgenet Entertainment 9.50% 6/15/13 335,000 363,475
May Department Stores
3.95% 7/15/07 1,625,000 1,596,051
6.65% 7/15/24 715,000 747,227
#Neiman Marcus 144A 10.375% 10/15/15 1,170,000 1,212,413
Office Depot 6.25% 8/15/13 1,055,000 1,073,643
Penney (J.C.) 7.65% 8/15/16 1,505,000 1,706,945
Time Warner 8.18% 8/15/07 2,740,000 2,859,469
Visteon
7.00% 3/10/14 1,890,000 1,474,200
8.25% 8/1/10 3,360,000 2,847,600
------------
48,559,509
------------
Consumer Non-Cyclical - 7.64%
Altria Group 7.65% 7/1/08 1,200,000 1,266,764
#AmerisourceBergen 144A
5.625% 9/15/12 1,410,000 1,420,575
5.875% 9/15/15 125,000 127,188
Archer-Daniels-Midland 7.00% 2/1/31 750,000 869,646
#Baxter FinCo 144A 4.75% 10/15/10 2,100,000 2,064,403
Baxter International 5.196% 2/16/08 720,000 720,848
Biovail 7.875% 4/1/10 1,650,000 1,713,938
Constellation Brands 8.125% 1/15/12 632,000 665,180
Genentech 4.75% 7/15/15 545,000 526,659
5
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Consumer Non-Cyclical (continued)
HCA 5.50% 12/1/09 USD 575,000 $ 569,774
#Hertz 144A 10.50% 1/1/16 1,425,000 1,496,250
Kraft Foods
4.125% 11/12/09 2,885,000 2,784,285
5.25% 6/1/07 750,000 751,114
6.50% 11/1/31 315,000 340,486
Medco Health Solutions 7.25% 8/15/13 3,530,000 3,860,101
MedPartners 7.375% 10/1/06 1,950,000 1,979,250
Merck
4.75% 3/1/15 265,000 252,592
5.95% 12/1/28 1,260,000 1,270,880
#Miller Brewing 144A 4.25% 8/15/08 725,000 710,197
Pilgrim's Pride 9.625% 9/15/11 850,000 905,250
Schering-Plough
5.55% 12/1/13 370,000 373,851
6.75% 12/1/33 565,000 633,465
Universal 6.50% 2/15/06 370,000 370,205
UST 6.625% 7/15/12 820,000 860,041
WellPoint
4.25% 12/15/09 1,335,000 1,296,230
5.85% 1/15/36 1,595,000 1,593,786
Wyeth 5.50% 2/1/14 4,205,000 4,241,495
------------
33,664,453
------------
Electric - 8.61%
Alabama Power 5.875% 12/1/22 1,520,000 1,571,587
oAVA Capital Trust III 6.50% 4/1/34 835,000 839,927
Avista
7.75% 1/1/07 1,380,000 1,408,318
9.75% 6/1/08 1,510,000 1,647,550
CenterPoint Energy Houston Electric
5.60% 7/1/23 1,850,000 1,807,496
Cleveland Electric Illuminating
7.88% 11/1/17 200,000 238,758
Constellation Energy 7.60% 4/1/32 1,175,000 1,407,125
Detroit Edison 4.80% 2/15/15 1,350,000 1,289,508
Dominion Resources 6.30% 3/15/33 1,640,000 1,658,885
Duke Capital
4.331% 11/16/06 690,000 686,511
5.668% 8/15/14 1,930,000 1,938,523
Entergy Gulf States 5.12% 8/1/10 1,250,000 1,215,355
FPL Group Capital 4.086% 2/16/07 1,025,000 1,015,047
Monongahela Power 5.00% 10/1/06 315,000 314,669
NRG Energy 7.375% 2/1/16 1,490,000 1,523,525
NRG Energy Bank 6.66% 2/2/13 1,000,000 1,010,625
Pacific Gas & Electric 6.05% 3/1/34 4,425,000 4,520,778
Peco Energy 5.95% 11/1/11 2,050,000 2,126,449
#Power Contract Financing 144A
5.20% 2/1/06 325,633 325,633
6.256% 2/1/10 1,734,000 1,757,036
#Power Receivables Finance 144A
6.29% 1/1/12 203,844 206,888
oProgress Energy 5.03% 1/15/10 1,080,000 1,080,599
PSEG Power 5.50% 12/1/15 2,640,000 2,609,437
oSCANA 4.56% 3/1/08 1,755,000 1,757,424
TECO Energy 7.20% 5/1/11 1,015,000 1,083,513
#Tenaska Alabama Partners 144A
7.00% 6/30/21 725,098 739,584
Westar Energy 6.00% 7/1/14 1,250,000 1,299,753
------------
37,080,503
------------
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Energy - 4.65%
Amerada Hess 7.125% 3/15/33 USD 1,845,000 $ 2,108,887
#Canadian Oil Sands 144A
4.80% 8/10/09 324,000 318,460
ConocoPhillips 5.90% 10/15/32 1,150,000 1,214,714
EnCana 6.50% 8/15/34 2,000,000 2,202,753
Energy Transfer 5.95% 2/1/15 2,045,000 2,054,172
Naftogaz Ukrainy 8.125% 9/30/09 1,700,000 1,720,230
Nexen 5.875% 3/10/35 975,000 952,878
#Ras Laffan LNG III 144A
5.838% 9/30/27 1,430,000 1,410,533
SEACOR Holdings 7.20% 9/15/09 895,000 930,395
oSecunda International 12.60% 9/1/12 700,000 745,500
SESI 8.875% 5/15/11 505,000 531,513
Siberian Oil 10.75% 1/15/09 1,775,000 2,013,383
Smith International 7.00% 9/15/07 1,705,000 1,754,720
Talisman Energy 5.85% 2/1/37 1,570,000 1,549,862
Tyumen Oil 11.00% 11/6/07 930,000 1,014,816
USX 9.125% 1/15/13 600,000 729,587
Weatherford International
4.95% 10/15/13 50,000 48,578
------------
21,300,981
------------
Financials - 4.95 %
American General Finance
4.875% 7/15/12 1,725,000 1,675,146
Capital One Bank 5.75% 9/15/10 885,000 903,981
Capital One Financial 4.738% 5/17/07 2,030,000 2,019,990
Household Finance 4.625% 9/15/10 1,250,000 1,221,926
HSBC Finance 5.00% 6/30/15 750,000 723,478
oHSBC Finance Capital Trust IX
5.911% 11/30/35 2,100,000 2,108,646
#Mantis Reef 144A 4.799% 11/3/09 1,755,000 1,715,474
MBNA 5.00% 6/15/15 700,000 685,871
Nuveen Investments 5.00% 9/15/10 1,655,000 1,623,366
Residential Capital
o5.67% 11/21/08 1,635,000 1,650,954
6.125% 11/21/08 2,355,000 2,380,531
6.375% 6/30/10 668,000 685,399
6.875% 6/30/15 4,075,000 4,387,398
------------
21,782,160
------------
Industrial - 0.08%
Trimas 9.875% 6/15/12 410,000 352,600
------------
352,600
------------
Insurance - 10.24%
#American International Group 144A
5.05% 10/1/15 1,750,000 1,707,491
oBerkshire Hathaway 4.61% 1/11/08 830,000 831,296
#Farmers Exchange Capital 144A
7.05% 7/15/28 1,897,000 1,980,191
#Farmers Insurance Exchange 144A
6.00% 8/1/14 625,000 630,792
8.625% 5/1/24 3,670,000 4,402,135
#Liberty Mutual 144A
5.75% 3/15/14 1,030,000 1,020,397
7.00% 3/15/34 660,000 687,855
6
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Insurance (continued)
Marsh & McLennan
o4.72% 7/13/07 USD 1,270,000 $ 1,268,495
5.15% 9/15/10 720,000 713,771
5.375% 3/15/07 2,145,000 2,144,590
5.375% 7/15/14 230,000 224,809
5.75% 9/15/15 1,172,000 1,174,060
5.875% 8/1/33 1,910,000 1,812,898
MetLife 5.00% 6/15/15 1,360,000 1,331,566
Montpelier Re Holdings 6.125% 8/15/13 2,170,000 2,108,888
#Nationwide Mutual Insurance 144A
7.875% 4/1/33 1,160,000 1,384,857
#Nippon Life Insurance 144A
4.875% 8/9/10 2,515,000 2,473,623
o~~#North Front Pass-Through Trust 144A
5.81% 12/15/24 3,850,000 3,838,096
o#Oil Insurance 144A 5.15% 8/15/33 2,580,000 2,557,242
Phoenix 6.675% 2/16/08 1,150,000 1,158,509
Saint Paul Travelers 5.01% 8/16/07 2,325,000 2,319,246
o~~#Twin Reefs Pass-Through Trust 144A
5.42% 12/31/49 1,600,000 1,601,642
Willis Group
5.125% 7/15/10 1,695,000 1,684,255
5.625% 7/15/15 1,735,000 1,734,939
o#ZFS Finance USA Trust I 144A
6.15% 12/15/65 1,015,000 1,020,448
o#ZFS Finance USA Trust II 144A
6.45% 12/15/65 3,265,000 3,305,519
------------
45,117,610
------------
Natural Gas - 3.29%
Atmos Energy
4.00% 10/15/09 660,000 631,215
o4.975% 10/15/07 1,905,000 1,906,919
Enterprise Products Operating
4.00% 10/15/07 590,000 577,792
4.625% 10/15/09 1,290,000 1,256,834
#GulfSouth Pipeline 144A 5.05% 2/1/15 1,570,000 1,530,703
KeySpan Gas East 6.90% 1/15/08 725,000 748,924
Northern Border Pipeline 6.25% 5/1/07 700,000 707,600
ONEOK 5.51% 2/16/08 2,185,000 2,195,331
Sempra Energy
4.621% 5/17/07 165,000 163,951
4.75% 5/15/09 735,000 724,818
o4.84% 5/21/08 835,000 837,273
Texas East Transmission 5.25% 7/15/07 615,000 614,979
Valero Logistics Operations
6.05% 3/15/13 1,680,000 1,733,190
#Williams Gas Pipelines Central 144A
7.375% 11/15/06 850,000 868,112
------------
14,497,641
------------
Real Estate - 0.90%
Brandywine Operating Partnership
5.625% 12/15/10 1,455,000 1,456,534
Developers Diversified Realty
4.625% 8/1/10 2,055,000 1,988,224
5.375% 10/15/12 530,000 522,709
------------
3,967,467
------------
Technology - 0.48%
#Oracle 144A 5.25% 1/15/16 2,160,000 2,131,147
------------
2,131,147
------------
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Transportation - 2.03%
American Airlines 6.817% 5/23/11 USD 1,550,000 $ 1,494,535
oBNSF Funding Trust I 6.613% 12/15/55 1,745,000 1,806,953
Continental Airlines 6.503% 6/15/11 1,590,000 1,555,905
oCSX 4.561% 8/3/06 294,000 294,462
#Erac USA Finance 144A
5.30% 11/15/08 1,955,000 1,957,717
7.35% 6/15/08 905,000 946,438
United Air Lines 7.73% 7/1/10 884,323 875,816
------------
8,931,826
------------
Total Corporate Bonds (cost $357,965,898) 355,632,779
------------
- --------------------------------------------------------------------------------
Foreign Agencies - 1.12%
- --------------------------------------------------------------------------------
Pemex Master Trust 6.125% 8/15/08 1,370,000 1,398,770
#Pemex Master Trust 144A
6.625% 6/15/35 3,515,000 3,522,909
------------
Total Foreign Agencies (cost $4,939,988) 4,921,679
------------
- --------------------------------------------------------------------------------
Municipal Bonds - 2.44%
- --------------------------------------------------------------------------------
American Eagle Northwest Series A
4.97% 12/15/18 455,000 444,075
California State 5.00% 2/1/33 480,000 492,523
California State University Systemwide
Revenue 5.00% 11/1/30 (AMBAC) 1,125,000 1,177,076
Colorado Department of
Transportation Revenue Series B
5.00% 12/15/13 (FGIC) 1,390,000 1,505,259
Fulton County, Georgia Water & Sewer
Revenue 5.25% 1/1/35 (FGIC) 710,000 755,561
Illinois State Taxable Pension
5.10% 6/1/33 1,840,000 1,786,530
New York State Sales Tax Asset
Receivables Series A
5.25% 10/15/27 (AMBAC) 640,000 689,747
New York State Urban Development
Series A-1 5.25% 3/15/34 (FGIC) 1,195,000 1,273,081
Oregon State Taxable Pension
5.892% 6/1/27 1,255,000 1,340,315
West Virginia Economic
Development Authority
5.37% 7/1/20 (MBIA) 175,000 177,716
6.07% 7/1/26 575,000 600,156
Wisconsin State General Taxable
Revenue Series A 5.70% 5/1/26 (FSA) 475,000 498,076
------------
Total Municipal Bonds (cost $10,594,126) 10,740,115
------------
- --------------------------------------------------------------------------------
Non-Agency Asset-Backed Securities - 0.80%
- --------------------------------------------------------------------------------
#Countrywide Asset-Backed
Certificates Series 2004-1 NIM
144A 6.00% 5/25/34 3,433 3,428
#GSAA Trust Series 2004-4N 144A
6.25% 5/25/34 85,704 85,490
Mid-State Trust
Series 11 A1 4.864% 7/15/38 126,743 120,181
Series 2004-1 A 6.005% 8/15/37 218,371 223,086
Series 2005-1 A 5.745% 1/15/40 384,231 382,790
oRenaissance Home Equity Loan Trust
Series 2005-2 AF2 4.361% 8/25/35 1,230,000 1,213,034
7
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Non-Agency Asset-Backed Securities (continued)
- --------------------------------------------------------------------------------
Residential Asset Mortgage Products
Series 2004-RZ2 AI3 4.30% 1/25/31 790,000 $ 781,335
#Sharp NIM Trust 144A
Series 2003-HE1N N 6.90% 11/25/33 9,637 9,620
Series 2004-2N 7.00% 1/25/34 75,188 75,188
Series 2004-IM1N N1 6.85% 3/25/34 31,927 31,927
#Sierra Receivables Funding Company
Series 2003-1A A 144A
3.09% 1/15/14 USD 117,433 $ 115,125
Structured Asset Securities
Series 2001-SB1 A2 3.375% 8/25/31 514,834 475,472
------------
Total Non-Agency Asset-Backed
Securities (cost $3,556,936) 3,516,676
------------
- --------------------------------------------------------------------------------
Non-Agency Collateralized Mortgage Obligations - 2.75%
- --------------------------------------------------------------------------------
oBear Stearns Adjustable Rate Mortgage
Trust Series 2005-7 1A2
4.75% 8/25/35 531,516 519,308
Countrywide Alternative Loan Trust
Series 2006-2CB A3 5.50% 3/25/36 1,110,000 1,112,220
oFirst Horizon Asset Securities
Series 2004-AR7 1A1 4.463% 2/25/35 2,343,114 2,348,346
oJPMorgan Mortgage Trust
Series 2005-A2 2A1 4.727 4/25/35 697,984 693,840
Lehman Mortgage Trust
Series 2005-2 2A3 5.50% 12/25/35 1,396,636 1,401,545
oMASTR Adjustable Rate Mortgage Trust
Series 2004-10 2A2 4.965% 10/25/34 475,007 477,874
o#MASTR Specialized Loan Trust
Series 2005-2 A2 144A
5.15% 7/25/35 769,303 760,303
oMLCC Mortgage Investors
Series 2005-1 1A 4.741% 4/25/35 955,207 949,834
oStructured Adjustable Rate Mortgage
Loan Trust Series 2005-18 6A1
5.339% 9/25/35 1,876,692 1,865,904
oWashington Mutual Series 2005-AR3 A1
4.65% 3/25/35 2,022,659 1,989,265
------------
Total Non-Agency Collateralized
Mortgage Obligations (cost $12,169,974) 12,118,439
------------
- --------------------------------------------------------------------------------
Regional Agency - 0.42%
- --------------------------------------------------------------------------------
Queensland Treasury 6.00% 10/14/15 AUD 2,368,000 1,863,675
------------
Total Regional Agency (cost $1,808,138) 1,863,675
------------
- --------------------------------------------------------------------------------
Regional Authority - 0.43%
- --------------------------------------------------------------------------------
Ontario Province 4.50% 3/8/15 CAD 724,000 638,723
Quebec Province 5.00% 12/1/15 CAD 1,388,000 1,259,256
------------
Total Regional Authority (cost $1,852,938) 1,897,979
------------
- --------------------------------------------------------------------------------
==@Senior Secured Loans - 1.57%
- --------------------------------------------------------------------------------
Dex Media West Loan Tranche B
6.36% 9/14/10 USD 1,054,103 1,065,303
Neiman Marcus Term Bank Loan
6.95% 4/6/13 4,034,810 4,075,158
Qwest Communications Bank Loan
Tranche A 9.02% 6/30/07 500,000 512,500
Tranche B 6.95% 6/30/10 1,250,000 1,262,500
------------
Total Senior Secured Loans
(cost $6,813,263) 6,915,461
------------
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Sovereign Debt - 2.90%
- --------------------------------------------------------------------------------
Brazil - 0.49%
Republic of Brazil 12.50% 1/5/16 BRL 4,652,000 $ 2,155,651
------------
2,155,651
------------
El Salvador - 0.19%
Republic of El Salvador
7.65% 6/15/35 USD 795,000 854,625
------------
854,625
------------
Germany - 0.49%
Deutschland Republic 5.00% 7/4/11 EUR 1,652,000 2,178,504
------------
2,178,504
------------
Poland - 0.10%
Poland Government 6.25% 10/24/15 PLN 1,230,000 427,651
------------
427,651
------------
Russia - 0.17%
@~~Russian Paris Club Participation
Note 1.804% 8/20/20 JPY 88,846,412 757,203
------------
757,203
------------
Sweden - 0.57%
Swedish Government
4.00% 12/1/09 SEK 10,745,000 1,458,942
4.50% 8/12/15 SEK 4,510,000 643,979
5.00% 12/1/20 SEK 2,725,000 420,703
------------
2,523,624
------------
United Kingdom - 0.50%
U.K. Treasury 8.00% 9/27/13 GBP 983,000 2,181,553
------------
2,181,553
------------
Uruguay - 0.15%
Republic of Uruguay 8.00% 11/18/22USD 625,000 653,125
------------
653,125
------------
Venezuela - 0.24%
Venezuela Government
9.375% 1/13/34 USD 825,000 1,033,313
------------
1,033,313
------------
Total Sovereign Debt (cost $12,587,466) 12,765,249
------------
- --------------------------------------------------------------------------------
Supranational Banks - 0.01%
- --------------------------------------------------------------------------------
Inter-American Development Bank
1.90% 7/8/09 JPY 4,000,000 35,608
------------
Total Supranational Banks (cost $38,355) 35,608
------------
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 2.26%
- --------------------------------------------------------------------------------
U.S. Treasury Inflation Index Notes
1.875% 7/15/15 USD 1,478,498 1,464,464
2.00% 1/15/16 1,294,592 1,296,160
2.00% 1/15/26 1,448,947 1,446,785
U.S. Treasury Notes
4.375% 1/31/08 615,000 613,415
4.50% 11/15/15 2,810,000 2,804,402
##5.375% 2/15/31 2,120,000 2,334,485
------------
Total U.S. Treasury Obligations
(cost $9,932,806) 9,959,711
------------
8
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Preferred Stock - 0.15%
Nexen 7.35% 25,430 $ 652,280
--------------
Total Preferred Stock (cost $670,134) 652,280
--------------
- --------------------------------------------------------------------------------
Warrant - 0.00%
- --------------------------------------------------------------------------------
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 615 --
--------------
Total Warrant (cost $52,353) --
--------------
Principal
Amount-
- --------------------------------------------------------------------------------
Repurchase Agreements - 1.15%
- --------------------------------------------------------------------------------
With BNP Paribas 4.37% 2/1/06
(dated 1/31/06, to be repurchased
at $2,960,359, collateralized by
$1,393,000 U.S. Treasury Notes
2.00% due 5/15/06, market value
$1,389,026, $653,000 U.S. Treasury
Notes 2.375% due 8/15/06,
market value $652,757 and
$987,000 U.S. Treasury Notes
2.625% due 11/15/06,
market value $978,304) USD 2,960,000 2,960,000
With Cantor Fitzgerald 4.36% 2/1/06
(dated 1/31/06, to be repurchased
at $2,089,253, collateralized by
$162,000 U.S. Treasury Bills
due 6/22/06, market value
$159,106, $955,000 U.S. Treasury
Notes 3.50% due 11/15/06,
market value $953,771 and
$1,044,000 U.S. Treasury Notes
3.625% due 7/15/09,
market value $1,018,484) 2,089,000 2,089,000
--------------
Total Repurchase Agreements
(cost $5,049,000) 5,049,000
--------------
Total Market Value of Securities - 100.27%
(cost $443,853,997) 441,670,317
Liabilities Net of Receivables and
Other Assets - (0.27%) (1,191,931)
--------------
Net Assets Applicable to 78,480,891
Shares Outstanding - 100.00% $ 440,478,386
==============
Net Asset Value - Delaware Corporate Bond Fund
Class A ($146,750,745 / 26,136,062 Shares) $ 5.61
--------------
Net Asset Value - Delaware Corporate Bond Fund
Class B ($24,227,224 / 4,317,798 Shares) $ 5.61
--------------
Net Asset Value - Delaware Corporate Bond Fund
Class C ($45,366,763 / 8,080,609 Shares) $ 5.61
--------------
Net Asset Value - Delaware Corporate Bond Fund
Class R ($3,880,344 / 691,138 Shares) $ 5.61
--------------
Net Asset Value - Delaware Corporate Bond Fund
Institutional Class ($220,253,310 / 39,255,284) $ 5.61
--------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Components of Net Assets at January 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $ 447,373,072
Undistributed net investment income 214,334
Accumulated net realized loss on investments
and foreign currencies (4,409,438)
Net unrealized depreciation of investments
and foreign currencies (2,699,582)
--------------
Total net assets $ 440,478,386
==============
- - Principal amount shown is stated in the currency in which each security is
denominated.
AUD - Australian Dollar
BRL - Brazilian Real
CAD - Canadian Dollar
EUR - European Monetary Unit
GBP - British Pound Sterling
ISK - Iceland Krona
JPY - Japanese Yen
PLN - Polish Zloty
SEK - Swedish Krona
USD - U.S. Dollar
o Variable rate securities. The interest rate shown is the rate as of
January 31, 2006.
+ Non-income producing security for the period ended January 31, 2006.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At January 31, 2006, the aggregate amount of Rule 144A securities
equals $81,238,228, which represented 18.44% of the Fund's net assets. See
Note 9 in "Notes to Financial Statements."
## Fully or partially pledged as collateral for financial futures contracts.
= Security is being fair valued in accordance with the Fund's fair valuation
policy. At January 31, 2006, the aggregate amount of fair valued
securities equals $2,798,454, which represented 0.64% of the Fund's net
assets. See Note 1 in "Notes to Financial Statements."
~~ Pass Through Agreement. Security represents the contractual right to
receive a proportionate amount of underlying payments due to the
counterparty pursuant to various agreements related to the rescheduling of
obligations and the exchange of certain notes.
== Senior Secured Loans in which the Fund invests generally pay interest at
rates which are periodically redetermined by reference to a base lending
rate plus a premium. These base lending rates are generally (i) the prime
rate offered by one or more United States banks, (ii) the lending rate
offered by one or more European banks such as the London Inter-Bank
Offered Rate ('LIBOR') and (iii) the certificate of deposit rate. Senior
Secured Loans may be subject to restrictions on resale.
@ Illiquid Security. At January 31, 2006, the aggregate amount of illiquid
securities equals $10,471,118 which represented 2.38% of the Fund's net
assets. See Note 9 in "Notes to Financial Statements."
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
CBO - Collateralized Bond Obligation
CDO - Collateralized Debt Obligation
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
NIM - Net Interest Margin
9
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Net Asset Value and Offering Price per Share -
Delaware Corporate Bond Fund
Net asset value Class A (A) $ 5.61
Sales charge (4.50% of offering price) (B) 0.26
---------------
Offering price $ 5.87
===============
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
The following foreign currency exchange contracts and futures contracts were
outstanding at January 31, 2006:
Foreign Currency Exchange Contracts(1)
In Unrealized
Contracts to Exchange Settlement Appreciation
Receive (Deliver) For Date (Depreciation)
- --------------------- --------------- ---------- --------------
(2,481,880)
Australian Dollars GBP 1,063,300 2/08/06 $ (8,163)
(507,000)
British Pounds EUR 736,298 2/08/06 (7,049)
52,300
British Pounds USD (92,933) 2/08/06 106
(1,063,300)
British Pounds USD 1,844,567 2/08/06 (46,113)
(1,699,000)
Canadian Dollars USD 1,460,877 2/08/06 (30,581)
1,207,000
European Monetary
Units SEK (11,604,702) 2/08/06 (61,628)
(1,145,000)
European Monetary
Units USD 1,344,585 2/08/06 (47,035)
1,368,000
European Monetary
Units USD (1,670,082) 2/08/06 (7,430)
(760,530)
British Pounds USD 1,306,208 2/08/06 (33,528)
(884,000)
European Monetary
Units USD 1,035,668 2/08/06 (3,792)
(91,856,000)
Japanese Yen USD 798,213 2/08/06 14,770
(1,664,430)
Polish Zloty USD 578,011 2/08/06 (15,506)
--------------
$ (245,949)
==============
Futures Contracts(2)
Unrealized
Contracts Notional Notional Expiration Appreciation
to Buy (Sell) Cost(Proceeds) Value Date (Depreciation)
- ----------------- -------------- --------------- ----------- --------------
362
U.S. Treasury
10 year Notes $ 39,522,828 $ 39,254,375 3/31/06 $ (268,453)
(82)
U.S. Treasury
long Bond (9,277,130) (9,253,188) 3/31/06 23,942
--------------
$ (244,511)
==============
The use of futures contracts involves elements of market risk and risks in
excess of the amount recognized in the financial statements. The notional
amounts presented above represent the Fund's total exposure in such contracts,
whereas only the net unrealized appreciation (depreciation) is reflected in the
Fund's net assets.
(1) See Note 7 in "Notes to Financial Statements."
(2) See Note 8 in "Notes to Financial Statements."
See accompanying notes
10
- --------------------------------------------------------------------------------
Statements Delaware Extended Duration Bond Fund
January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Agency Collateralized Mortgage Obligations - 0.27%
- --------------------------------------------------------------------------------
Freddie Mac Series 2890 PC
5.00% 7/15/30 USD 300,000 $ 293,012
GNMA Series 2003-5 B
4.486% 10/16/25 160,000 156,170
-------------
Total Agency Collateralized
Mortgage Obligations (cost $462,016) 449,182
-------------
- --------------------------------------------------------------------------------
Agency Mortgage-Backed Securities - 0.31%
- --------------------------------------------------------------------------------
Fannie Mae S.F. 15 yr TBA
4.50% 3/31/21 260,000 252,200
Fannie Mae S.F. 30 yr 5.50% 3/1/29 266,211 264,464
-------------
Total Agency Mortgage-Backed
Securities (cost $515,813) 516,664
-------------
- --------------------------------------------------------------------------------
Agency Obligations - 0.28%
- --------------------------------------------------------------------------------
^Resolution Funding Corporation
Interest Strips 4.855% 7/15/18 850,000 465,490
-------------
Total Agency Obligations (cost $462,938) 465,490
-------------
- --------------------------------------------------------------------------------
=#@Collateralized Bond Obligations - 0.12%
- --------------------------------------------------------------------------------
Juniper CBO Series 1999-1A A1 144A
6.83% 4/15/11 142,347 143,682
Putnam CBO II Limited 144A
6.875% 11/8/09 62,283 62,905
-------------
Total Collateralized Bond Obligations
(cost $211,948) 206,587
-------------
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities - 1.63%
- --------------------------------------------------------------------------------
oBanc of America Commercial Mortgage
Series 2005-2 A5 4.857% 7/10/43 160,000 155,180
#Bear Stearns Commercial Mortgage
Securities Series 2004-ESA E 144A
5.064% 5/14/16 260,000 259,777
~~oCommercial Mortgage Pass Through
Certificates Series 2005-C6 A5A
5.116% 6/10/44 245,000 242,218
Greenwich Capital Commercial Funding
Series 2005-GG3 A2 4.305% 8/10/42 70,000 68,019
Series 2005-GG5 A2 5.117% 4/10/37 610,000 609,285
oJPMorgan Chase Commercial Mortgage
Securities Series 2005-CB11 A4
5.335% 8/12/37 885,000 886,373
Lehman Brothers-UBS Commercial
Mortgage Trust Series 2006-C1A A2
5.084% 2/15/31 150,000 149,578
Merrill Lynch Mortgage Trust
#Series 2002-MW1 J 144A 5.695% 7/12/34 110,000 106,503
Series 2005-CIP1 A2 4.96% 7/12/38 50,000 49,547
#Tower Series 2004-2A A 144A
4.232% 12/15/14 195,000 188,089
-------------
Total Commercial Mortgage-Backed
Securities (cost $2,720,660) 2,714,569
-------------
- --------------------------------------------------------------------------------
Corporate Bonds - 82.27%
- --------------------------------------------------------------------------------
Banking - 8.64%
oBarclays Bank 6.278% 12/29/49 1,340,000 1,335,813
BB&T Capital Trust I 5.85% 8/18/35 550,000 543,806
o#BNP Paribas 144A 5.186% 6/29/49 410,000 394,682
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Banking (continued)
Citigroup 6.875% 2/15/98 USD 750,000 $ 848,341
Deustche Bank 8.00% 9/29/06 ISK 13,800,000 219,405
Fifth Third Bank 4.75% 2/1/15 USD 450,000 433,558
o#HBOS 144A
5.92% 9/29/49 300,000 300,377
6.413% 9/29/49 1,000,000 996,287
#Mizuho Financial Group 144A
5.79% 4/15/14 330,000 338,516
Popular North America Capital Trust I
6.564% 9/15/34 580,000 583,912
o#Rabobank Capital Funding II 144A
5.26% 12/29/49 505,000 496,889
oRBS Capital Trust I 4.709% 12/29/49 285,000 269,358
o#Resona Preferred Global Securities
Cayman 144A 7.191% 12/29/49 2,270,000 2,392,818
o#Sumitomo Mitsui Banking 144A
5.625% 7/29/49 540,000 536,853
Travelers Capital III 7.625% 12/1/36 581,000 716,590
o#United Overseas Bank 144A
5.375% 9/3/19 305,000 300,786
Wachovia 5.50% 8/1/35 1,710,000 1,641,416
oWachovia Capital Trust III
5.80% 8/29/49 945,000 947,951
Wells Fargo 5.375% 2/7/35 825,000 803,671
Wilmington Trust 4.875% 4/15/13 275,000 269,418
-------------
14,370,447
-------------
Basic Industry - 6.17%
Abitibi-Consolidated
6.95% 12/15/06 158,000 159,975
7.875% 8/1/09 395,000 387,100
Alcan 5.75% 6/1/35 930,000 898,626
Barrick Gold 5.80% 11/15/34 450,000 433,457
Bowater 9.00% 8/1/09 320,000 330,800
#Codelco 144A 5.625% 9/21/35 920,000 899,051
Donohue Forest Products 7.625% 5/15/07 485,000 492,275
Georgia-Pacific 8.875% 5/15/31 995,000 1,029,824
IMC Global 7.375% 8/1/18 200,000 206,750
Ispat Inland 9.75% 4/1/14 380,000 438,900
Lubrizol 6.50% 10/1/34 785,000 811,467
Newmont Mining 5.875% 4/1/35 500,000 488,599
Norske Skog 8.625% 6/15/11 460,000 443,900
Phelps Dodge 9.50% 6/1/31 500,000 677,579
Placer Dome 6.45% 10/15/35 675,000 705,149
Southern Peru 7.50% 7/27/35 805,000 808,328
Stone Container
9.25% 2/1/08 375,000 387,188
9.75% 2/1/11 435,000 441,525
Vale Overseas 6.25% 1/11/16 215,000 216,075
-------------
10,256,568
-------------
Brokerage - 4.25%
Amvescap 4.50% 12/15/09 455,000 444,828
E Trade Financial 8.00% 6/15/11 125,000 130,625
#E Trade Financial 144A 8.00% 6/15/11 370,000 386,650
#FMR 144A 7.57% 6/15/29 350,000 432,925
Goldman Sachs
5.25% 10/15/13 240,000 237,861
6.125% 2/15/33 455,000 472,798
6.345% 2/15/34 1,930,000 2,007,577
11
- --------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Brokerage (continued)
Jefferies Group 6.25% 1/15/36 USD 440,000 $ 433,851
LaBranche & Company 9.50% 5/15/09 595,000 636,650
Merrill Lynch 5.00% 1/15/15 170,000 166,102
Morgan Stanley
4.75% 4/1/14 415,000 395,561
5.05% 1/21/11 430,000 427,598
5.375% 10/15/15 420,000 417,673
7.25% 4/1/32 390,000 467,103
-------------
7,057,802
-------------
Capital Goods - 0.20%
Allied Waste North America
9.25% 9/1/12 313,000 340,388
-------------
340,388
-------------
Communications - 12.10%
America Movil 6.375% 3/1/35 600,000 580,360
AT&T Wireless Services 8.75% 3/1/31 1,720,000 2,260,582
Citizens Communications 9.00% 8/15/31 1,000,000 1,035,000
Comcast 6.50% 11/15/35 2,475,000 2,487,376
COX Communications 6.95% 1/15/28 750,000 774,428
CSC Holdings
8.125% 8/15/09 215,000 219,300
10.50% 5/15/16 205,000 219,094
#Hanarotelecom 144A 7.00% 2/1/12 285,000 280,920
Insight Midwest 10.50% 11/1/10 560,000 592,900
Liberty Media
8.25% 2/1/30 690,000 687,328
8.50% 7/15/29 210,000 211,756
MCI
6.908% 5/1/07 325,000 329,063
7.688% 5/1/09 130,000 134,388
Motorola 6.50% 9/1/25 415,000 447,641
News America
6.20% 12/15/34 755,000 739,540
7.30% 4/30/28 700,000 757,633
Nextel Communications 6.875% 10/31/13 310,000 325,288
SBC Communications 5.10% 9/15/14 1,125,000 1,092,574
Sprint Capital 8.75% 3/15/32 1,685,000 2,210,125
Telecom Italia Capital
6.00% 9/30/34 675,000 641,289
6.375% 11/15/33 500,000 495,695
Telefonos de Mexico 5.50% 1/27/15 600,000 589,297
Thomson 5.25% 8/15/13 435,000 432,216
Time Warner Entertainment
8.375% 3/15/23 1,670,000 1,938,850
US Unwired 10.00% 6/15/12 180,000 204,750
Vodafone Group 7.875% 2/15/30 350,000 427,240
-------------
20,114,633
-------------
Consumer Cyclical - 8.66%
Corrections Corporation of America
7.50% 5/1/11 330,000 341,963
DaimlerChrysler Holdings 8.50% 1/18/31 500,000 608,019
DR Horton 5.25% 2/15/15 1,170,000 1,097,593
Ford Motor 7.45% 7/16/31 2,505,000 1,859,962
Fortune Brands
5.375% 1/15/16 435,000 428,079
5.875% 1/15/36 680,000 660,394
#Galaxy Entertainment 144A
9.875% 12/15/12 415,000 427,450
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Consumer Cyclical (continued)
General Motors 8.375% 7/15/33 USD 620,000 $ 461,900
General Motors Acceptance Corporation
6.75% 12/1/14 1,120,000 1,063,196
8.00% 11/1/31 2,035,000 2,080,654
#Johnson (SC) & Son 144A
5.75% 2/15/33 225,000 222,108
Kohl's 7.25% 6/1/29 600,000 667,929
Lodgenet Entertainment 9.50% 6/15/13 60,000 65,100
May Department Stores
6.65% 7/15/24 500,000 522,537
6.70% 7/15/34 860,000 906,982
#Neiman Marcus 144A 10.375% 10/15/15 490,000 507,763
Office Depot 6.25% 8/15/13 300,000 305,301
Penney (J.C.) 7.65% 8/15/16 550,000 623,801
Visteon
7.00% 3/10/14 640,000 499,200
8.25% 8/1/10 1,225,000 1,038,188
-------------
14,388,119
-------------
Consumer Non-Cyclical - 9.04%
Altria Group 7.65% 7/1/08 295,000 311,413
#AmerisourceBergen 144A
5.625% 9/15/12 525,000 528,938
5.875% 9/15/15 450,000 457,875
Archer-Daniels-Midland 7.00% 2/1/31 350,000 405,835
Biovail 7.875% 4/1/10 615,000 638,831
Delhaize America 9.00% 4/15/31 355,000 418,599
Genentech 5.25% 7/15/35 750,000 710,767
HCA 6.30% 10/1/12 600,000 600,074
#Hertz 144A 10.50% 1/1/16 495,000 519,750
Kraft Foods 6.50% 11/1/31 1,930,000 2,086,151
Medco Health Solutions 7.25% 8/15/13 1,335,000 1,459,840
#Medtronic 144A 4.75% 9/15/15 660,000 636,501
Merck
4.75% 3/1/15 110,000 104,850
5.95% 12/1/28 655,000 660,656
#Miller Brewing 144A 5.50% 8/15/13 525,000 529,010
Pilgrim's Pride 9.625% 9/15/11 285,000 303,525
Schering-Plough 6.75% 12/1/33 950,000 1,065,118
UST 6.625% 7/15/12 255,000 267,452
WellPoint 5.85% 1/15/36 1,600,000 1,598,782
Wyeth 5.50% 2/1/14 500,000 504,340
#Wyeth 144A 6.00% 2/15/36 1,195,000 1,219,366
-------------
15,027,673
-------------
Electric - 9.68%
Alabama Power 5.875% 12/1/22 480,000 496,291
oAVA Capital Trust III 6.50% 4/1/34 295,000 296,741
Avista 9.75% 6/1/08 250,000 272,773
CenterPoint Energy Houston Electric
5.60% 7/1/23 600,000 586,215
Cleveland Electric Illuminating
7.88% 11/1/17 530,000 632,709
Constellation Energy 7.60% 4/1/32 1,207,000 1,445,447
Detroit Edison 4.80% 2/15/15 550,000 525,355
Dominion Resources
5.95% 6/15/35 450,000 434,188
6.30% 3/15/33 800,000 809,212
Duke Capital 5.668% 8/15/14 780,000 783,444
Northern State Power 5.25% 7/15/35 805,000 761,120
NRG Energy 7.375% 2/1/16 560,000 572,600
12
- --------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Electric (continued)
Oncor Electric 7.25% 1/15/33 USD 625,000 $ 723,973
Pacific Gas & Electric 6.05% 3/1/34 2,405,000 2,457,055
PSEG Power 5.50% 12/1/15 860,000 850,044
Southern California Edison
6.00% 1/15/34 1,815,000 1,890,341
6.65% 4/1/29 960,000 1,052,640
TECO Energy 7.20% 5/1/11 410,000 437,675
#Tenaska Alabama Partners 144A
7.00% 6/30/21 273,153 278,610
Westar Energy 6.00% 7/1/14 750,000 779,852
-------------
16,086,285
-------------
Energy - 5.38%
Amerada Hess 7.125% 3/15/33 700,000 800,120
ConocoPhillips 5.90% 10/15/32 850,000 897,832
EnCana 6.50% 8/15/34 650,000 715,895
Energy Transfer 5.95% 2/1/15 490,000 492,198
Enterprise Products 5.75% 3/1/35 650,000 599,726
Global Marine 7.00% 6/1/28 525,000 598,591
Halliburton 5.50% 10/15/10 250,000 254,478
Naftogaz Ukrainy 8.125% 9/30/09 400,000 404,760
Nexen 5.875% 3/10/35 1,050,000 1,026,176
#Ras Laffan LNG III 144A 5.838% 9/30/27 500,000 493,194
SEACOR Holdings 7.20% 9/15/09 240,000 249,491
oSecunda International 12.60% 9/1/12 225,000 239,625
Siberian Oil 10.75% 1/15/09 475,000 538,793
Talisman Energy 5.85% 2/1/37 1,290,000 1,273,452
Tyumen Oil 11.00% 11/6/07 330,000 360,096
-------------
8,944,427
-------------
Financials - 4.35%
General Electric Capital 6.75% 3/15/32 1,350,000 1,572,946
HSBC 7.625% 5/17/32 500,000 616,921
oHSBC Finance Capital Trust IX
5.911% 11/30/35 1,100,000 1,104,529
#Mantis Reef 144A 4.799% 11/3/09 340,000 332,343
MBNA 5.00% 6/15/15 375,000 367,431
Nuveen Investments 5.00% 9/15/10 395,000 387,450
Residential Capital 6.875% 6/30/15 2,650,000 2,853,153
-------------
7,234,773
-------------
Industrial - 0.07%
Trimas 9.875% 6/15/12 140,000 120,400
-------------
120,400
-------------
Insurance - 9.13%
#American International Group 144A
5.05% 10/1/15 600,000 585,425
American RE 7.45% 12/15/26 155,000 176,286
#Farmers Exchange Capital 144A
7.05% 7/15/28 365,000 381,007
#Farmers Insurance Exchange 144A
6.00% 8/1/14 300,000 302,780
8.625% 5/1/24 1,680,000 2,015,147
#Liberty Mutual 144A 7.00% 3/15/34 270,000 281,395
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Insurance (continued)
Marsh & McLennan
5.15% 9/15/10 USD 245,000 $ 242,880
5.375% 7/15/14 80,000 78,194
5.75% 9/15/15 401,000 401,705
5.875% 8/1/33 970,000 920,686
MetLife
5.00% 6/15/15 450,000 440,592
5.70% 6/15/35 465,000 461,290
6.375% 6/15/34 500,000 541,988
Montpelier Re Holdings 6.125% 8/15/13 735,000 714,301
#Nationwide Mutual Insurance
144A 7.875% 4/1/33 410,000 489,475
#New York Life Insurance 144A
5.875% 5/15/33 295,000 303,168
#Nippon Life Insurance 144A
4.875% 8/9/10 720,000 708,155
~~o#North Front Pass-Through Trust 144A
5.81% 12/15/24 1,660,000 1,654,867
o#Oil Insurance 144A 5.15% 8/15/33 990,000 981,267
UnumProvident 7.375% 6/15/32 35,000 36,954
Willis Group
5.125% 7/15/10 205,000 203,701
5.625% 7/15/15 1,205,000 1,204,958
o#ZFS Finance USA Trust I 144A
6.45% 12/15/65 1,530,000 1,548,987
#ZFS Finance USA Trust II 144A
6.45% 12/15/65 500,000 502,684
-------------
15,177,892
-------------
Natural Gas - 0.68%
#GulfSouth Pipeline 144A 5.05% 2/1/15 430,000 419,237
Valero Logistics Operations
6.05% 3/15/13 685,000 706,688
-------------
1,125,925
-------------
Real Estate - 0.34%
Developers Diversified Realty
4.625% 8/1/10 585,000 565,991
-------------
565,991
-------------
Technology - 1.70%
Dell 7.10% 4/15/28 420,000 493,189
Motorola 6.50% 11/15/28 950,000 1,028,202
#Oracle 144A 5.25% 1/15/16 1,320,000 1,302,367
-------------
2,823,758
-------------
Transportation - 1.88%
American Airlines 6.817% 5/23/11 530,000 511,035
oBNSF Funding Trust I 6.613% 12/15/55 1,555,000 1,610,207
Continental Airlines 6.503% 6/15/11 725,000 709,453
United Air Lines 7.73% 7/1/10 299,771 296,887
-------------
3,127,582
-------------
Total Corporate Bonds (cost $137,067,110) 136,762,663
-------------
- -------------------------------------------------------------------------------
Foreign Agencies - 1.01%
- -------------------------------------------------------------------------------
#Pemex Master Trust 144A
6.625% 6/15/35 1,685,000 1,688,791
-------------
Total Foreign Agencies (cost $1,671,602) 1,688,791
-------------
13
- -------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Statements
- -------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
Municipal Bonds - 2.06%
- --------------------------------------------------------------------------------
American Eagle Northwest Series A
4.97% 12/15/18 USD 125,000 $ 121,999
California State 5.00% 2/1/33 180,000 184,696
California State University Systemwide
Revenue 5.00% 11/1/30 (AMBAC) 600,000 627,775
Colorado Department of
Transportation Revenue
Series B 5.00% 12/15/13 (FGIC) 445,000 481,899
Fulton County, Georgia Water & Sewer
Revenue 5.25% 1/1/35 (FGIC) 225,000 239,438
Illinois State Taxable Pension
5.10% 6/1/33 355,000 344,684
New York State Sales Tax Asset
Receivables Series A
5.25% 10/15/27 (AMBAC) 210,000 226,323
New York State Urban Development
Series A-1 5.25% 3/15/34 (FGIC) 295,000 314,275
Oregon State Taxable Pension
5.892% 6/1/27 410,000 437,872
West Virginia Economic Development
Authority
5.37% 7/1/20 (MBIA) 60,000 60,931
6.07% 7/1/26 200,000 208,750
Wisconsin State General Taxable
Revenue Series A 5.70% 5/1/26 (FSA) 170,000 178,259
-------------
Total Municipal Bonds (cost $3,379,701) 3,426,901
-------------
- --------------------------------------------------------------------------------
Non-Agency Asset-Backed Securities - 0.28%
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust
Series 2003-A7 A7 4.15% 7/7/17 150,000 140,705
#GSAA Trust Series 2004-4N 144A
6.25% 5/25/34 28,232 28,161
Mid-State Trust
Series 11 A1 4.864% 7/15/38 66,892 63,429
Series 2005-1 A 5.745% 1/15/40 189,684 188,972
#Sharp NIM Trust 144A
Series 2003-HE1N N 6.90% 11/25/33 3,212 3,207
Series 2004-2N 7.00% 1/25/34 37,594 37,594
-------------
Total Non-Agency Asset-Backed
Securities (cost $457,614) 462,068
-------------
- --------------------------------------------------------------------------------
Non-Agency Collateralized Mortgage Obligations - 0.12%
- --------------------------------------------------------------------------------
#GSMPS Mortgage Trust Loan
Series 2005-RP1 1A3 144A
8.00% 1/25/35 181,374 192,377
-------------
Total Non-Agency Collateralized
Mortgage Obligations (cost $194,772) 192,377
-------------
- --------------------------------------------------------------------------------
Regional Agency - 0.46%
- --------------------------------------------------------------------------------
Queensland Treasury 6.00% 10/14/15 AUD 975,000 767,349
-------------
Total Regional Agency (cost $748,951) 767,349
-------------
- --------------------------------------------------------------------------------
Regional Authority - 0.38%
- --------------------------------------------------------------------------------
Ontario Province 4.50% 3/8/15 CAD 240,000 211,731
Quebec Province 5.00% 12/1/15 CAD 459,000 416,426
-------------
Total Regional Authority (cost $613,226) 628,157
-------------
Principal Market
Amount- Value (U.S.$)
- --------------------------------------------------------------------------------
==@Senior Secured Loans - 1.72%
- --------------------------------------------------------------------------------
Neiman Marcus Term Bank Loan
6.95% 4/6/13 USD 1,424,051 $ 1,438,291
Qwest Communications Bank Loan
Tranch B 6.95% 6/30/10 1,400,000 1,414,000
-------------
Total Senior Secured Loans(cost $2,800,923) 2,852,291
-------------
- --------------------------------------------------------------------------------
Sovereign Debt - 2.42%
- --------------------------------------------------------------------------------
Brazil - 0.44%
Republic of Brazil 12.50% 1/5/16 BRL 1,587,000 $ 735,387
-------------
735,387
-------------
El Salvador - 0.15%
Republic of El Salvador
7.65% 6/15/35 USD 235,000 252,625
-------------
252,625
-------------
Germany - 0.45%
Deutschland Republic 5.00% 7/4/11 EUR 571,000 752,982
-------------
752,982
-------------
Poland - 0.09%
Poland Government 6.25% 10/24/15 PLN 420,000 146,027
-------------
146,027
-------------
Russia - 0.09%
@~~Russian Paris Club Participation
Note 1.804% 8/20/20 JPY 17,079,832 145,565
-------------
145,565
-------------
Sweden - 0.53%
Swedish Government
4.00% 12/1/09 SEK 4,045,000 549,224
4.50% 8/12/15 SEK 1,355,000 193,480
5.00% 12/1/20 SEK 850,000 131,228
-------------
873,932
-------------
United Kingdom - 0.45%
U.K. Treasury 8.00% 9/27/13 GBP 340,000 754,555
-------------
754,555
-------------
Venezuela - 0.22%
Venezuela Government
9.375% 1/13/34 USD 290,000 363,225
-------------
363,225
-------------
Total Sovereign Debt (cost $3,962,377) 4,024,298
-------------
- --------------------------------------------------------------------------------
Supranational Banks - 0.01%
- --------------------------------------------------------------------------------
Inter-American Development Bank
1.90% 7/8/09 JPY 1,000,000 8,902
-------------
Total Supranational Banks (cost $9,589) 8,902
-------------
- --------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.06%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds
##5.25% 11/15/28 USD 250,000 268,057
5.375% 2/15/31 4,135,000 4,553,346
U.S. Treasury Inflation Index Notes
##1.875% 7/15/15 513,156 508,285
2.00% 1/15/16 482,982 483,567
2.00% 1/15/26 537,754 536,952
U.S. Treasury Notes
4.50% 11/15/15 400,000 399,203
-------------
Total U.S. Treasury Obligations
(cost $6,687,126) 6,749,410
-------------
14
- --------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Preferred Stock - 0.13%
- --------------------------------------------------------------------------------
Nexen 7.35% 8,710 $ 223,412
-------------
Total Preferred Stock (cost $217,750) 223,412
-------------
- --------------------------------------------------------------------------------
Warrant - 0.00%
- --------------------------------------------------------------------------------
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 550 --
-------------
Total Warrant (cost $46,787) --
-------------
Principal
Amount-
- --------------------------------------------------------------------------------
Repurchase Agreements - 3.03%
- --------------------------------------------------------------------------------
With BNP Paribas 4.37% 2/1/06
(dated 1/31/06, to be repurchased
at $2,952,358, collateralized by
$1,389,000 U.S. Treasury Notes
2.00% due 5/15/06, market value
$1,385,175, $651,000 U.S.Treasury
Notes 2.375% due 8/15/06,
market value $650,947 and
$984,000 U.S. Treasury Notes
2.625% due 11/15/06,
market value $975,592) USD 2,952,000 2,952,000
With Cantor Fitzgerald 4.36% 2/1/06
(dated 1/31/06, to be repurchased
at $2,083,252, collateralized by
$161,000 U.S. Treasury Bills due
6/22/06, market value $158,665,
$952,000 U.S. Treasury Notes
3.50% due 11/15/06, market value
$951,127 and $1,042,000
U.S. Treasury Notes 3.625% due
7/15/09, market value $1,015,660) 2,083,000 2,083,000
-------------
Total Repurchase Agreements
(cost $5,035,000) 5,035,000
-------------
Total Market Value of Securities - 100.56%
(cost $167,265,903) 167,174,111
Liabilities Net of Receivables and
Other Assets - (0.56%) (937,801)
-------------
Net Assets Applicable to 29,237,667.31
Shares Outstanding - 100.00% $ 166,236,310
=============
Net Asset Value - Delaware Extended Duration Bond Fund
Class A ($81,772,480 / 14,374,442 Shares) $ 5.69
-------------
Net Asset Value - Delaware Extended Duration Bond Fund
Class B ($7,051,743 / 1,240,867 Shares) $ 5.68
-------------
Net Asset Value - Delaware Extended Duration Bond Fund
Class C ($11,785,948 / 2,072,804 Shares) $ 5.69
-------------
Net Asset Value - Delaware Extended Duration Bond Fund
Class R ($1,020 / 179.31 Shares) $ 5.69
-------------
Net Asset Value - Delaware Extended Duration Bond Fund
Institutional Class ($65,625,119 / 11,549,375 Shares) $ 5.68
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Components of Net Assets at January 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $ 168,021,710
Undistributed net investment income 259,080
Accumulated net realized loss on
investments and foreign currencies (1,807,652)
Net unrealized depreciation of investments
and foreign currencies (236,828)
-------------
Total net assets $ 166,236,310
=============
- - Principal amount shown is stated in the currency in which each security is
denominated.
AUD - Australian Dollar
BRL - Brazilian Real
CAD - Canadian Dollar
EUR - European Monetary Unit
GBP - British Pound Sterling
ISK - Iceland Krona
JPY - Japanese Yen
PLN - Polish Zloty
SEK - Swedish Krona
USD - U.S. Dollar
== Senior Secured Loans in which the Fund invests generally pay interest at
rates which are periodically redetermined by reference to a base lending
rate plus a premium. These base lending rates are generally (i) the prime
rate offered by one or more United States banks, (ii) the lending rate
offered by one or more European banks such as the London Inter-Bank
Offered Rate ('LIBOR') and (iii) the certificate of deposit rate. Senior
Secured Loans may be subject to restrictions on resale.
+ Non-income producing security for the period ended January 31, 2006.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At January 31, 2006, the aggregate amount of Rule 144A securities
equals $28,096,712, which represented 16.90% of the Fund's net assets. See
Note 9 in "Notes to Financial Statements."
= Security is being fair valued in accordance with the Fund's fair valuation
policy. At January 31, 2006, the aggregate amount of fair valued
securities equals $206,587, which represented 0.12% of the Fund's net
assets. See Note 1 in "Notes to Financial Statements."
o Variable rate securities. The interest rate shown is the rate as of
January 31, 2006.
~~ Pass Through Agreement. Security represents the contractual right to
receive a proportionate amount of underlying payments due to the
counterparty pursuant to various agreements related to the rescheduling of
obligations and the exchange of certain notes.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
## Fully or partially pledged as collateral for financial futures contracts.
@ Illiquid Security. At January 31, 2006, the aggregate amount of illiquid
securities equals $3,204,443, which represented 1.93% of the Fund's net
assets. See Note 9 in "Notes to Financial Statements."
Summary of Abbreviations
AMBAC - Insured by the AMBAC Assurance Corporation
CBO - Collateralized Bond Obligation
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
NIM - Net Interest Margin
S.F. - Single Family
TBA - To be announced
yr - Year
15
- --------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value and Offering Price per Share -
Delaware Extended Duration Bond Fund
Net asset value Class A (A) $ 5.69
Sales charge (4.50% of offering price) (B) 0.27
-------------
Offering price $ 5.96
=============
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
The following foreign currency exchange and futures contracts were outstanding
at January 31, 2006:
Foreign Currency Exchange Contracts(1)
In Unrealized
Contracts to Exchange Settlement Appreciation
Receive (Deliver) For Date (Depreciation)
- ---------------------------- --------------- ------------- --------------
(1,006,630)
Australian Dollars USD 744,159 2/08/06 $ (18,897)
(439,620)
British Pounds EUR 255,598 2/08/06 (14,093)
11,560
British Pounds USD 20,541 2/08/06 24
(541,000)
Canadian Dollars USD 465,176 2/08/06 (9,738)
454,000
European Monetary
Units USD (4,364,983) 2/08/06 (23,290)
(403,000)
European Monetary
Units USD 473,247 2/08/06 (16,555)
512,000
European Monetary
Units USD (625,060) 2/08/06 (2,780)
(271,000)
European Monetary
Units USD (328,208) 2/08/06 (1,081)
(19,167,000)
Japanese Yen USD 166,558 2/08/06 3,082
(568,970)
Polish Zloty USD 175,402 2/08/06 (5,301)
--------------
$ (88,629)
==============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Futures Contracts(2)
Unrealized
Contracts Notional Notional Expiration Appreciation
to Buy (Sell) Cost (Proceeds) Value Date (Depreciation)
- ------------- ---------------- ------------- ---------- --------------
(55)
U.S. Treasury
2 year Notes $(11,297,799) $ (11,266,406) 3/31/06 $ 31,393
62
U.S. Treasury
10 year Notes 6,761,107 6,723,125 3/31/06 (37,982)
173
U.S. Treasury
long Bond 19,574,964 19,521,969 3/31/06 (52,995)
--------------
$ (59,584)
==============
The use of futures contracts involves elements of market risk and risks in
excess of the amount recognized in the financial statements. The notional
amounts presented above represent the Fund's total exposure in such contracts,
whereas only the net unrealized appreciation (depreciation) is reflected in the
Fund's net assets.
(1) See Note 7 in "Notes to Financial Statements."
(2) See Note 8 in "Notes to Financial Statements."
See accompanying notes
16
- --------------------------------------------------------------------------------
Statements Six Months Ended January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF OPERATIONS
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
Investment Income:
Interest $ 11,359,805 $ 4,213,911
Dividends 23,364 8,002
------------ ------------
11,383,169 4,221,913
------------ ------------
Expenses:
Management fees 1,036,686 399,138
Distribution expense -- Class A 200,434 105,361
Distribution expense -- Class B 120,968 36,119
Distribution expense -- Class C 202,886 51,077
Distribution expense -- Class R 9,104 1
Dividend disbursing and transfer agent fees and expenses 244,492 143,072
Accounting and administration expenses 84,187 29,429
Registration fees 26,000 27,775
Professional fees 21,377 11,755
Reports and statements to shareholders 30,269 7,077
Custodian fees 11,364 4,127
Trustees' fees 10,733 3,690
Insurance Fees 5,439 1,646
Pricing Fees 5,085 3,996
Taxes (other than taxes on income) 869 195
Other 1,856 2,870
------------ ------------
2,011,749 827,328
Less expenses absorbed or waived (339,227) (236,789)
Less waiver of distribution expenses -- Class A (33,406) (17,560)
Less waiver of distribution expenses -- Class R (1,517) --
------------ ------------
Total expenses 1,637,599 572,979
------------ ------------
Net Investment Income 9,745,570 3,648,934
------------ ------------
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies:
Net realized gain (loss) on:
Investments (2,035,939) (886,090)
Futures contracts (262,293) (579,066)
Foreign currencies 170,459 65,523
------------ ------------
Net realized loss (2,127,773) (1,399,633)
Net change in unrealized appreciation/ depreciation of investments and
foreign currencies (6,292,116) (3,055,574)
------------ ------------
Net Realized and Unrealized Loss on Investments and Foreign Currencies (8,419,889) (4,455,207)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 1,325,681 ($ 806,273)
============ ============
See accompanying notes
17
- --------------------------------------------------------------------------------
Statements
- --------------------------------------------------------------------------------
OF CHANGES IN NET ASSETS
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
Six Months Year Six Months Year
Ended Ended Ended Ended
1/31/06 7/31/05 1/31/06 7/31/05
(Unaudited) (Unaudited)
Increase in Net Assets from Operations:
Net investment income $ 9,745,570 $ 13,422,941 $ 3,648,934 $ 4,591,784
Net realized gain (loss) on investments and foreign currencies (2,127,773) 4,050,027 (1,399,633) 3,757,115
Net change in unrealized appreciation/depreciation
of investments and foreign currencies (6,292,116) 2,537,346 (3,055,574) 1,401,740
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations 1,325,681 20,010,314 (806,273) 9,750,639
------------- ------------- ------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (3,669,836) (4,476,591) (1,842,754) (1,749,163)
Class B (570,419) (950,409) (162,337) (277,133)
Class C (961,976) (1,076,891) (229,840) (258,941)
Class R (78,940) (91,868) (10) --
Institutional Class (6,062,588) (8,153,570) (1,558,548) (2,587,552)
Net realized gain on investments:
Class A (527,705) (1,020,537) (665,542) (838,361)
Class B (89,966) (258,873) (65,519) (199,563)
Class C (158,080) (279,634) (95,451) (171,958)
Class R (10,588) (19,889) (9) --
Institutional Class (789,910) (1,397,911) (495,282) (1,463,367)
------------- ------------- ------------- -------------
(12,920,008) (17,726,173) (5,115,292) (7,546,038)
------------- ------------- ------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 60,363,801 67,510,111 35,247,972 44,757,568
Class B 3,307,515 6,587,587 1,013,028 2,260,874
Class C 16,672,025 16,718,033 4,996,945 4,847,769
Class R 1,419,346 2,294,745 1,006 --
Institutional Class 35,143,804 109,274,403 19,551,808 18,354,063
Net asset value of shares issued upon reinvestment
of dividends and distributions:
Class A 2,771,135 3,833,309 1,654,134 1,717,296
Class B 401,948 698,514 156,409 324,939
Class C 782,312 972,083 239,207 292,717
Class R 77,555 110,054 18 --
Institutional Class 4,415,156 5,784,351 548,440 1,087,272
------------- ------------- ------------- -------------
125,354,597 213,783,190 63,408,967 73,642,498
------------- ------------- ------------- -------------
Cost of shares repurchased:
Class A (28,071,646) (30,692,383) (10,230,145) (8,613,255)
Class B (2,763,632) (4,094,480) (771,988) (1,379,079)
Class C (3,977,587) (6,046,918) (1,212,329) (2,089,944)
Class R (147,747) (666,356) -- --
Institutional Class (15,256,377) (18,298,850) (4,746,402) (8,661,124)
------------- ------------- ------------- -------------
(50,216,989) (59,798,987) (16,960,864) (20,743,402)
------------- ------------- ------------- -------------
Increase in net assets derived from capital share transactions 75,137,608 153,984,203 46,448,103 52,899,096
------------- ------------- ------------- -------------
Net Increase in Net Assets 63,543,281 156,268,344 40,526,538 55,103,697
Net Assets:
Beginning of period 376,935,105 220,666,761 125,709,772 70,606,075
------------- ------------- ------------- -------------
End of period $ 440,478,386 $ 376,935,105 $ 166,236,310 $ 125,709,772
============= ============= ============= =============
Undistributed net investment income $ 214,334 $ 791,358 $ 259,080 $ 198,164
============= ============= ============= =============
See accompanying notes
18
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Class A
- -----------------------------------------------------------------------------------------------------------------
Six Months
Ended
1/31/06(1) Year Ended
(Unaudited) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
Net asset value, beginning of period $ 5.780 $ 5.700 $ 5.620 $ 5.220 $ 5.370 $ 5.070
Income (loss) from investment operations:
Net investment income(3) 0.134 0.260 0.296 0.339 0.364 0.370
Net realized and unrealized gain (loss) on
investments and foreign currencies (0.127) 0.174 0.183 0.410 (0.152) 0.299
----------- --------- -------- -------- --------- -------
Total from investment operations 0.007 0.434 0.479 0.749 0.212 0.669
----------- --------- -------- -------- --------- -------
Less dividends and distributions from:
Net investment income (0.156) (0.286) (0.307) (0.349) (0.362) (0.369)
Net realized gain on investments (0.021) (0.068) (0.092) -- -- --
----------- --------- -------- -------- --------- -------
Total dividends and distributions (0.177) (0.354) (0.399) (0.349) (0.362) (0.369)
----------- --------- -------- -------- --------- -------
Net asset value, end of period $ 5.610 $ 5.780 $ 5.700 $ 5.620 $ 5.220 $ 5.370
=========== ========= ======== ======== ========= =======
Total return(4) 0.13% 7.76% 8.65% 14.61% 4.02% 13.72%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 146,751 $ 115,456 $ 73,867 $ 34,707 $ 17,932 $ 5,596
Ratio of expenses to average net assets 0.80% 0.82% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 1.01% 1.08% 1.17% 1.32% 1.22% 1.20%
Ratio of net investment income to average
net assets 4.69% 4.48% 5.09% 5.98% 6.79% 7.16%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 4.48% 4.22% 4.72% 5.46% 6.37% 6.76%
Portfolio turnover 162% 232% 300% 861% 1044% 709%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.002, a decrease in net realized and unrealized gain
(loss) per share of $0.002, and an increase in the ratio of net investment
income to average net assets of 0.03%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
See accompanying notes
19
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Class B
- ----------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.770 $ 5.700 $ 5.620 $ 5.220 $ 5.370 $ 5.070
Income (loss) from investment operations:
Net investment income(3) 0.113 0.216 0.253 0.298 0.325 0.331
Net realized and unrealized gain (loss) on
investments and foreign currencies (0.118) 0.164 0.183 0.410 (0.152) 0.300
----------- -------- -------- -------- --------- -------
Total from investment operations (0.005) 0.380 0.436 0.708 0.173 0.631
----------- -------- -------- -------- --------- -------
Less dividends and distributions from:
Net investment income (0.134) (0.242) (0.264) (0.308) (0.323) (0.331)
Net realized gain on investments (0.021) (0.068) (0.092) -- -- --
----------- -------- -------- -------- --------- -------
Total dividends and distributions (0.155) (0.310) (0.356) (0.308) (0.323) (0.331)
----------- -------- -------- -------- --------- -------
Net asset value, end of period $ 5.610 $ 5.770 $ 5.700 $ 5.620 $ 5.220 $ 5.370
=========== ======== ======== ======== ========= =======
Total return(4) (0.07%) 6.77% 7.85% 13.78% 3.25% 12.89%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 24,227 $ 23,963 $ 20,510 $ 18,551 $ 11,709 $ 4,736
Ratio of expenses to average net assets 1.55% 1.57% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 1.71% 1.78% 1.87% 2.03% 1.97% 1.95%
Ratio of net investment income to average
net assets 3.94% 3.73% 4.33% 5.23% 6.04% 6.41%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.78% 3.52% 4.01% 4.75% 5.62% 6.01%
Portfolio turnover 162% 232% 300% 861% 1044% 709%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.002, a decrease in net realized and unrealized gain
(loss) per share of $0.002, and an increase in the ratio of net investment
income to average net assets of 0.03%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
20
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.780 $ 5.700 $ 5.620 $ 5.220 $ 5.370 $ 5.070
Income (loss) from investment operations:
Net investment income(3) 0.113 0.216 0.253 0.297 0.324 0.331
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.128) 0.174 0.183 0.410 (0.152) 0.299
--------- ------- ------- ------- ------- -------
Total from investment operations (0.015) 0.390 0.436 0.707 0.172 0.630
--------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.134) (0.242) (0.264) (0.307) (0.322) (0.330)
Net realized gain on investments (0.021) (0.068) (0.092) -- -- --
--------- ------- ------- ------- ------- -------
Total dividends and distributions (0.155) (0.310) (0.356) (0.307) (0.322) (0.330)
--------- ------- ------- ------- ------- -------
Net asset value, end of period $ 5.610 $ 5.780 $ 5.700 $ 5.620 $ 5.220 $ 5.370
========= ======= ======= ======= ======= =======
Total return(4) (0.24%) 6.95% 7.86% 13.77% 3.24% 12.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 45,367 $33,013 $21,139 $18,313 $ 6,063 $ 1,804
Ratio of expenses to average net assets 1.55% 1.57% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.71% 1.78% 1.87% 2.03% 1.97% 1.95%
Ratio of net investment income to average net assets 3.94% 3.73% 4.33% 5.23% 6.04% 6.41%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.78% 3.52% 4.01% 4.75% 5.62% 6.01%
Portfolio turnover 162% 232% 300% 861% 1044% 709%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.002, a decrease in net realized and unrealized gain
(loss) per share of $0.002, and an increase in the ratio of net investment
income to average net assets of 0.03%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
21
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Class R
- -------------------------------------------------------------------------------------------------------
Six Months 6/2/03(2)
Ended Year Ended to
1/31/06(1) 7/30/05 7/31/04 7/31/03
(Unaudited)
Net asset value, beginning of period $ 5.780 $ 5.700 $ 5.620 $ 5.930
Income (loss) from investment operations:
Net investment income(3) 0.127 0.240 0.273 0.030
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.127) 0.174 0.188 (0.300)
--------- ------- ------- --------
Total from investment operations 0.000 0.414 0.461 (0.270)
--------- ------- ------- --------
Less dividends and distributions from:
Net investment income (0.149) (0.266) (0.289) (0.040)
Net realized gain on investments (0.021) (0.068) (0.092) --
--------- ------- ------- --------
Total dividends and distributions (0.170) (0.334) (0.381) (0.040)
--------- ------- ------- --------
Net asset value, end of period $ 5.610 $ 5.780 $ 5.700 $ 5.620
========= ======= ======= ========
Total return(4) 0.01% 7.38% 8.33% (4.58%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 3,880 $ 2,608 $ 869 $ 0
Ratio of expenses to average net assets 1.05% 1.17% 1.15% 1.15%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.31% 1.38% 1.47% 1.57%
Ratio of net investment income to average net assets 4.44% 4.13% 4.73% 4.93%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 4.18% 3.92% 4.41% 4.51%
Portfolio turnover 162% 232% 300% 861%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) Date of commencement of operations; ratios and portfolio turnover have
been annualized and total return has not been annualized.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
22
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware Corporate Bond Fund Institutional Class
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.770 $ 5.700 $ 5.620 $ 5.220 $ 5.370 $ 5.070
Income (loss) from investment operations:
Net investment income(3) 0.141 0.274 0.310 0.354 0.378 0.383
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.117) 0.164 0.183 0.410 (0.152) 0.300
---------- -------- -------- -------- --------- --------
Total from investment operations 0.024 0.438 0.493 0.764 0.226 0.683
---------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.163) (0.300) (0.321) (0.364) (0.376) (0.383)
Net realized gain on investments (0.021) (0.068) (0.092) -- -- --
---------- -------- -------- -------- --------- --------
Total dividends and distributions (0.184) (0.368) (0.413) (0.364) (0.376) (0.383)
---------- -------- -------- -------- --------- --------
Net asset value, end of period $ 5.610 $ 5.770 $ 5.700 $ 5.620 $ 5.220 $ 5.370
========== ======== ======== ======== ========= ========
Total return(4) 0.43% 7.84% 8.92% 14.92% 4.29% 14.02%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 220,253 $201,895 $104,282 $ 72,744 $ 52,681 $ 54,312
Ratio of expenses to average net assets 0.55% 0.57% 0.55% 0.55% 0.55% 0.55%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.71% 0.78% 0.87% 1.03% 0.97% 0.95%
Ratio of net investment income to average net assets 4.94% 4.73% 5.33% 6.23% 7.04% 7.41%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 4.78% 4.52% 5.01% 5.75% 6.62% 7.01%
Portfolio turnover 162% 232% 300% 861% 1044% 709%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.002, a decrease in net realized and unrealized gain
(loss) per share of $0.002, and an increase in the ratio of net investment
income to average net assets of 0.03%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager. Performance would have been lower had
the expenses limitation not ben in effect.
See accompanying notes
23
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund Class A
- --------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.940 $ 5.770 $ 5.550 $ 5.050 $ 5.260 $ 4.890
Income (loss) from investment operations:
Net investment income(3) 0.144 0.292 0.334 0.373 0.384 0.369
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.190) 0.390 0.322 0.500 (0.218) 0.370
--------- -------- -------- -------- --------- --------
Total from investment operations (0.046) 0.682 0.656 0.873 0.166 0.739
--------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.152) (0.312) (0.339) (0.373) (0.376) (0.369)
Net realized gain on investments (0.052) (0.200) (0.097) -- -- --
--------- -------- -------- -------- --------- --------
Total dividends and distributions (0.204) (0.512) (0.436) (0.373) (0.376) (0.369)
--------- -------- -------- -------- --------- --------
Net asset value, end of period $ 5.690 $ 5.940 $ 5.770 $ 5.550 $ 5.050 $ 5.260
========= ======== ======== ======== ========= ========
Total return(4) (0.76%) 12.17% 11.99% 17.55% 3.16% 15.76%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 81,772 $ 58,003 $ 19,439 $ 9,539 $ 4,629 $ 3,346
Ratio of expenses to average net assets 0.80% 0.84% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.17% 1.31% 1.30% 1.24% 1.23% 1.26%
Ratio of net investment income to average net assets 5.02% 4.92% 5.72% 6.65% 7.34% 7.38%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 4.65% 4.45% 5.22% 6.21% 6.91% 6.92%
Portfolio turnover 191% 233% 267% 789% 923% 642%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.008, a decrease in net realized and unrealized gain
(loss) per share of $0.008, and an increase in the ratio of net investment
income to average net assets of 0.15%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
See accompanying notes.
24
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund Class B
- --------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260 $ 4.890
Income (loss) from investment operations:
Net investment income(3) 0.124 0.247 0.291 0.332 0.343 0.331
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.192) 0.391 0.312 0.500 (0.218) 0.370
--------- -------- -------- -------- --------- -------
Total from investment operations (0.068) 0.638 0.603 0.832 0.125 0.701
--------- -------- -------- -------- --------- -------
Less dividends and distributions from:
Net investment income (0.130) (0.268) (0.296) (0.332) (0.335) (0.331)
Net realized gain on investments (0.052) (0.200) (0.097) -- -- --
--------- -------- -------- -------- --------- -------
Total dividends and distributions (0.182) (0.468) (0.393) (0.332) (0.335) (0.331)
--------- -------- -------- -------- --------- -------
Net asset value, end of period $ 5.680 $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260
========= ======== ======== ======== ========= =======
Total return(4) (1.14%) 11.35% 10.98% 16.70% 2.37% 14.90%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 7,052 $ 6,964 $ 5,597 $ 5,375 $ 3,413 $ 1,175
Ratio of expenses to average net assets 1.55% 1.59% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.87% 2.01% 2.00% 1.95% 1.98% 2.01%
Ratio of net investment income to average net assets 4.27% 4.17% 4.97% 5.90% 6.59% 6.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.95% 3.75% 4.52% 5.50% 6.16% 6.17%
Portfolio turnover 191% 233% 267% 789% 923% 642%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.008, a decrease in net realized and unrealized gain
(loss) per share of $0.008, and an increase in the ratio of net investment
income to average net assets of 0.15%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes.
25
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund Class C
- --------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260 $ 4.890
Income (loss) from investment operations:
Net investment income(3) 0.124 0.248 0.291 0.331 0.343 0.331
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.182) 0.390 0.312 0.500 (0.218) 0.370
--------- -------- -------- -------- --------- --------
Total from investment operations (0.058) 0.638 0.603 0.831 0.125 0.701
--------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.130) (0.268) (0.296) (0.331) (0.335) (0.331)
Net realized gain on investments (0.052) (0.200) (0.097) -- -- --
--------- -------- -------- -------- --------- --------
Total dividends and distributions (0.182) (0.468) (0.393) (0.331) (0.335) (0.331)
--------- -------- -------- -------- --------- --------
Net asset value, end of period $ 5.690 $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260
========= ======== ======== ======== ========= ========
Total return(4) (0.97%) 11.35% 10.98% 16.67% 2.37% 14.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 11,786 $ 8,196 $ 5,025 $ 4,751 $ 1,431 $ 408
Ratio of expenses to average net assets 1.55% 1.59% 1.55% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.87% 2.01% 2.00% 1.95% 1.98% 2.01%
Ratio of net investment income to average net assets 4.27% 4.17% 4.97% 5.90% 6.59% 6.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.95% 3.75% 4.52% 5.50% 6.16% 6.17%
Portfolio turnover 191% 233% 267% 789% 923% 642%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.008, a decrease in net realized and unrealized gain
(loss) per share of $0.008, and an increase in the ratio of net investment
income to average net assets of 0.15%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes.
26
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund Class R
- ----------------------------------------------------------------------------------------------------------------------
10/1/05(1)
to
1/31/06
(Unaudited)
Net asset value, beginning of period $ 5.820
Income (loss) from investment operations:
Net investment income(2) 0.141
Net realized and unrealized loss on investments and foreign currencies (0.162)
-----------
Total from investment operations (0.021)
-----------
Less dividends and distributions from:
Net investment income (0.057)
Net realized gain on investments (0.052)
-----------
Total dividends and distributions (0.109)
-----------
Net asset value, end of period $ 5.690
===========
Total return(3) (0.36%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 1
Ratio of expenses to average net assets 1.05%
Ratio of expenses to average net assets prior to expense limitation 1.47%
Ratio of net investment income to average net assets 4.77%
Ratio of net investment income to average net assets prior to expense limitation 4.35%
Portfolio turnover 191%
(1) Date of commencement of operations; ratios and portfolio turnover have
been annualized and total return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
27
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------
Delaware Extended Duration Bond Fund Institutional Class
- ---------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(1) 7/31/05 7/31/04 7/31/03 7/31/02(2) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260 $ 4.890
Income (loss) from investment operations:
Net investment income(3) 0.153 0.307 0.350 0.387 0.397 0.382
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.192) 0.391 0.312 0.500 (0.218) 0.370
----------- ------- ------- ------- ---------- -------
Total from investment operations (0.039) 0.698 0.662 0.887 0.179 0.752
----------- ------- ------- ------- ---------- -------
Less dividends and distributions from:
Net investment income (0.159) (0.328) (0.355) (0.387) (0.389) (0.382)
Net realized gain on investments (0.052) (0.200) (0.097) -- -- --
----------- ------- ------- ------- ---------- -------
Total dividends and distributions (0.211) (0.528) (0.452) (0.387) (0.389) (0.382)
----------- ------- ------- ------- ---------- -------
Net asset value, end of period $ 5.680 $ 5.930 $ 5.760 $ 5.550 $ 5.050 $ 5.260
=========== ======= ======= ======= ========== =======
Total return(4) (0.64%) 12.47% 12.10% 17.87% 3.43% 16.05%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 65,625 $52,547 $40,545 $49,891 $ 56,664 $61,993
Ratio of expenses to average net assets 0.55% 0.59% 0.55% 0.55% 0.55% 0.55%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.87% 1.01% 1.00% 0.95% 0.98% 1.01%
Ratio of net investment income to average net assets 5.27% 5.17% 5.97% 6.90% 7.59% 7.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 4.95% 4.75% 5.52% 6.50% 7.16% 7.17%
Portfolio turnover 191% 233% 267% 789% 923% 642%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.008, a decrease in net realized and unrealized gain
(loss) per share of $0.008, and an increase in the ratio of net investment
income to average net assets of 0.15%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(3) The average shares outstanding method has been applied for per share
information for the period ended January 31, 2006 and years ended July 31,
2005 and 2004.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes.
28
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
Notes January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS
Delaware Group Income Funds (the "Trust") is organized as a Delaware statutory
trust and offers four series: Delaware Corporate Bond Fund, Delaware Delchester
Fund, Delaware Extended Duration Bond Fund and Delaware High-Yield Opportunities
Fund. These financial statements and the related notes pertain to the Delaware
Corporate Bond Fund and Delaware Extended Duration Bond Fund (each referred to
as a "Fund" or collectively as the "Funds"). The Trust is an open-end investment
company. The Funds are considered diversified under the Investment Company Act
of 1940, as amended. The Funds offer Class A, Class B, Class C, Class R and
Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 4.50%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Funds is to seek to provide investors with total
return.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation - Equity securities, except those traded on the Nasdaq Stock
Markets, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. If on a
particular day an equity security does not trade, then the mean between the bid
and asked prices will be used. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Fund is valued. U.S. government
and agency securities are valued at the mean between the bid and asked prices.
Other long-term debt securities are valued by an independent pricing service and
such prices are believed to reflect the fair value of such securities.
Short-term debt securities having less than 60 days to maturity are valued at
amortized cost, which approximates market value. Forward foreign currency
exchange contracts and forward foreign cross 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.
Futures contracts are valued at the daily quoted settlement prices. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Funds' Board of Trustees. In determining whether market quotations are readily
available or fair valuation will be used, various factors will be taken into
consideration, such as market closures, or with respect to foreign securities,
aftermarket trading or significant events after local market trading (e.g.,
government actions or pronouncements, trading volume or volatility on markets,
exchanges among dealers, or news events).
Federal Income Taxes - Each Fund intends to continue to qualify for federal
income tax purposes 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.
Class Accounting - Investment income and common expenses are allocated to the
classes of the Fund on the basis of "settled shares" of each class in relation
to the net assets of the Funds. Realized and unrealized gain (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Repurchase Agreements - Each Fund may invest in a pooled cash account along with
other members of the Delaware Investments(R) Family of Funds pursuant to an
exemptive order issued by the Securities and Exchange Commission. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by each Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 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 is 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 Funds isolate
that portion of realized gains and losses on investments in debt securities
which are due to changes in foreign exchange rates from that which are due to
changes in market prices of debt securities. The Funds report certain foreign
currency related transactions as components of realized gains (losses) for
financial reporting purposes, where such components are treated as ordinary
income (loss) for federal income tax purposes.
Use of Estimates - The preparation of financial statements in conformity with
U.S. 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(R) Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. 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. Discounts and premiums are amortized to interest
income over the lives of the respective securities. Realized gains (losses) on
paydowns of mortgage-and asset-backed securities are classified as interest
income. Each Fund declares dividends daily from net investment income and pays
such dividends monthly and declares and pays distributions from net realized
gain on investments, if any, annually.
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its respective investment management agreement,
each Fund pays Delaware Management Company (DMC), a series of Delaware
Management Business Trust and the investment manager, an annual fee which is
calculated based on each Fund's average daily net assets as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
--------- -----------------
On the first $500 million 0.500% 0.550%
On the next $500 million 0.475% 0.500%
On the next $1.5 billion 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure the annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.55% of average daily net assets for each Fund through November 30,
2006.
29
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Notes Delaware Extended Duration Bond Fund
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Each Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average net
assets for accounting and administration services. The Funds pay DSC a monthly
fee based on shareholder accounts for dividend disbursing and transfer agent
services.
Pursuant to a distribution agreement and distribution plan, each Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares and 0.60% of the average daily net assets of Class R shares.
Institutional Class shares pay no distribution and service expenses. DDLP has
contracted to waive distribution and service fees through November 30, 2006 in
order to prevent distribution and service fees of Class A shares from exceeding
0.25% of average daily net assets. DDLP has contracted to limit distribution and
service fees through November 30, 2006 in order to prevent distribution and
service fees of Class R shares from exceeding 0.50% of average daily net assets.
At January 31, 2006, each Fund had liabilities payable to affiliates as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
--------- -----------------
Investment Management fee
payable to DMC $ 111,570 $ 13,782
Dividend disbursing, transfer agent,
accounting and administration fees
and other expenses payable to DSC 55,213 32,860
Distribution fee payable to DDLP 178,857 64,284
Other expenses payable to
DMC and affiliates* 9,715 13,284
* DMC, as part of its administrative services, pays operating expenses on
behalf of each Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit,
legal and tax services, registration fees and trustees' fees.
As provided in the investment management agreement, each Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Funds by DMC employees. For the six months ended January 31, 2006, the
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund were
charged $14,905 and $5,198, respectively for internal legal services provided by
DMC.
For the six months ended January 31, 2006, DDLP earned commissions on sales of
Class A shares for each Fund as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
--------- -----------------
$ 34,885 $ 32,290
For the six months ended January 31, 2006, DDLP received gross contingent
deferred sales charge commissions on redemption of each Fund's Class A, Class B,
and Class C shares, respectively, and these commissions were entirely used to
offset up-front commissions previously paid by DDLP to broker-dealer on sales of
those shares. The amounts received were as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
--------- -----------------
Class A $ 4 $ 100
Class B 32,286 8,542
Class C 4,052 1,536
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Funds.
3. Investments
For the six months ended January 31, 2006, the Funds made purchases and sales of
investments securities other than short-term investments as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
------------- -----------------
Purchases other than
U.S. government securities $ 280,530,605 $ 116,222,048
Purchases of U.S. government
securities 126,952,714 62,605,879
Sales other than U.S. government
securities 203,509,829 73,723,828
Sales of U.S. government securities 124,020,226 61,778,344
At January 31, 2006, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At January 31, 2006 the cost of investments and unrealized
appreciation (depreciation) for each Fund were as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
------------- -----------------
Cost of investments $ 445,532,461 $ 168,134,077
Aggregate unrealized appreciation 4,086,969 2,356,318
Aggregate unrealized depreciation (7,949,113) (3,316,284)
------------- ----------------
Net unrealized depreciation $ (3,862,144) $ (959,966)
============= ================
30
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Notes Delaware Extended Duration Bond Fund
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, gains (losses) on foreign currency
transactions and net short-term gains on sales of investment securities are
treated as ordinary income for federal income tax purposes. The tax character of
dividends and distributions paid during the six months ended January 31, 2006
and the year ended July 31, 2005 was as follows:
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
---------------------------- --------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
1/31/06* 7/31/05 1/31/06* 7/31/05
Ordinary income $ 11,811,148 $ 16,740,938 $ 4,426,881 $ 6,102,484
Long-term
capital gain 1,108,860 985,235 688,411 1,443,554
------------ ------------ ----------- ------------
Total $ 12,920,008 $ 17,726,173 $ 5,115,292 $ 7,546,038
============ ============ =========== ============
* Tax information for the period ended January 31, 2006 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
As of January 31, 2006, the components of net assets are estimated since final
tax characteristics cannot be determined until fiscal year end. As of January
31, 2006, the estimated components of net assets on a tax basis were as follows:
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
------------- -----------------
Shares of beneficial interest $ 447,373,072 $ 168,021,710
Capital loss carry forward (622,198) (808,041)
Undistributed ordinary income 176,468 244,721
Post-October losses (1,959,787) (191,021)
Post-October currency losses (153,307) (61,952)
Unrealized appreciation
on investments (4,335,862) (969,107)
------------- -----------------
Net Assets $ 440,478,386 $ 166,236,310
============= =================
Post-October losses represent losses realized on investments and foreign
currency transactions from November 1, 2005 through January 31, 2006 that, in
accordance with federal income tax regulations, the Funds have elected to defer
and treat as having arisen in the following fiscal year.
The differences between book basis and tax basis components of the net assets
are primarily attributable to tax deferral of losses on wash sales,
mark-to-market on futures contracts, mark-to-market on foreign currency
contracts, straddle deferrals and tax treatment of market discount and premium
on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of gain (loss) on foreign currency transactions, dividends
and distributions, market discount and premium on certain debt instruments and
paydowns of mortgage- and asset-backed securities. Results of operations and net
assets were not affected by these reclassifications. For the six months ended
January 31, 2006, the Funds recorded an estimate of these differences since the
final tax characteristics cannot be determined until fiscal year end.
Delaware Delaware
Corporate Extended Duration
Bond Fund Bond Fund
----------- -----------------
Undistributed net
investment income $ 1,021,165 $ 205,471
Accumulated realized loss (1,021,165) (205,471)
31
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Notes Delaware Extended Duration Bond Fund
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Corporate Delaware Extended
Bond Fund Duration Bond Fund
------------------------ -----------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
1/31/06 7/31/05 1/31/06 7/31/05
Shares sold:
Class A 10,630,784 11,643,840 6,105,136 7,551,366
Class B 583,932 1,135,587 174,124 380,255
Class C 2,931,378 2,881,177 861,311 810,930
Class R 252,178 394,848 176 --
Institutional Class 6,204,711 18,818,176 3,418,950 3,097,764
Shares issued upon reinvestment
of dividends and distributions:
Class A 489,919 660,807 287,953 290,331
Class B 71,113 120,430 27,252 55,046
Class C 138,391 167,604 41,695 49,563
Class R 13,694 18,974 3 --
Institutional Class 780,640 998,303 95,412 183,972
---------- ----------- ---------- ----------
22,096,740 36,839,746 11,012,012 12,419,227
---------- ----------- ---------- ----------
Shares repurchased:
Class A (4,971,231) (5,282,196) (1,786,150) (1,445,379)
Class B (487,659) (706,318) (134,336) (232,505)
Class C (704,838) (1,043,542) (211,256) (351,126)
Class R (26,230) (114,773) -- --
Institutional Class (2,700,140) (3,154,442) (823,151) (1,458,597)
---------- ----------- ---------- ----------
(8,890,098) (10,301,271) (2,954,893) (3,487,607)
---------- ----------- ---------- ----------
Net increase 13,206,642 26,538,475 8,057,119 8,931,620
========== =========== ========== ==========
For the period ended January 31, 2006 and the year ended July 31, 2005, Class B
shares converted to Class A shares as follows*:
Six Months Year
Ended Ended
1/31/06 7/31/05
Class B Class A Class B Class A
Shares Shares Value Shares Shares Value
------- ---------- -------- ------- ------- --------
Corporate Bond 59,699 59,699 $340,215 20,782 20,782 $120,347
Extended Duration 15,761 15,761 89,523 6,859 6,848 40,811
* The respective amounts are included in Class B redemptions and Class A
subscriptions in the table above and the Statement of Changes in Net
Assets.
6. Line of Credit
Each Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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. The
Funds had no amounts outstanding as of January 31, 2006, or at any time during
the period.
7. Foreign Exchange Contracts
The Funds may enter into forward foreign currency exchange contracts and forward
foreign cross currency exchange contracts as a way of managing foreign exchange
rate risk. The Funds 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.
The Funds may also use these contracts to hedge the U.S. dollar value of
securities it already owns that are denominated in foreign currencies. The
change in market value is recorded 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 and forward foreign cross
currency exchange contracts does not eliminate fluctuations in the underlying
prices of the securities, but 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 Funds could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
32
- --------------------------------------------------------------------------------
Delaware Corporate Bond Fund
Notes Delaware Extended Duration Bond Fund
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
8. Futures Contracts
Each Fund may invest in financial futures contracts to hedge its existing
portfolio securities against fluctuations in value caused by changes in
prevailing market interest 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 each Fund as
unrealized gains or losses until the contracts are closed. When the contracts
are closed, each 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 of entering into futures contracts include potential
imperfect correlation between the futures contracts and the underlying
securities and the possibility of an illiquid secondary market for these
instruments. The unrealized gain (loss) is included in liabilities net of
receivables and other assets.
9. Credit and Market Risk
Each Fund may invest in high yield fixed income securities, which carry ratings
of BB or lower by Standard and Poor's Rating Group and/or Ba or lower by Moody's
Investor Services, Inc. Investments in these higher yielding securities are
generally 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.
Each Fund invests in fixed income securities whose value is derived from an
underlying pool of mortgages or consumer loans. Investors receive principal and
interest payments as the underlying mortgages and consumer loans are paid back.
Some of these securities are collateralized mortgage obligations (CMOs). CMOs
are debt securities issued by U.S. government agencies or by financial
institutions and other mortgage lenders, which are collateralized by a pool of
mortgages held under an indenture. Prepayment of mortgages may shorten the
stated maturity of the obligation and can result in a loss of premium, if any
has been paid. Certain of these securities may be stripped (securities, which
provide only the principal or interest feature of the underlying security). The
yield to maturity on an interest-only CMO is extremely sensitive not only to
changes in prevailing interest rates, but also to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. A rapid rate
of principal payments may have a material adverse effect on each Fund's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, each Fund may fail to fully recoup its initial
investment in these securities even if the securities are rated in the highest
rating categories.
Each 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 these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of the Fund's limitation on investments in illiquid assets. Rule
144A and illiquid securities have been denoted on the Statement of Net Assets.
10. Contractual Obligations
The Funds enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed the Funds' existing
contracts and expects the risk of loss to be remote.
33
- --------------------------------------------------------------------------------
About
- --------------------------------------------------------------------------------
THE ORGANIZATION
This semiannual report is for the information of Delaware Corporate Bond Fund
and Delaware Extended Duration Bond Fund shareholders, but it may be used with
prospective investors when preceded or accompanied by a current prospectus for
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund and the
Delaware Investments(R) 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 that 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
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel and Secretary
Delaware Investments(R) Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel and Chief Legal Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments(R) Family of Funds
Philadelphia, PA
Contact Information
Investment Manager
Delaware Management Company,
a Series of Delaware Management Business Trust
Philadelphia, PA
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For Shareholders
800 523-1918
For Securities Dealers and Financial
Institutions Representatives Only
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries.
- --------------------------------------------------------------------------------
Each Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and
procedures that each Fund uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800 523-1918; (ii) on each Fund's Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
Information (if any) regarding how each Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through each Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
34
This page intentionally left blank.
This page intentionally left blank.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
Contact Information
Web Site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8:00 a.m. to 7:00 p.m.
Eastern Time:
o For fund information, literature, price, yield, and performance figures.
o For information on existing regular investment accounts and retirement
plan accounts including wire investments, wire redemptions, telephone
redemptions, and telephone exchanges.
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24
hours a day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
(261) Printed in the USA
SA-460 [1/06] CGI 3/06 SEMI-0602 CBEXD PO10832
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
[GRAPHIC]
- ----------------------------
FIXED INCOME MARCH 31, 2006
- --------------------------------------------------------------------------------
DELAWARE DELCHESTER FUND
--------------------------------------------------
Get shareholder reports
and prospectuses online
instead of in the mail. Visit
www.delawareinvestments.com/edelivery.
--------------------------------------------------
This brochure accompanies a semiannual report 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.
You should consider the investment objectives,
risks, charges, and expenses of the investment
carefully before investing. Delaware Delchester
Fund prospectus contains this and other important
information about the Fund. Prospectuses for all
funds in the Delaware Investments(R) Family of
Funds are available from your financial advisor,
online at www.delawareinvestments.com, or by phone
at 800 523-1918. Please read the prospectus
carefully before you invest or send money. The
figures in the semiannual report for Delaware
Delchester Fund 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC]
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
POWERED BY RESEARCH(R) EXPERIENCE DELAWARE INVESTMENTS
OUR MISSION:
Delaware Investments is committed to the pursuit
of consistently superior asset management and
unparalleled client service. We strongly believe
in our investment process, the consistent results
we seek to deliver, and the value we can add for
our clients.
OUR HISTORY:
Delaware Investments traces its roots to an
investment advisory firm founded in 1929. We
quickly learned how important consistent
performance was to our clients, particularly in
tough times, and continued to apply those lessons
when we launched our first mutual fund in 1938.
Delaware has managed money through 75 years of
market cycles, and our dedication to consistent
performance over the long term endures to this
day.
OUR PRINCIPLES:
CLIENTS FIRST
We believe that placing clients' interests ahead
of our own is always the right thing to do. We
offer a focused lineup of products that is aligned
with our core asset management competencies rather
than with popular trends. Some of the largest
pension plans, endowments and foundations have
entrusted their investments to Delaware
Investments. Our institutional heritage and
expertise serve us well when crafting mutual funds
and managed account portfolios for individual
investors.
PASSION FOR PERFORMANCE
Our results-oriented culture puts investors first
and begins with our passion for performance. We
seek to deliver consistently superior returns over
the long term, and to do it in every asset class.
This means we look at three-year and five-year
track records as starting points in seeking to
deliver long-term outperformance.
PEOPLE WE'RE PROUD OF
We recognize that smart, accomplished people are a
competitive advantage. Our research analysts add
value to our investors' portfolios, just as our
award-winning operations team adds value for
shareholders. At Delaware Investments, we are more
than just committed -- we are passionate about our
mission. That culture of passion flows through
everything we do.
POWERED BY RESEARCH
Whether it's credit research on a corporate bond
or a company visit for a small-cap consumer growth
name, our deep teams of sector experts eat, sleep
and breathe fundamental research. We believe that
fundamental research is the key to achieving
consistently superior returns over the long term.
STRENGTH IN PARTNERSHIP
Delaware Investments is the financial engine of
the Lincoln Financial Group(R) family. Like our
parent company, we understand the power of
partnerships in a knowledge-based industry. We
collaborate with a wide variety of financial
services organizations to provide the very best in
investment products and services.
(C)2006 Delaware Distributors, L.P.
Delaware Investments is the marketing name for
Delaware Management Holdings, Inc. and its
subsidiaries. Lincoln Financial Group is the
marketing name for Lincoln National Corporation
and its affiliates.
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
ii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: February 7, 2006
In the six months ended January 31, 2006, investors received mixed signals about
the direction of the U.S. economy, which during the period was absorbing the
effects of hurricanes Rita and Katrina. Fixed income investors found themselves
facing an unusual interest rate environment, as the shrinking difference between
short-term and long-term interest rates produced a condition sometimes referred
to by economists as a "flattening yield curve." This condition in the past has
sometimes preceded a recession, although many economists have recently noted the
limits of its predictive nature and voiced optimism about the economic outlook
for 2006.
January 31 marked not only the close of the six-month period for your Fund, but
the end of Alan Greenspan's term as acting Chairman of the U.S. Federal Reserve.
New Chairman Ben Bernanke takes over at a time when the Fed is deliberating
about monetary policy and how much further to raise its short-term interest rate
target in 2006.
The past six months have underscored an important lesson: No one can accurately
and consistently predict the course of financial markets or the direction of
interest rates, and attempts to do so are very often counterproductive. I
encourage you to work with your financial advisor to consider building a
portfolio that's diversified across the major investment asset classes --
stocks, bonds, and short-term reserves -- keeping the allocations appropriate
for your personal circumstances and risk tolerance. It is our belief at Delaware
Investments that a long-term perspective is always healthy, and we remind you
that fixed income investment vehicles may serve to balance investments in
stocks, which are historically more volatile.
If you are interested in acquiring more information about creating a
well-diversified investment plan, speak with your advisor or visit our Web site,
which includes more information about our funds and several interactive tools
that you might find useful.
Thank you as always for entrusting your hard-earned dollars to Delaware
Investments.
Sincerely,
/s/ Jude T. Driscoll
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
FAMILY OF FUNDS
COMPLETE INFORMATION ON ANY FUND OFFERED BY DELAWARE INVESTMENTS CAN BE FOUND IN
EACH FUND'S CURRENT PROSPECTUS. PROSPECTUSES FOR ALL FUNDS IN THE DELAWARE
INVESTMENTS(R) FAMILY OF FUNDS ARE AVAILABLE FROM YOUR FINANCIAL ADVISOR, ONLINE
AT WWW.DELAWAREINVESTMENTS.COM, OR BY PHONE AT 800 523-1918. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
GROWTH-EQUITY GROUP
Delaware American Services Fund
Delaware Growth Opportunities Fund
Delaware Large Cap Growth Fund
(formerly Delaware Diversified Growth Fund)
Delaware Select Growth Fund
Delaware Small Cap Growth Fund
Delaware Trend Fund
Delaware U.S. Growth Fund
VALUE-EQUITY GROUP
Delaware Dividend Income Fund
Delaware Large Cap Value Fund
Delaware REIT Fund
Delaware Small Cap Value Fund
Delaware Value Fund
CORE-EQUITY GROUP
Delaware Balanced Fund
Delaware Foundation Funds
Delaware Aggressive Allocation Portfolio
(formerly Delaware Growth Allocation Portfolio)
Delaware Moderate Allocation Portfolio
(formerly Delaware Balanced Allocation Portfolio)
Delaware Conservative Allocation Portfolio
(formerly Delaware Income Allocation Portfolio)
Delaware Small Cap Core Fund
(formerly Delaware Small Cap Contrarian Fund)
INTERNATIONAL GROUP
Delaware International Small Cap Value Fund
Delaware International Value Equity Fund
FIXED INCOME GROUP
Corporate and Government
Delaware American Government Bond Fund
Delaware Corporate Bond Fund
Delaware Delchester Fund
Delaware Diversified Income Fund
Delaware Extended Duration Bond Fund
Delaware High-Yield Opportunities Fund
Delaware Inflation Protected Bond Fund
Delaware Limited-Term Government Fund
Money Market
Delaware Cash Reserve Fund
Delaware Tax-Free Money Fund
Municipal (National Tax-Exempt)
Delaware National High-Yield Municipal Bond Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free USA Intermediate Fund
Municipal (State-Specific Tax-Exempt)
Delaware Tax-Free Arizona Insured Fund
Delaware Tax-Free California Fund
Delaware Tax-Free Colorado Fund
Delaware Tax-Free Florida Insured Fund
Delaware Tax-Free Idaho Fund
Delaware Minnesota High-Yield Municipal Bond Fund
Delaware Tax-Free Minnesota Fund
Delaware Tax-Free Minnesota Insured Fund
Delaware Tax-Free Minnesota Intermediate Fund
Delaware Tax-Free Missouri Insured Fund
Delaware Tax-Free New York Fund
Delaware Tax-Free Oregon Insured Fund
Delaware Tax-Free Pennsylvania Fund
GROWING STRONG TOGETHER
Lincoln Financial Group, through its affiliates, is a proven industry leader in
identifying and delivering sophisticated financial planning and product
solutions for the creation, protection, and enjoyment of wealth.
Delaware Investments is an asset management company committed to fundamental,
style-specific investment research across multiple asset classes.
ROOTED IN HISTORY
o The strength of both organizations today is a result of 100 years of
Lincoln history, 75+ years of Delaware Investments(R) history, and the past
10 years together.
o Delaware Investments is recognized as an integral part of Lincoln Financial
Group's ability to offer a broad variety of high-quality financial
solutions to investors.
o Together, they provide investors with the resources of a larger financial
services organization and the expertise, insight, and discipline of a
highly-respected investment management firm.
- --------------------------------------------------------------------------------
Simplify your life.
MANAGE YOUR INVESTMENTS ONLINE! [E:DELIVERY LOGO]
Get Account Access, Delaware Investments'(R) secure Web site that allows you to
conduct your business online. Gain 24-hour access to your account and one of the
highest levels of Web security available.
You also get:
o Hassle-Free Investing -- Make online purchases and redemptions at any time.
o Simplified Tax Processing -- Automatically retrieve your Delaware
Investments(R) accounts' 1099 information and import it directly into your
1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop
software -- www.turbotax.com.
o Less Mail Clutter -- Get instant access to your fund materials online with
Delaware eDelivery.
Register for Account Access today! Visit www.delawareinvestments.com, select
Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, to assist with any questions.
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iv
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIXED INCOME [DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
Semiannual Report JANUARY 31, 2006
- --------------------------------------------------------------------------------
DELAWARE DELCHESTER FUND
[POWERED BY RESEARCH(R) LOGO]
Table
OF CONTENTS
- --------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- --------------------------------------------------------------------------------
SECTOR ALLOCATION 2
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 3
Statement of Operations 7
Statements of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 13
- --------------------------------------------------------------------------------
ABOUT THE ORGANIZATION 16
- --------------------------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C)2006 Delaware Distributors, L.P.
- --------------------------------------------------------------------------------
Disclosure For the Period August 1, 2005 to January 31, 2006
- --------------------------------------------------------------------------------
OF FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period August 1, 2005 to January 31, 2006.
Actual Expenses
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions.
Delaware Delchester Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 8/1/05 to
8/1/05 1/31/06 Ratio 1/31/06*
- --------------------------------------------------------------------------------
Actual Fund Return
Class A $1,000.00 $1,023.60 1.20% $6.12
Class B 1,000.00 1,016.80 1.91% 9.71
Class C 1,000.00 1,019.90 1.91% 9.72
Institutional Class 1,000.00 1,025.10 0.91% 4.64
- --------------------------------------------------------------------------------
Hypothetical 5% Return
(5% return before expenses)
Class A $1,000.00 $1,019.16 1.20% $6.11
Class B 1,000.00 1,015.58 1.91% 9.70
Class C 1,000.00 1,015.58 1.91% 9.70
Institutional Class 1,000.00 1,020.62 0.91% 4.63
- --------------------------------------------------------------------------------
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
1
- --------------------------------------------------------------------------------
Sector Allocation As of January 31, 2006
- --------------------------------------------------------------------------------
DELAWARE DELCHESTER FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
- --------------------------------------------------------------------------------
Collateralized Bond Obligations 0.11%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 0.66%
- --------------------------------------------------------------------------------
Corporate Bonds 91.83%
- --------------------------------------------------------------------------------
Banking 0.24%
Basic Industry 13.11%
Brokerage 2.37%
Capital Goods 6.13%
Consumer Cyclical 5.87%
Consumer Non-Cyclical 7.50%
Energy 5.31%
Finance & Investments 0.92%
Media 11.36%
Real Estate 2.24%
Services Cyclical 11.07%
Services Non-Cyclical 7.18%
Technology & Electronics 1.94%
Telecommunications 10.47%
Utilities 6.12%
- --------------------------------------------------------------------------------
Emerging Market Bonds 3.72%
- --------------------------------------------------------------------------------
Common Stock 1.92%
- --------------------------------------------------------------------------------
Preferred Stocks 0.44%
- --------------------------------------------------------------------------------
Warrants 0.00%
- --------------------------------------------------------------------------------
Repurchase Agreements 1.31%
- --------------------------------------------------------------------------------
Total Market Value of Securities Before Securities Lending Collateral 99.99%
- --------------------------------------------------------------------------------
Securities Lending Collateral 21.73%
- --------------------------------------------------------------------------------
Total Market Value of Securities 121.72%
- --------------------------------------------------------------------------------
Obligation to Return Securities Lending Collateral (21.73%)
- --------------------------------------------------------------------------------
Receivables and Other Assets Net of Liabilities 0.01%
- --------------------------------------------------------------------------------
Total Net Assets 100.00%
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statement January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Collateralized Bond Obligations - 0.11%
- --------------------------------------------------------------------------------
=@o#Merrill Lynch CBO VII
Series 1997-C3A 144A
4.879% 3/23/08 $ 703,735 $ 164,361
=@South Street CBO
Series 1999-1A A1 7.16% 7/1/11 166,207 167,035
-------------
Total Collateralized Bond Obligations
(cost $552,058) 331,396
-------------
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities - 0.66%
- --------------------------------------------------------------------------------
#First Union National Bank Commercial
Mortgage Series 2001-C2 L 144A
6.46% 1/12/43 2,025,000 2,007,949
-------------
Total Commercial Mortgage-Backed
Securities (cost $2,055,296) 2,007,949
-------------
- --------------------------------------------------------------------------------
Corporate Bonds - 91.83%
- --------------------------------------------------------------------------------
Banking - 0.24%
Western Financial 9.625% 5/15/12 645,000 725,625
-------------
725,625
-------------
Basic Industry - 13.11%
Abitibi-Consolidated
6.95% 12/15/06 125,000 126,563
6.95% 4/1/08 137,000 135,630
7.875% 8/1/09 590,000 578,200
*AK Steel 7.875% 2/15/09 2,070,000 2,049,300
Bowater 9.50% 10/15/12 3,795,000 3,927,824
Donohue Forest Products
7.625% 5/15/07 1,000,000 1,015,000
Georgia-Pacific 9.50% 12/1/11 2,285,000 2,462,088
Gold Kist 10.25% 3/15/14 1,185,000 1,321,275
*Huntsman International
10.125% 7/1/09 575,000 597,281
#Ineos Group Holdings 144A
8.50% 2/15/16 3,000,000 2,999,999
*#Nell AF Sarl 144A 8.375% 8/15/15 1,850,000 1,856,938
NewPage 10.00% 5/1/12 2,395,000 2,430,925
Norske Skog Canada 8.625% 6/15/11 1,760,000 1,698,400
#Port Townsend Paper 144A
12.00% 4/15/11 2,730,000 1,856,400
Potlatch 13.00% 12/1/09 2,545,000 3,030,132
Rhodia
*8.875% 6/1/11 1,702,000 1,744,550
10.25% 6/1/10 1,218,000 1,355,025
Smurfit Capital Funding
7.50% 11/20/25 3,205,000 2,884,500
*++Solutia 6.72% 10/15/37 4,045,000 3,306,787
Stone Container 9.25% 2/1/08 525,000 542,063
Tembec Industries 8.625% 6/30/09 4,805,000 2,270,363
Witco 6.875% 2/1/26 1,520,000 1,466,800
-------------
39,656,043
-------------
Brokerage - 2.37%
*E Trade Financial 8.00% 6/15/11 3,110,000 3,249,950
LaBranche & Company
9.50% 5/15/09 1,650,000 1,765,500
11.00% 5/15/12 1,925,000 2,146,375
-------------
7,161,825
-------------
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Capital Goods - 6.13%
*Armor Holdings 8.25% 8/15/13 $ 2,245,000 $ 2,435,825
DRS Technologies 6.875% 11/1/13 1,375,000 1,371,563
*Graham Packaging 9.875% 10/15/14 2,365,000 2,353,175
*Interface 10.375% 2/1/10 2,470,000 2,698,474
Interline Brands 11.50% 5/15/11 2,221,000 2,476,415
Intertape Polymer 8.50% 8/1/14 2,000,000 1,980,000
~Mueller Holdings 14.75% 4/15/14 3,310,000 2,548,700
#Panolam Industrial 144A 10.75% 10/1/13 1,115,000 1,062,038
*Trimas 9.875% 6/15/12 1,865,000 1,603,900
-------------
18,530,090
-------------
Consumer Cyclical - 5.87%
Accuride 8.50% 2/1/15 1,910,000 1,910,000
General Motors Acceptance Corporation
6.875% 9/15/11 745,000 712,084
*8.00% 11/1/31 1,570,000 1,605,223
*Landry's Restaurant 7.50% 12/15/14 1,835,000 1,743,250
*Metaldyne 10.00% 11/1/13 2,705,000 2,488,600
#Neiman Marcus 144A 9.00% 10/15/15 1,655,000 1,725,338
*O'Charleys 9.00% 11/1/13 2,300,000 2,357,500
#Uno Restaurant 144A 10.00% 2/15/11 2,100,000 1,779,750
++Venture Holdings 12.00% 6/1/09 3,465,000 6,514
*Visteon
7.00% 3/10/14 465,000 362,700
8.25% 8/1/10 1,420,000 1,203,450
*Warnaco 8.875% 6/15/13 1,735,000 1,865,125
-------------
17,759,534
-------------
Consumer Non-Cyclical - 7.50%
Biovail 7.875% 4/1/10 4,150,000 4,310,813
*Constellation Brands 8.125% 1/15/12 750,000 789,375
Cott Beverages 8.00% 12/15/11 1,330,000 1,366,575
#Doane Pet Care 144A 10.625% 11/15/15 1,195,000 1,254,750
#Le-Natures 144A 10.00% 6/15/13 2,275,000 2,400,125
*National Beef Packing 10.50% 8/1/11 2,380,000 2,451,400
*Pilgrim's Pride 9.625% 9/15/11 1,475,000 1,570,875
Playtex Products 9.375% 6/1/11 1,965,000 2,075,531
Swift & Co. 12.50% 1/1/10 715,000 689,975
True Temper Sports 8.375% 9/15/11 2,380,000 2,177,700
#Warner Chilcott 144A 8.75% 2/1/15 3,645,000 3,590,325
-------------
22,677,444
-------------
Energy - 5.31%
Bluewater Finance 10.25% 2/15/12 1,600,000 1,731,999
*#Compton Petroleum 144A 7.625% 12/1/13 805,000 825,125
#Copano Energy 144A 8.125% 3/1/16 605,000 616,344
El Paso Natural Gas 7.625% 8/1/10 1,350,000 1,428,517
El Paso Production Holding 7.75% 6/1/13 2,290,000 2,433,124
#Hilcorp Energy 144A
*7.75% 11/1/15 645,000 660,319
10.50% 9/1/10 1,039,000 1,155,888
Inergy 6.875% 12/15/14 1,595,000 1,511,263
#Inergy 144A 8.25% 3/1/16 490,000 498,575
oSecunda International 12.60% 9/1/12 1,545,000 1,645,425
Tennessee Gas Pipeline 8.375% 6/15/32 1,265,000 1,490,118
#VeraSun Energy 144A 9.875% 12/15/12 740,000 762,200
Whiting Petroleum 7.25% 5/1/13 1,270,000 1,296,988
-------------
16,055,885
-------------
3
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Finance & Investments - 0.92%
FINOVA Group 7.50% 11/15/09 $ 4,310,650 $ 1,508,728
#C&M Finance 144A 8.10% 2/1/16 1,250,000 1,263,696
-------------
2,772,424
-------------
Media - 11.36%
***Adelphia Communications 8.125% 7/15/06 3,300,000 2,161,500
#CCH I 144A 11.00% 10/1/15 2,737,000 2,264,868
*Cenveo 9.625% 3/15/12 1,115,000 1,201,413
#Charter Communications 144A
5.875% 11/16/09 1,080,000 764,100
*Charter Communications Holdings
11.125% 1/15/11 2,460,000 1,316,100
~13.50% 1/15/11 2,490,000 1,494,000
o#Cleveland Unlimited 144A
12.73% 12/15/10 820,000 832,300
*CSC Holdings 10.50% 5/15/16 4,090,000 4,371,187
Insight Midwest 10.50% 11/1/10 4,360,000 4,616,149
Lodgenet Entertainment 9.50% 6/15/13 2,770,000 3,005,449
*Mediacom Capital 9.50% 1/15/13 2,800,000 2,793,000
#RH Donnelley 144A 8.875% 1/15/16 1,390,000 1,412,588
Sheridan Acquisition 10.25% 8/15/11 1,525,000 1,576,469
*Sirius Satellite 9.625% 8/1/13 2,335,000 2,305,813
*Vertis 10.875% 6/15/09 790,000 778,150
Warner Music Group 7.375% 4/15/14 1,130,000 1,132,825
*XM Satellite Radio 12.00% 6/15/10 2,080,000 2,340,000
-------------
34,365,911
-------------
Real Estate - 2.24%
American Real Estate Partners
8.125% 6/1/12 1,821,000 1,912,050
BF Saul REIT 7.50% 3/1/14 2,255,000 2,317,013
Tanger Properties 9.125% 2/15/08 2,385,000 2,544,182
-------------
6,773,245
-------------
Services Cyclical - 11.07%
*Adesa 7.625% 6/15/12 1,600,000 1,608,000
American Airlines 7.379% 5/23/16 353,707 290,642
Boyd Gaming 7.125% 2/1/16 455,000 453,863
*#CCM Merger 144A 8.00% 8/1/13 1,360,000 1,332,800
Corrections Corporation of America
7.50% 5/1/11 1,575,000 1,632,094
Foster Wheeler 10.359% 9/15/11 389,750 436,520
#FTI Consulting 144A 7.625% 6/15/13 500,000 520,000
*#Galaxy Entertainment 144A
9.875% 12/15/12 1,860,000 1,915,800
Gaylord Entertainment 8.00% 11/15/13 575,000 600,875
~H-Lines Finance Holdings 11.00% 4/1/13 2,543,000 2,123,405
#Hertz 144A
8.875% 1/1/14 1,080,000 1,120,500
*10.50% 1/1/16 480,000 504,000
Horizon Lines 9.00% 11/1/12 650,000 689,813
Kansas City Southern Railway
9.50% 10/1/08 1,810,000 1,966,113
#Knowledge Learning 144A 7.75% 2/1/15 1,425,000 1,368,000
#Majestic Star Casino 144A 9.75% 1/15/11 705,000 724,388
Mandalay Resort Group 10.25% 8/1/07 305,000 326,350
OMI 7.625% 12/1/13 2,445,000 2,521,405
Penn National Gaming 8.875% 3/15/10 2,920,000 3,069,649
Royal Caribbean Cruises 7.25% 3/15/18 565,000 613,832
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Services Cyclical (continued)
Seabulk International 9.50% 8/15/13 $ 2,005,000 $ 2,245,600
*Stena 9.625% 12/1/12 2,065,000 2,261,175
~Town Sports International 11.00% 2/1/14 1,890,000 1,384,425
*United Air Lines 7.73% 7/1/10 534,591 529,448
*Wheeling Island Gaming 10.125% 12/15/09 3,075,000 3,232,593
-------------
33,471,290
-------------
Services Non-Cyclical - 7.18%
#Accellent 144A 10.50% 12/1/13 1,865,000 1,958,250
Aleris International 9.00% 11/15/14 2,235,000 2,346,750
Allied Waste North America 9.25% 9/1/12 2,305,000 2,506,688
Casella Waste Systems 9.75% 2/1/13 2,760,000 2,911,800
#CRC Health 144A 10.75% 2/1/16 1,300,000 1,326,000
Geo Subordinate 11.00% 5/15/12 2,795,000 2,711,150
Healthsouth 10.75% 10/1/08 2,450,000 2,431,625
US Oncology 10.75% 8/15/14 2,734,000 3,034,740
~Vanguard Health 11.25% 10/1/15 3,375,000 2,480,625
-------------
21,707,628
-------------
Technology & Electronics - 1.94%
*Magnachip Semiconductor
8.00% 12/15/14 1,650,000 1,604,625
Sanmina-SCI
8.125% 3/1/16 1,085,000 1,103,988
10.375% 1/15/10 940,000 1,035,175
*#Sunguard Data Systems 144A
10.25% 8/15/15 2,110,000 2,131,100
-------------
5,874,888
-------------
Telecommunications - 10.47%
Alaska Communications Systems
9.875% 8/15/11 1,562,000 1,714,295
++Allegiance Telecom 11.75% 2/15/08 2,045,000 541,925
American Cellular 10.00% 8/1/11 1,230,000 1,343,775
*American Tower 7.125% 10/15/12 1,825,000 1,902,563
*#Centennial Communications 144A
10.00% 1/1/13 1,060,000 1,102,400
*Cincinnati Bell 8.375% 1/15/14 2,890,000 2,853,874
#Digicel 144A 9.25% 9/1/12 1,900,000 2,004,500
~Inmarsat Finance 10.375% 11/15/12 3,505,000 2,939,818
iPCS 11.50% 5/1/12 1,445,000 1,672,588
oIwo Escrow 8.35% 1/15/12 235,000 244,988
MCI 7.688% 5/1/09 1,480,000 1,529,950
Panamsat Holding 9.00% 8/15/14 615,000 649,594
Qwest 7.875% 9/1/11 510,000 541,875
o#Qwest 144A 7.741% 6/15/13 2,030,000 2,200,013
*Rural Cellular 9.875% 2/1/10 1,410,000 1,522,800
*o#Rural Cellular 144A 10.041% 11/1/12 1,025,000 1,058,313
*#Telcordia Technologies 144A
10.00% 3/15/13 3,220,000 2,962,399
*Triton Communications 9.375% 2/1/11 1,645,000 1,110,375
*oUS LEC 12.716% 10/1/09 1,300,000 1,404,000
*#Wind Acquisition 144A 10.75% 12/1/15 2,190,000 2,346,038
-------------
31,646,083
-------------
4
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Utilities - 6.12%
++Calpine 10.50% 5/15/06 $ 1,030,000 $ 432,600
++#Calpine 144A 9.90% 7/15/07 1,827,925 1,647,417
#Dynegy Holdings 144A 10.125% 7/15/13 1,920,000 2,176,800
Elwood Energy 8.159% 7/5/26 2,028,850 2,213,092
Midwest Generation
8.30% 7/2/09 2,425,000 2,509,875
8.75% 5/1/34 1,250,000 1,375,000
*Mirant Americas Generation
8.30% 5/1/11 2,300,000 2,369,000
NRG Energy 7.25% 2/1/14 3,020,000 3,076,626
Orion Power Holdings 12.00% 5/1/10 1,490,000 1,706,050
Reliant Energy 9.50% 7/15/13 990,000 985,050
=++#USGen New England 144A
7.459% 1/2/15 1,700,000 12,240
-------------
18,503,750
-------------
Total Corporate Bonds (cost $284,829,158) 277,681,665
-------------
- --------------------------------------------------------------------------------
Emerging Market Bonds - 3.72%
- --------------------------------------------------------------------------------
#Adaro Finance 144A 8.50% 12/8/10 990,000 1,009,800
*Naftogaz Ukrainy 8.125% 9/30/09 2,500,000 2,529,750
Republic of El Salvador 7.65% 6/15/35 2,940,000 3,160,500
Southern Peru 7.50% 7/27/35 2,175,000 2,183,991
Venezuela Government 9.375% 1/13/34 1,895,000 2,373,488
-------------
Total Emerging Market Bonds
(cost $10,553,747) 11,257,529
-------------
Number of
Shares
- --------------------------------------------------------------------------------
Common Stock - 1.92%
- --------------------------------------------------------------------------------
=@+==Avado Brands Restricted 9,305 130,549
B&G Foods 27,900 412,362
+Foster Wheeler 42,375 2,086,957
*+Mirant 56,424 1,579,872
*+Petroleum Geo-Services ADR 34,931 1,257,167
+XM Satellite Radio Holdings Class A 12,257 320,889
-------------
Total Common Stock (cost $3,471,778) 5,787,796
-------------
- --------------------------------------------------------------------------------
Preferred Stocks - 0.44%
- --------------------------------------------------------------------------------
Alamosa Delaware 7.50% 960 1,323,120
-------------
Total Preferred Stocks (cost $311,520) 1,323,120
-------------
- --------------------------------------------------------------------------------
Warrants - 0.00%
- --------------------------------------------------------------------------------
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 4,410 0
-------------
Total Warrants (cost $367,920) 0
-------------
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Repurchase Agreements - 1.31%
- --------------------------------------------------------------------------------
With BNP Paribas 4.37% 2/1/06
(dated 1/31/06, to be repurchased
at $2,321,282, collateralized by
$1,092,000 U.S. Treasury Notes
2.00% due 5/15/06, market value
$1,089,157, $512,000 U.S. Treasury
Notes 2.375% due 8/15/06, market
value $511,837 and $774,000
U.S. Treasury Notes 2.625%
due 11/15/06, market value $767,104) $ 2,321,000 $ 2,321,000
With Cantor Fitzgerald 4.36% 2/1/06
(dated 1/31/06, to be repurchased
at $1,638,198, collateralized by
$127,000 U.S. Treasury Bills due
6/22/06, market value $124,758,
$749,000 U.S. Treasury Notes
3.50% due 11/15/06, market value
$747,867 and $819,000 U.S. Treasury
Notes 3.625% due 7/15/09, market
value $798,609) 1,638,000 1,638,000
-------------
Total Repurchase Agreements
(cost $3,959,000) 3,959,000
-------------
Total Market Value of Securities Before
Securities Lending Collateral - 99.99%
(cost $306,100,477) 302,348,455
-------------
- --------------------------------------------------------------------------------
Securities Lending Collateral** - 21.73%
- --------------------------------------------------------------------------------
Fixed Rate Demand Notes - 5.18%
Citigroup Global Markets 4.54% 2/1/06 14,831,673 14,831,673
Washington Mutual 4.54% 3/28/06 833,509 833,509
-------------
15,665,182
-------------
oVariable Rate Demand Notes - 16.55%
ANZ National 4.40% 2/28/07 416,754 416,754
Australia New Zealand 4.49% 2/28/07 2,083,773 2,083,773
Bank of America 4.57% 2/23/07 2,708,905 2,708,905
Bank of New York 4.39% 2/28/07 1,667,018 1,667,018
Bank of the West 4.36% 3/2/06 2,083,773 2,083,773
Bayerische Landesbank 4.54% 8/25/06 2,083,773 2,083,773
Bear Stearns 4.48% 7/31/06 2,500,527 2,500,527
Beta Finance 4.58% 4/18/06 2,083,773 2,083,721
Canadian Imperial Bank 4.49% 2/28/07 1,041,886 1,041,886
CDC Financial Products 4.60% 2/28/06 2,708,905 2,708,905
Citigroup Global Markets 4.57% 2/7/06 2,708,905 2,708,905
Commonwealth Bank Australia 4.49% 2/28/07 2,083,773 2,083,773
Credit Suisse First Boston New York
4.46% 4/18/06 2,250,475 2,250,475
Goldman Sachs 4.64% 1/31/07 2,708,905 2,708,905
Manufacturers & Traders 4.52% 9/26/06 2,083,773 2,083,433
Marshall & Ilsley Bank 4.45% 2/28/07 2,292,150 2,292,150
Merrill Lynch Mortgage Capital 4.60% 2/7/06 1,875,396 1,875,396
5
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Securities Lending Collateral (continued)
- --------------------------------------------------------------------------------
oVariable Rate Demand Notes (continued)
Morgan Stanley 4.68% 1/31/07 $ 2,583,878 $ 2,583,878
Nordea Bank Norge ASA
4.42% 2/28/07 2,083,773 2,083,773
Procter & Gamble 4.46% 2/28/07 2,083,773 2,083,773
Royal Bank of Scotland 4.48% 2/28/07 2,083,773 2,083,773
Sigma Finance 4.58% 3/16/06 625,132 625,153
Societe Generale New York 4.36% 2/28/07 1,041,886 1,041,886
Toyota Motor Credit 4.55% 6/23/06 2,083,773 2,083,878
Wells Fargo 4.46% 2/28/07 2,083,773 2,083,773
-------------
50,051,959
-------------
Total Securities Lending Collateral
($65,717,141) 65,717,141
-------------
Total Market Value of Securities - 121.72%
(cost $371,817,618) 368,065,596+++
Obligation to Return Securities Lending
Collateral** - (21.73%) (65,717,141)
Receivables and Other Assets
Net of Liabilities - 0.01% 35,474
-------------
Net Assets Applicable to 92,560,099 Shares
Outstanding - 100.00% $ 302,383,929
=============
Net Asset Value - Delaware Delchester Fund
Class A ($235,900,878 / 72,238,082 Shares) $ 3.27
-------------
Net Asset Value - Delaware Delchester Fund
Class B ($36,033,760 / 11,011,970 Shares) $ 3.27
-------------
Net Asset Value - Delaware Delchester Fund
Class C ($14,976,256 / 4,572,223 Shares) $ 3.28
-------------
Net Asset Value - Delaware Delchester Fund
Institutional Class
($15,473,035 / 4,737,824 Shares) $ 3.27
-------------
Components of Net Assets at January 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $ 944,871,930
Undistributed net investment income 4,506
Accumulated net realized loss on investments (638,740,485)
Net unrealized depreciation of investments (3,752,022)
-------------
Total net assets $ 302,383,929
=============
Summary of Abbreviations:
ADR - American Depositary Receipts
CBO - Collateralized Bond Obligation
REIT- Real Estate Investment Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At January 31, 2006, the aggregate amount of Rule 144A securities
equals $61,174,734, which represented 20.23% of the Fund's net assets. See
Note 8 in "Notes to Financial Statements."
== Restricted Security. Investment in a security not registered under the
Securities Act of 1933. This security has certain restrictions on resale
which may limit its liquidity. At January 31, 2006, the aggregate amount
of the restricted security equals $130,549 or 0.04% of the Fund's net
assets. See Note 8 in "Notes to Financial Statements."
~ Step coupon bond. Indicates security that has a zero coupon that remains
in effect until a predetermined date at which time the stated interest
rate becomes effective.
* Fully or partially on loan.
** See note 7 in "Notes to Financial Statements."
+++ Includes $64,656,355 of securities loaned.
o Variable rate securities. The interest rate shown is the rate as of
January 31, 2006.
+ Non-income producing security for the period ended January 31, 2006.
++ Non-income producing security. Security is currently in default.
*** Security is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in process to determine distribution of assets.
The date listed is the estimate of when proceedings will be finalized.
@ Illiquid security. At January 31, 2006, the aggregate amount of illiquid
securities equals $461,945, which represented 0.15% of the Fund's net
assets. See Note 8 in "Notes to Financial Statements."
= Security is being fair valued in accordance with the Fund's fair valuation
policy. At January 31, 2006, the aggregate amount of fair valued
securities equals $474,185, which represented 0.16% of the Fund's net
assets. See Note 1 in "Notes to Financial Statements."
Net Asset Value and Offering Price per Share -
Delaware Delchester Fund
Net asset value Class A (A) $ 3.27
Sales charge (4.50% of offering price) (B) 0.15
-------
Offering price $ 3.42
=======
(A) Net asset value per share, as illustrated, is the 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
6
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statement Six Months Ended January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF OPERATIONS
Investment Income:
Interest $ 13,731,177
Securities lending income 132,289
Dividends 25,761 $ 13,889,227
------------ ------------
Expenses:
Management fees 1,017,679
Distribution expenses -- Class A 345,497
Distribution expenses -- Class B 203,097
Distribution expenses -- Class C 73,598
Dividend disbursing and transfer agent fees and expenses 361,278
Accounting and administration expenses 63,751
Registration fees 37,750
Legal and professional fees 32,145
Reports and statements to shareholders 28,968
Custodian fees 18,796
Trustees' fees 8,339
Insurance fees 5,431
Pricing fees 2,547
Taxes (other than taxes on income) 1,946
Other 3,432 2,204,254
------------
Less expenses absorbed or waived (155,506)
------------
Total expenses 2,048,748
------------
Net Investment Income 11,840,479
------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 1,336,375
Net change in unrealized appreciation/depreciation of investments (6,720,663)
------------
Net Realized and Unrealized Loss on Investments (5,384,288)
------------
Net Increase in Net Assets Resulting from Operations $ 6,456,191
============
See accompanying notes
7
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Statements
- --------------------------------------------------------------------------------
OF CHANGES IN NET ASSETS
Six Months Year
Ended Ended
1/31/06 7/31/05
(Unaudited)
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 11,840,479 $ 25,877,808
Net realized gain on investments 1,336,375 20,059,634
Net change in unrealized appreciation/depreciation of investments (6,720,663) (800,316)
------------- -------------
Net increase in net assets resulting from operations 6,456,191 45,137,126
------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (9,251,951) (20,606,367)
Class B (1,401,338) (3,987,176)
Class C (507,592) (1,157,169)
Institutional Class (623,351) (1,745,099)
------------- -------------
(11,784,232) (27,495,811)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 31,799,077 86,807,210
Class B 2,380,691 6,503,838
Class C 4,600,311 7,835,958
Institutional Class 2,172,681 14,999,421
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 5,136,507 11,323,524
Class B 680,592 1,773,712
Class C 320,675 674,100
Institutional Class 595,423 1,588,434
------------- -------------
47,685,957 131,506,197
------------- -------------
Cost of shares repurchased:
Class A (65,981,915) (106,102,348)
Class B (12,244,375) (27,460,989)
Class C (5,995,098) (8,397,656)
Institutional Class (4,380,564) (19,126,027)
------------- -------------
(88,601,952) (161,087,020)
------------- -------------
Decrease in net assets derived from capital share transactions (40,915,995) (29,580,823)
------------- -------------
Net Decrease in Net Assets (46,244,036) (11,939,508)
Net Assets:
Beginning of period 348,627,965 360,567,473
------------- -------------
End of period (including undistributed net investment income of $4,506 and $12,265,
respectively) $ 302,383,929 $ 348,627,965
============= =============
See accompanying notes
8
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 3.320 $ 3.180 $ 3.000 $ 2.580 $ 3.110 $ 4.390
Income (loss) from investment operations:
Net investment income(3) 0.127 0.243 0.258 0.303 0.317 0.432
Net realized and unrealized gain (loss) on investments (0.051) 0.155 0.186 0.399 (0.543) (1.276)
----------- --------- --------- --------- --------- ---------
Total from investment operations 0.076 0.398 0.444 0.702 (0.226) (0.844)
----------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.126) (0.258) (0.264) (0.282) (0.304) (0.436)
----------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.126) (0.258) (0.264) (0.282) (0.304) (0.436)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 3.270 $ 3.320 $ 3.180 $ 3.000 $ 2.580 $ 3.110
=========== ========= ========= ========= ========= =========
Total return(4) 2.36% 12.84% 15.22% 28.67% (7.94%) (20.22%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 235,901 $ 269,002 $ 263,960 $ 253,966 $ 188,736 $ 278,975
Ratio of expenses to average net assets 1.20% 1.25% 1.34% 1.47% 1.32% 1.25%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.30% 1.27% 1.34% 1.47% 1.32% 1.33%
Ratio of net investment income to average net assets 7.67% 7.36% 8.19% 10.93% 10.76% 11.63%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 7.57% 7.34% 8.19% 10.93% 10.76% 11.55%
Portfolio turnover 144% 254% 674% 788% 441% 294%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.019, a decrease in net realized and unrealized gain
(loss) per share of $0.019, and an increase in ratio of net investment
income to average net assets of 0.65%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information for the years ended July 31, 2003, 2002, and 2001.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
9
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 3.330 $ 3.180 $ 3.010 $ 2.590 $ 3.120 $ 4.390
Income (loss) from investment operations:
Net investment income(3) 0.115 0.219 0.236 0.283 0.295 0.405
Net realized and unrealized gain (loss) on investments (0.061) 0.165 0.176 0.399 (0.543) (1.270)
----------- --------- --------- --------- --------- ---------
Total from investment operations 0.054 0.384 0.412 0.682 (0.248) (0.865)
----------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.114) (0.234) (0.242) (0.262) (0.282) (0.405)
----------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.114) (0.234) (0.242) (0.262) (0.282) (0.405)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 3.270 $ 3.330 $ 3.180 $ 3.010 $ 2.590 $ 3.120
=========== ========= ========= ========= ========= =========
Total return(4) 1.68% 12.37% 14.02% 27.68% (8.28%) (20.85%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 36,034 $ 45,973 $ 62,243 $ 82,345 $ 79,507 $ 118,235
Ratio of expenses to average net assets 1.91% 1.97% 2.06% 2.19% 2.04% 1.98%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 2.01% 1.99% 2.06% 2.19% 2.04% 2.06%
Ratio of net investment income to average net assets 6.96% 6.64% 7.48% 10.21% 10.04% 10.90%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 6.86% 6.62% 7.48% 10.21% 10.04% 10.82%
Portfolio turnover 144% 254% 674% 788% 441% 294%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.019, a decrease in net realized and unrealized gain
(loss) per share of $0.019, and an increase in ratio of net investment
income to average net assets of 0.65%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information for the years ended July 31, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
10
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 3.330 $ 3.180 $ 3.010 $ 2.590 $ 3.120 $ 4.390
Income (loss) from investment operations:
Net investment income(3) 0.115 0.219 0.235 0.283 0.295 0.405
Net realized and unrealized gain (loss) on investments (0.051) 0.165 0.176 0.399 (0.543) (1.270)
----------- --------- --------- --------- --------- ---------
Total from investment operations 0.064 0.384 0.411 0.682 (0.248) (0.865)
----------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.114) (0.234) (0.241) (0.262) (0.282) (0.405)
----------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.114) (0.234) (0.241) (0.262) (0.282) (0.405)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 3.280 $ 3.330 $ 3.180 $ 3.010 $ 2.590 $ 3.120
=========== ========= ========= ========= ========= =========
Total return(4) 1.99% 12.35% 14.00% 27.68% (8.28%) (20.85%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 14,976 $ 16,271 $ 15,337 $ 16,965 $ 11,176 $ 16,841
Ratio of expenses to average net assets 1.91% 1.97% 2.06% 2.19% 2.04% 1.98%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 2.01% 1.99% 2.06% 2.19% 2.04% 2.06%
Ratio of net investment income to average net assets 6.96% 6.64% 7.48% 10.21% 10.04% 10.90%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 6.86% 6.62% 7.48% 10.21% 10.04% 10.82%
Portfolio turnover 144% 254% 674% 788% 441% 294%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.019, a decrease in net realized and unrealized gain
(loss) per share of $0.019, and an increase in ratio of net investment
income to average net assets of 0.65%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information for the years ended July 31, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
11
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Delchester Fund Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 3.320 $ 3.180 $ 3.000 $ 2.590 $ 3.110 $ 4.390
Income (loss) from investment operations:
Net investment income(3) 0.132 0.252 0.267 0.311 0.325 0.442
Net realized and unrealized gain (loss) on investments (0.051) 0.155 0.186 0.389 (0.533) (1.277)
----------- --------- --------- --------- --------- ---------
Total from investment operations 0.081 0.407 0.453 0.700 (0.208) (0.835)
----------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.131) (0.267) (0.273) (0.290) (0.312) (0.445)
----------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.131) (0.267) (0.273) (0.290) (0.312) (0.445)
----------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 3.270 $ 3.320 $ 3.180 $ 3.000 $ 2.590 $ 3.110
=========== ========= ========= ========= ========= =========
Total return(4) 2.51% 13.16% 15.17% 29.46% (7.69%) (19.98%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 15,473 $ 17,382 $ 19,027 $ 17,296 $ 10,542 $ 20,112
Ratio of expenses to average net assets 0.91% 0.97% 1.06% 1.19% 1.04% 0.98%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.01% 0.99% 1.06% 1.19% 1.04% 1.06%
Ratio of net investment income to average net assets 7.96% 7.64% 8.48% 11.21% 11.04% 11.90%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 7.86% 7.62% 8.48% 11.21% 11.04% 11.82%
Portfolio turnover 144% 254% 674% 788% 441% 294%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was an increase in net investment
income per share of $0.019, a decrease in net realized and unrealized gain
(loss) per share of $0.019, and an increase in ratio of net investment
income to average net assets of 0.65%. Per share data and ratios for
periods prior to August 1, 2001 have not been restated to reflect these
changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information for the years ended July 31, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
12
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Notes January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS
Delaware Group Income Funds (the "Trust") is organized as a Delaware statutory
trust and offers four series: Delaware Corporate Bond Fund, Delaware Delchester
Fund, Delaware Extended Duration Bond Fund and Delaware High-Yield Opportunities
Fund. These financial statements and the related notes pertain to Delaware
Delchester Fund (the "Fund"). The Trust is an open-end investment company. The
Fund is considered diversified under the Investment Company Act of 1940, as
amended, and offers Class A, Class B, Class C, Class R, and Institutional Class
shares. Class A shares are sold with a front-end sales charge of up to 4.50%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first 12 months.
Class R and Institutional Class shares are not subject to a sales charge and are
offered for sale exclusively to a limited group of investors. As of January 31,
2006, Class R has not commenced operations. The investment objective of the Fund
is to seek total return, and as a secondary objective, high current income.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of regular close of the New York Stock Exchange (NYSE) on the valuation date.
Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. 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. Short-term debt securities having less than 60 days to
maturity are valued at amortized cost, which approximates market value.
Securities lending collateral is 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 under the
direction of the Fund's Board of Trustees. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
Class Accounting -- Investment income and common expenses are allocated to the
classes of the Fund on the basis of "settled shares" of each class in relation
to the net assets of the Fund. 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(R) Family of Funds pursuant to an
exemptive order issued by the Securities and Exchange Commission. 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 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.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. 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(R) Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. 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. Discounts and premiums are amortized to interest
income over the lives of the respective securities. Realized gains (losses) on
paydowns of mortgage-and asset-backed securities are classified as interest
income. The Fund declares dividends daily from net investment income and pays
such dividends monthly and declares and pays distributions from net realized
gain on investments, if any, annually.
The Fund may receive 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 six months ended January 31, 2006.
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the Investment Manager, 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
average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.91% of average daily net assets until November 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average
daily net assets for accounting and administration services. The Fund pays DSC a
monthly fee based on the number of shareholder accounts for dividend disbursing
and transfer agent services.
13
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates (continued)
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares, and 0.60% of the average daily net assets of Class R shares.
Effective August 1, 2005, DDLP has contracted to limit distribution and service
fees through November 30, 2006 in order to prevent distribution and service fees
of Class R shares from exceeding 0.50% of average daily net assets.
Institutional Class shares pay no distribution and service expenses.
The Board of Trustees has adopted a formula for calculating 12b-1 plan fees for
the Fund's Class A shares that went into effect on June 1, 1992. The total 12b-1
fees to be paid by Class A shareholders of the Fund will be the sum of 0.10% of
the average daily net assets representing shares that were acquired prior to
June 1, 1992 and 0.30% of the average daily net assets representing shares that
were acquired on or after June 1, 1992. All Class A shareholders will bear 12b-1
fees at the same rate, the blended rate based upon the allocation of the 0.10%
and 0.30% rates described above.
At January 31, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fees payable to DMC $150,481
Dividend disbursing, transfer agent, accounting and
administration fees and other expenses payable to DSC 70,687
Distribution fee payable to DDLP 102,455
Other expenses payable to DMC and affiliates* 7,470
* DMC, as part of its administrative services, pays operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit,
legal and tax services, registration fees and trustees' fees.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended January 31, 2006, the cost
for internal legal services provided by DMC was $10,859.
For the six months ended January 31, 2006, DDLP earned $7,541 for commissions on
sales of the Fund's Class A shares. For the six months ended January 31, 2006,
DDLP received gross contingent deferred sales charge commissions of $419,
$24,593 and $214 on redemption of the Fund's Class A, Class B and Class C
shares, respectively, and these commissions were entirely used to offset
up-front commissions previously paid by DDLP to broker-dealers on sales of those
shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the six months ended January 31, 2006, the Fund made purchases of
$220,836,333 and sales of $252,691,400 of investment securities other than
short-term investments.
At January 31, 2006, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
fiscal year end. At January 31, 2006, the cost of investments was $372,448,767.
At January 31, 2006, the net unrealized depreciation was $4,383,171, of which
$9,519,890 related to unrealized appreciation of investments and $13,903,061
related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the six
months ended January 31, 2006 and year ended July 31, 2005 was as follows:
Six Months Year
Ended Ended
1/31/06* 7/31/05
----------- -----------
Ordinary income $11,784,232 $27,495,811
* Tax information for the period ended January 31, 2005 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of January 31, 2006, the
estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest $ 944,871,930
Undistributed ordinary income 4,506
Capital loss carryforwards (638,109,336)
Unrealized depreciation of investments (4,383,171)
Net assets -------------
$ 302,383,929
=============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount and premium on debt instruments.
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at July 31, 2005 will expire as follows: $123,490,311 expires in 2008,
$284,053,994 expires in 2009, $211,481,773 expires in 2010 and $20,031,318
expires in 2011.
For the six months ended January 31, 2006, the Fund had capital gains of
$948,060 which may reduce the capital loss carryforwards.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. For the six months ended
January 31, 2006, the Fund recorded an estimate of these differences since final
tax characteristics cannot be determined until fiscal year end.
Reclassifications are primarily due to tax treatment of market discount and
premium on certain debt instruments and paydowns of mortgage- and asset-backed
securities. Results of operations and net assets were not affected by these
reclassifications.
Undistributed net investment income $ (64,006)
Accumulated net realized loss 64,006
14
- --------------------------------------------------------------------------------
Delaware Delchester Fund
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
1/31/06 7/31/05
Shares sold:
Class A 9,799,858 26,432,120
Class B 730,926 1,990,820
Class C 1,416,256 2,375,096
Institutional Class 668,763 4,523,623
Shares issued upon reinvestment of dividends
and distributions:
Class A 1,576,540 3,431,877
Class B 208,352 536,838
Class C 98,230 203,703
Institutional Class 182,539 480,197
----------- -----------
14,681,464 39,974,274
----------- -----------
Shares repurchased:
Class A (20,105,319) (32,008,734)
Class B (3,740,356) (8,276,203)
Class C (1,826,229) (2,512,311)
Institutional Class (1,344,663) (5,762,194)
----------- -----------
(27,016,567) (48,559,442)
----------- -----------
Net decrease (12,335,103) (8,585,168)
=========== ===========
For the six months ended January 31, 2006 and the year ended July 31, 2005,
1,300,552 Class B shares were converted to 1,302,416 Class A shares valued at
$4,262,674 and 2,838,347 Class B shares were converted to 2,844,669 Class A
shares valued at $9,448,878, respectively. The respective amounts are included
in Class B redemptions and Class A subscriptions in the table above and the
Statements of Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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. The
Fund had no amounts outstanding as of January 31, 2006, or at any time during
the period.
7. Securities Lending
The Fund, along with other funds in the Delaware Investments(R) Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with JP Morgan Chase. Initial security loans made pursuant to the
Lending Agreement are required to be secured by U.S. government obligations
and/or cash collateral not less than 102% of the market value of the securities
issued in the United States. With respect to each loan, if the aggregate market
value of the collateral held on any business day is less than the aggregate
market value of the securities which are the subject of such loan, the borrower
will be notified to provide additional collateral not less than the applicable
collateral requirements. 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 two tiers by Standard & Poor's Ratings Group or Moody's Investors
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 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 shortfall 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 Fund continues to
record dividends on the securities loaned and is subject to change in value of
the securities loaned that may occur during the term of the loan. The Fund has
the right under the Lending Agreement to recover the securities from the
borrower on demand. The security lending agent and the borrower retain a portion
of the earnings from the collateral investments. The Fund records security
lending income net of such allocation.
At January 31, 2006, the market value of securities on loan was $64,656,355, for
which cash collateral was received and invested in accordance with the Lending
Agreement. Such investments are presented on the Statement of Net Assets under
the caption "Securities Lending Collateral".
8. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities,
which carry ratings of BB or lower by Standard & Poor's Ratings Group and/or Ba
or lower by Moody's Investors Service, Inc. Investments in these higher yielding
securities are generally accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. Rule 144A
and illiquid securities have been identified on the Statement of Net Assets.
9. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
15
- --------------------------------------------------------------------------------
About
- --------------------------------------------------------------------------------
THE ORGANIZATION
This semiannual 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(R) 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 that 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
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel
and Secretary
Delaware Investments(R) Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel
and Chief Legal Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments(R) Family of Funds
Philadelphia, PA
Contact Information
Investment Manager
Delaware Management Company,
a Series of Delaware Management Business Trust
Philadelphia, PA
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For Shareholders
800 523-1918
For Securities Dealers and Financial
Institutions Representatives Only
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries.
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
Contact Information
Web Site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8:00 a.m. to 7:00
p.m. Eastern Time:
o For fund information, literature, price, yield and performance figures.
o For information on existing regular investment accounts and retirement
plan accounts including wire investments, wire redemptions, telephone
redemptions and telephone exchanges.
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24
hours a day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
(255) Printed in the USA
SA-024 [1/06] CGI 3/06 SEMI-0602 DEL PO10833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
[GRAPHIC]
- ---------------------------
FIXED INCOME MARCH 31, 2006
- --------------------------------------------------------------------------------
DELAWARE HIGH-YIELD
OPPORTUNITIES FUND
--------------------------------------------------
Get shareholder reports
and prospectuses online
instead of in the mail. Visit
www.delawareinvestments.com/edelivery.
--------------------------------------------------
This brochure accompanies a semiannual report for
the information of Delaware High-Yield
Opportunities Fund shareholders, but it may be
used with prospective investors when preceded or
accompanied by a current prospectus for Delaware
High-Yield Opportunities Fund. You should consider
the investment objectives, risks, charges, and
expenses of the investment carefully before
investing. Delaware High-Yield Opportunities Fund
prospectus contains this and other important
information about the Fund. Prospectuses for all
funds in the Delaware Investments(R) Family of
Funds are available from your financial advisor,
online at www.delawareinvestments.com, or by phone
at 800 523-1918. Please read the prospectus
carefully before you invest or send money. The
figures in the semiannual report for Delaware
High-Yield Opportunities Fund 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC]
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
POWERED BY RESEARCH(R) EXPERIENCE DELAWARE INVESTMENTS
OUR MISSION:
Delaware Investments is committed to the pursuit
of consistently superior asset management and
unparalleled client service. We strongly believe
in our investment process, the consistent results
we seek to deliver, and the value we can add for
our clients.
OUR HISTORY:
Delaware Investments traces its roots to an
investment advisory firm founded in 1929. We
quickly learned how important consistent
performance was to our clients, particularly in
tough times, and continued to apply those lessons
when we launched our first mutual fund in 1938.
Delaware has managed money through 75 years of
market cycles, and our dedication to consistent
performance over the long term endures to this
day.
OUR PRINCIPLES:
CLIENTS FIRST
We believe that placing clients' interests ahead
of our own is always the right thing to do. We
offer a focused lineup of products that is aligned
with our core asset management competencies rather
than with popular trends. Some of the largest
pension plans, endowments and foundations have
entrusted their investments to Delaware
Investments. Our institutional heritage and
expertise serve us well when crafting mutual funds
and managed account portfolios for individual
investors.
PASSION FOR PERFORMANCE
Our results-oriented culture puts investors first
and begins with our passion for performance. We
seek to deliver consistently superior returns over
the long term, and to do it in every asset class.
This means we look at three-year and five-year
track records as starting points in seeking to
deliver long-term outperformance.
PEOPLE WE'RE PROUD OF
We recognize that smart, accomplished people are a
competitive advantage. Our research analysts add
value to our investors' portfolios, just as our
award-winning operations team adds value for
shareholders. At Delaware Investments, we are more
than just committed -- we are passionate about our
mission. That culture of passion flows through
everything we do.
POWERED BY RESEARCH
Whether it's credit research on a corporate bond
or a company visit for a small-cap consumer growth
name, our deep teams of sector experts eat, sleep
and breathe fundamental research. We believe that
fundamental research is the key to achieving
consistently superior returns over the long term.
STRENGTH IN PARTNERSHIP
Delaware Investments is the financial engine of
the Lincoln Financial Group(R) family. Like our
parent company, we understand the power of
partnerships in a knowledge-based industry. We
collaborate with a wide variety of financial
services organizations to provide the very best in
investment products and services.
(C)2006 Delaware Distributors, L.P.
Delaware Investments is the marketing name for
Delaware Management Holdings, Inc. and its
subsidiaries. Lincoln Financial Group is the
marketing name for Lincoln National Corporation
and its affiliates.
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
ii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER: February 7, 2006
In the six months ended January 31, 2006, investors received mixed signals about
the direction of the U.S. economy, which during the period was absorbing the
effects of hurricanes Rita and Katrina. Fixed income investors found themselves
facing an unusual interest rate environment, as the shrinking difference between
short-term and long-term interest rates produced a condition sometimes referred
to by economists as a "flattening yield curve." This condition in the past has
sometimes preceded a recession, although many economists have recently noted the
limits of its predictive nature and voiced optimism about the economic outlook
for 2006.
January 31 marked not only the close of the six-month period for your Fund, but
the end of Alan Greenspan's term as acting Chairman of the U.S. Federal Reserve.
New Chairman Ben Bernanke takes over at a time when the Fed is deliberating
about monetary policy and how much further to raise its short-term interest rate
target in 2006.
The past six months have underscored an important lesson: No one can accurately
and consistently predict the course of financial markets or the direction of
interest rates, and attempts to do so are very often counterproductive. I
encourage you to work with your financial advisor to consider building a
portfolio that's diversified across the major investment asset classes --
stocks, bonds, and short-term reserves -- keeping the allocations appropriate
for your personal circumstances and risk tolerance. It is our belief at Delaware
Investments that a long-term perspective is always healthy, and we remind you
that fixed income investment vehicles can serve to balance investments in
stocks, which are historically more volatile.
If you are interested in acquiring more information about creating a
well-diversified investment plan, speak with your advisor or visit our Web site,
which includes more information about our funds and several interactive tools
that you might find useful.
Thank you as always for entrusting your hard-earned dollars to Delaware
Investments.
Sincerely,
/s/ Jude T. Driscoll
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iii
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DELAWARE INVESTMENTS(R)
- --------------------------------------------------------------------------------
FAMILY OF FUNDS
COMPLETE INFORMATION ON ANY FUND OFFERED BY DELAWARE INVESTMENTS CAN BE FOUND IN
EACH FUND'S CURRENT PROSPECTUS. PROSPECTUSES FOR ALL FUNDS IN THE DELAWARE
INVESTMENTS(R) FAMILY OF FUNDS ARE AVAILABLE FROM YOUR FINANCIAL ADVISOR, ONLINE
AT WWW.DELAWAREINVESTMENTS.COM, OR BY PHONE AT 800 523-1918. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
GROWTH-EQUITY GROUP
Delaware American Services Fund
Delaware Growth Opportunities Fund
Delaware Large Cap Growth Fund (formerly Delaware Diversified Growth Fund)
Delaware Select Growth Fund
Delaware Small Cap Growth Fund
Delaware Trend Fund
Delaware U.S. Growth Fund
VALUE-EQUITY GROUP
Delaware Dividend Income Fund
Delaware Large Cap Value Fund
Delaware REIT Fund
Delaware Small Cap Value Fund
Delaware Value Fund
CORE-EQUITY GROUP
Delaware Balanced Fund
Delaware Foundation Funds
Delaware Aggressive Allocation Portfolio (formerly Delaware Growth Allocation
Portfolio)
Delaware Moderate Allocation Portfolio (formerly Delaware Balanced Allocation
Portfolio)
Delaware Conservative Allocation Portfolio (formerly Delaware Income
Allocation Portfolio)
Delaware Small Cap Core Fund (formerly Delaware Small Cap Contrarian Fund)
INTERNATIONAL GROUP
Delaware International Small Cap Value Fund
Delaware International Value Equity Fund
FIXED INCOME GROUP
Corporate and Government
Delaware American Government Bond Fund
Delaware Corporate Bond Fund
Delaware Delchester Fund
Delaware Diversified Income Fund
Delaware Extended Duration Bond Fund
Delaware High-Yield Opportunities Fund
Delaware Inflation Protected Bond Fund
Delaware Limited-Term Government Fund
Money Market
Delaware Cash Reserve Fund
Delaware Tax-Free Money Fund
Municipal (National Tax-Exempt)
Delaware National High-Yield Municipal Bond Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free USA Intermediate Fund
Municipal (State-Specific Tax-Exempt)
Delaware Tax-Free Arizona Insured Fund
Delaware Tax-Free California Fund
Delaware Tax-Free Colorado Fund
Delaware Tax-Free Florida Insured Fund
Delaware Tax-Free Idaho Fund
Delaware Minnesota High-Yield Municipal Bond Fund
Delaware Tax-Free Minnesota Fund
Delaware Tax-Free Minnesota Insured Fund
Delaware Tax-Free Minnesota Intermediate Fund
Delaware Tax-Free Missouri Insured Fund
Delaware Tax-Free New York Fund
Delaware Tax-Free Oregon Insured Fund
Delaware Tax-Free Pennsylvania Fund
GROWING STRONG TOGETHER
Lincoln Financial Group, through its affiliates, is a proven industry leader in
identifying and delivering sophisticated financial planning and product
solutions for the creation, protection, and enjoyment of wealth.
Delaware Investments is an asset management company committed to fundamental,
style-specific investment research across multiple asset classes.
ROOTED IN HISTORY
o The strength of both organizations today is a result of 100 years of
Lincoln history, 75+ years of Delaware Investments(R) history, and the
past 10 years together.
o Delaware Investments is recognized as an integral part of Lincoln
Financial Group's ability to offer a broad variety of high-quality
financial solutions to investors.
o Together, they provide investors with the resources of a larger financial
services organization and the expertise, insight, and discipline of a
highly-respected investment management firm.
- --------------------------------------------------------------------------------
Simplify your life.
MANAGE YOUR INVESTMENTS ONLINE!
[E:DELIVERY LOGO]
Get Account Access, Delaware Investments'(R) secure Web site that allows you to
conduct your business online. Gain 24-hour access to your account and one of the
highest levels of Web security available. You also get:
o Hassle-Free Investing -- Make online purchases and redemptions at any
time.
o Simplified Tax Processing -- Automatically retrieve your Delaware
Investments(R) accounts' 1099 information and import it directly into your
1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop
software -- www.turbotax.com.
o Less Mail Clutter -- Get instant access to your fund materials online with
Delaware eDelivery.
Register for Account Access today! Visit www.delawareinvestments.com, select
Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, to assist with any questions.
- --------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE SEMIANNUAL REPORT.
iv
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIXED INCOME [DELAWARE INVESTMENTS LOGO(R)]
- --------------------------------------------------------------------------------
Semiannual Report january 31, 2006
- --------------------------------------------------------------------------------
DELAWARE HIGH-YIELD OPPORTUNITIES FUND
[POWERED BY RESEARCH(R) LOGO]
Table
OF CONTENTS
- ------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 1
- ------------------------------------------------------------
SECTOR ALLOCATION 2
- ------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 3
Statement of Assets and Liabilities 7
Statement of Operations 7
Statements of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 14
- ------------------------------------------------------------
ABOUT THE ORGANIZATION 17
- ------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C)2006 Delaware Distributors, L.P.
- --------------------------------------------------------------------------------
Disclosure For the Period August 1, 2005 to January 31, 2006
- --------------------------------------------------------------------------------
OF FUND EXPENSES
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution and/or service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period August 1, 2005 to January 31, 2006.
Actual Expenses
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions.
Delaware High-Yield Opportunities Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 8/1/05 to
8/1/05 1/31/06 Ratio 1/31/06*
- -------------------------------------------------------------------------------------------------------
Actual Fund Return
Class A $ 1,000.00 $ 1,019.20 1.13% $ 5.75
Class B 1,000.00 1,015.60 1.83% 9.30
Class C 1,000.00 1,015.60 1.83% 9.30
Class R 1,000.00 1,018.20 1.33% 6.77
Institutional Class 1,000.00 1,020.70 0.83% 4.23
- -------------------------------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,019.51 1.13% $ 5.75
Class B 1,000.00 1,015.98 1.83% 9.30
Class C 1,000.00 1,015.98 1.83% 9.30
Class R 1,000.00 1,018.50 1.33% 6.77
Institutional Class 1,000.00 1,021.02 0.83% 4.23
- -------------------------------------------------------------------------------------------------------
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
1
- --------------------------------------------------------------------------------
Sector Allocation As of January 31, 2006
- --------------------------------------------------------------------------------
DELAWARE HIGH-YIELD OPPORTUNITIES FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
- --------------------------------------------------------------------------------
Collateralized Bond Obligations 0.06%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 0.66%
- --------------------------------------------------------------------------------
Convertible Bonds 0.18%
- --------------------------------------------------------------------------------
Corporate Bonds 91.20%
- --------------------------------------------------------------------------------
Banking 0.24%
Basic Industry 13.49%
Brokerage 2.27%
Capital Goods 6.01%
Consumer Cyclical 5.63%
Consumer Non-Cyclical 7.46%
Energy 4.88%
Finance & Investments 0.48%
Media 11.58%
Real Estate 2.19%
Services Cyclical 12.43%
Services Non-Cyclical 6.51%
Technology & Electronics 1.94%
Telecommunications 9.99%
Utilities 6.10%
- --------------------------------------------------------------------------------
Emerging Markets Bonds 3.17%
- --------------------------------------------------------------------------------
Common Stock 1.32%
- --------------------------------------------------------------------------------
Preferred Stocks 0.26%
- --------------------------------------------------------------------------------
Warrants 0.00%
- --------------------------------------------------------------------------------
Repurchase Agreements 1.48%
- --------------------------------------------------------------------------------
Total Market Value of Securities 98.33%
- --------------------------------------------------------------------------------
Receivables and Other Assets Net of Liabilities 1.67%
- --------------------------------------------------------------------------------
Total Net Assets 100.00%
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Collateralized Bond Obligations - 0.06%
- --------------------------------------------------------------------------------
@=o#Merrill Lynch CBO VII
Series 1997-C3A 144A
4.879% 3/23/08 $ 174,480 $ 40,751
@=South Street CBO Series 1999-1A A1
7.16% 7/1/11 36,935 37,119
-------------
Total Collateralized Bond Obligations
(cost $133,819) 77,870
-------------
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities - 0.66%
- --------------------------------------------------------------------------------
#First Union National Bank Commercial
Mortgage Trust Series 2001-C2 L 144A
6.46% 1/12/43 800,000 793,264
-------------
Total Commercial Mortgage-Backed
Securities (cost $811,969) 793,264
-------------
- --------------------------------------------------------------------------------
Convertible Bonds - 0.18%
- --------------------------------------------------------------------------------
#Charter Communications 144A,
5.875% 11/16/09, exercise price
$111.25, expiration date 11/16/09 300,000 212,250
-------------
Total Convertible Bonds (cost $290,075) 212,250
-------------
- --------------------------------------------------------------------------------
Corporate Bonds - 91.20%
- --------------------------------------------------------------------------------
Banking - 0.24%
Western Financial 9.625% 5/15/12 260,000 292,500
-------------
292,500
-------------
Basic Industry - 13.49%
Abitibi-Consolidated
6.95% 12/15/06 50,000 50,625
6.95% 4/1/08 85,000 84,150
7.875% 8/1/09 275,000 269,500
AK Steel 7.875% 2/15/09 805,000 796,950
Bowater 9.50% 10/15/12 1,470,000 1,521,449
Donohue Forest Products
7.625% 5/15/07 470,000 477,050
Georgia-Pacific 9.50% 12/1/11 885,000 953,588
Gold Kist 10.25% 3/15/14 485,000 540,775
Huntsman International 10.125% 7/1/09 225,000 233,719
#Ineos Group Holdings 144A
8.50% 2/15/16 1,175,000 1,174,999
#Massey Energy 144A 6.875% 12/15/13 765,000 775,519
#Nell AF Sarl 144A 8.375% 8/15/15 750,000 752,813
Newpage 10.00% 5/1/12 820,000 832,300
Norske Skog Canada 8.625% 6/15/11 1,020,000 984,300
#Port Townsend Paper 144A
12.00% 4/15/11 910,000 618,800
Potlatch 13.00% 12/1/09 675,000 803,670
Rhodia
8.875% 6/1/11 721,000 739,025
10.25% 6/1/10 305,000 339,313
Smurfit Capital Funding
7.50% 11/20/25 1,355,000 1,219,499
++Solutia 6.72% 10/15/37 1,835,000 1,500,112
Stone Container 9.25% 2/1/08 200,000 206,500
Tembec Industries 8.625% 6/30/09 1,865,000 881,213
Witco 6.875% 2/1/26 525,000 506,625
-------------
16,262,494
-------------
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Brokerage - 2.27%
E Trade Financial 8.00% 6/15/11 $ 1,195,000 $ 1,248,775
LaBranche & Company
9.50% 5/15/09 600,000 642,000
11.00% 5/15/12 760,000 847,400
-------------
2,738,175
-------------
Capital Goods - 6.01%
Armor Holdings 8.25% 8/15/13 1,000,000 1,084,999
DRS Technologies 6.875% 11/1/13 525,000 523,688
Graham Packaging 9.875% 10/15/14 920,000 915,400
Interface 10.375% 2/1/10 645,000 704,663
Interline Brands 11.50% 5/15/11 930,000 1,036,950
Intertape Polymer 8.50% 8/1/14 970,000 960,300
~Mueller Holdings 14.75% 4/15/14 1,275,000 981,750
#Panolam Industrial 144A 10.75% 10/1/13 435,000 414,338
Trimas 9.875% 6/15/12 725,000 623,500
-------------
7,245,588
-------------
Consumer Cyclical - 5.63%
Accuride 8.50% 2/1/15 750,000 750,000
AutoNation 9.00% 8/1/08 150,000 161,813
General Motors Acceptance Corporation
6.875% 9/15/11 305,000 291,524
8.00% 11/1/31 585,000 598,124
Landry's Restaurant 7.50% 12/15/14 710,000 674,500
Metaldyne 10.00% 11/1/13 1,005,000 924,600
#Neiman Marcus 144A 9.00% 10/15/15 675,000 703,688
O'Charleys 9.00% 11/1/13 825,000 845,625
#Uno Restaurant 144A 10.00% 2/15/11 700,000 593,250
++Venture Holdings 12.00% 6/1/09 475,000 893
Visteon
7.00% 3/10/14 175,000 136,500
8.25% 8/1/10 550,000 466,125
Warnaco 8.875% 6/15/13 590,000 634,250
-------------
6,780,892
-------------
Consumer Non-Cyclical - 7.46%
Biovail 7.875% 4/1/10 1,405,000 1,459,443
Constellation Brands 8.125% 1/15/12 295,000 310,488
Cott Beverages 8.00% 12/15/11 920,000 945,300
#Doane Pet Care 144A 10.625% 11/15/15 465,000 488,250
#Le-Natures 144A 10.00% 6/15/13 895,000 944,225
National Beef Packing 10.50% 8/1/11 910,000 937,300
Pilgrim's Pride 9.625% 9/15/11 775,000 825,375
Playtex Products 9.375% 6/1/11 840,000 887,250
Swift & Co. 12.50% 1/1/10 290,000 279,850
True Temper Sports 8.375% 9/15/11 675,000 617,625
#Warner Chilcott 144A 8.75% 2/1/15 1,320,000 1,300,200
-------------
8,995,306
-------------
3
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Energy - 4.88%
#Atlas Pipeline 144A 8.125% 12/15/15 $ 600,000 $ 620,999
Bluewater Finance 10.25% 2/15/12 545,000 589,963
#Compton Petroleum 144A 7.625% 12/1/13 325,000 333,125
#Copano Energy 144A 8.125% 3/1/16 225,000 229,219
El Paso Natural Gas 7.625% 8/1/10 230,000 243,377
El Paso Production Holding 7.75% 6/1/13 875,000 929,687
#Hilcorp Energy 144A
7.75% 11/1/15 260,000 266,175
10.50% 9/1/10 382,000 424,975
Inergy Finance 6.875% 12/15/14 425,000 402,688
#Inergy Finance 144A 8.25% 3/1/16 200,000 203,500
oSecunda International 12.60% 9/1/12 570,000 607,050
Tennessee Gas Pipeline 8.375% 6/15/32 270,000 318,049
#VeraSun Energy 144A 9.875% 12/15/12 290,000 298,700
Whiting Petroleum 7.25% 5/1/13 410,000 418,713
-------------
5,886,220
-------------
Finance & Investments - 0.48%
FINOVA Group 7.50% 11/15/09 1,656,150 579,653
-------------
579,653
-------------
Media - 11.58%
***Adelphia Communications
8.125% 7/15/06 800,000 524,000
#C&M Finance 144A 8.10% 2/1/16 500,000 505,479
#CCH I 144A 11.00% 10/1/15 504,000 417,060
Cenveo 9.625% 3/15/12 435,000 468,713
Charter Communications Holdings
11.125% 1/15/11 940,000 502,900
13.50% 1/15/11 1,020,000 612,000
o#Cleveland Unlimited 144A
12.73% 12/15/10 325,000 329,875
CSC Holdings 10.50% 5/15/16 1,575,000 1,683,280
Dex Media East 12.125% 11/15/12 480,000 558,000
#Echostar DBS 144A 7.125% 2/1/16 225,000 223,031
Insight Midwest 10.50% 11/1/10 1,720,000 1,821,049
Lodgenet Entertainment 9.50% 6/15/13 1,000,000 1,085,000
Mediacom Capital 9.50% 1/15/13 1,075,000 1,072,313
#RH Donnelley 144A 8.875% 1/15/16 1,100,000 1,117,874
Sheridan Acquisition Group
10.25% 8/15/11 350,000 361,813
Sirius Satellite 9.625% 8/1/13 905,000 893,688
Vertis 10.875% 6/15/09 310,000 305,350
Warner Music Group 7.375% 4/15/14 580,000 581,450
XM Satellite Radio 12.00% 6/15/10 800,000 900,000
-------------
13,962,875
-------------
Real Estate - 2.19%
American Real Estate Partners
8.125% 6/1/12 860,000 902,999
BF Saul REIT 7.50% 3/1/14 845,000 868,238
Tanger Properties 9.125% 2/15/08 810,000 864,062
-------------
2,635,299
-------------
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Services Cyclical - 12.43%
Adesa 7.625% 6/15/12 $ 875,000 $ 879,375
American Airlines 7.379% 5/23/16 110,533 90,826
#CCM Merger 144A 8.00% 8/1/13 525,000 514,500
Corrections Corporation of America
7.50% 5/1/11 715,000 740,919
Foster Wheeler 10.359% 9/15/11 159,250 178,360
#FTI Consulting 144A 7.625% 6/15/13 590,000 613,600
#Galaxy Entertainment 144A
9.875% 12/15/12 700,000 721,000
Gaylord Entertainment 8.00% 11/15/13 550,000 574,750
~H-Lines Finance Holdings 11.00% 4/1/13 1,162,000 970,270
#Hertz 144A
8.875% 1/1/14 415,000 430,563
10.50% 1/1/16 180,000 189,000
Horizon Lines 9.00% 11/1/12 256,000 271,680
Kansas City Southern Railway
9.50% 10/1/08 775,000 841,844
#Knowledge Learning 144A 7.75% 2/1/15 580,000 556,800
#Majestic Star Casino 144A 9.75% 1/15/11 600,000 616,500
Mandalay Resort Group 10.25% 8/1/07 235,000 251,450
OMI 7.625% 12/1/13 1,105,000 1,139,531
Penn National Gaming 8.875% 3/15/10 1,755,000 1,844,943
Royal Caribbean Cruises 7.25% 3/15/18 220,000 239,014
Seabulk International 9.50% 8/15/13 465,000 520,800
Stena 9.625% 12/1/12 800,000 876,000
~Town Sports International 11.00% 2/1/14 640,000 468,800
United AirLines 7.73% 7/1/10 219,832 217,717
Wheeling Island Gaming
10.125% 12/15/09 1,175,000 1,235,218
-------------
14,983,460
-------------
Services Non-Cyclical - 6.51%
#Accellent 144A 10.50% 12/1/13 720,000 756,000
Aleris International 9.00% 11/15/14 880,000 924,000
Allied Waste North America 9.25% 9/1/12 885,000 962,438
Casella Waste Systems 9.75% 2/1/13 1,200,000 1,265,999
#CRC Health 144A 10.75% 2/1/16 475,000 484,500
Geo Subordinate 11.00% 5/15/12 805,000 780,850
Healthsouth 10.75% 10/1/08 1,055,000 1,047,088
US Oncology 10.75% 8/15/14 650,000 721,500
~Vanguard Health 11.25% 10/1/15 1,235,000 907,725
-------------
7,850,100
-------------
Technology & Electronics - 1.94%
MagnaChip Semiconductor 8.00% 12/15/14 640,000 622,400
Sanmina-SCI
8.125% 3/1/16 400,000 407,000
10.375% 1/15/10 360,000 396,450
#Sungard Data Systems 144A
10.25% 8/15/15 905,000 914,050
-------------
2,339,900
-------------
4
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount (U.S.$) Value (U.S.$)
- --------------------------------------------------------------------------------
Corporate Bonds (continued)
- --------------------------------------------------------------------------------
Telecommunications - 9.99%
Alaska Communications Systems
9.875% 8/15/11 $ 625,000 $ 685,938
++Allegiance Telecom 11.75% 2/15/08 255,000 67,575
American Cellular 10.00% 8/1/11 520,000 568,100
American Tower 7.125% 10/15/12 660,000 688,050
#Centennial Communications 144A
10.00% 1/1/13 410,000 426,400
Cincinnati Bell 8.375% 1/15/14 1,110,000 1,096,124
#Digicel Limited 144A 9.25% 9/1/12 700,000 738,500
~Inmarsat Finance 10.375% 11/15/12 1,390,000 1,165,862
iPCS 11.50% 5/1/12 200,000 231,500
oIwo Escrow 8.35% 1/15/12 125,000 130,313
MCI
6.908% 5/1/07 302,000 305,775
7.688% 5/1/09 540,000 558,225
PanAmSat 9.00% 8/15/14 235,000 248,219
Qwest 7.875% 9/1/11 295,000 313,438
o#Qwest 144A 7.741% 6/15/13 650,000 704,438
Rural Cellular 9.875% 2/1/10 600,000 648,000
o#Rural Cellular 144A 10.041% 11/1/12 415,000 428,488
#Telcordia Technologies 144A
10.00% 3/15/13 1,460,000 1,343,199
Triton Communications 9.375% 2/1/11 670,000 452,250
oUS LEC 12.716% 10/1/09 325,000 351,000
#Wind Acquisition 144A 10.75% 12/1/15 835,000 894,494
-------------
12,045,888
-------------
Utilities - 6.10%
Avista 9.75% 6/1/08 295,000 321,872
++Calpine 10.50% 5/15/06 555,000 233,100
++#Calpine 144A 9.90% 7/15/07 606,050 546,203
#Dynegy Holdings 144A 10.125% 7/15/13 675,000 765,281
Elwood Energy 8.159% 7/5/26 686,606 748,958
Midwest Generation
8.30% 7/2/09 690,000 714,150
8.75% 5/1/34 645,000 709,500
Mirant Americas Generation 8.30% 5/1/11 800,000 824,000
NRG Energy 7.25% 2/1/14 1,150,000 1,171,563
Orion Power Holdings 12.00% 5/1/10 655,000 749,975
Reliant Energy 9.50% 7/15/13 270,000 268,650
#Tenaska Alabama Partners 144A
7.00% 6/30/21 297,986 303,938
=++#USGen New England 144A 7.459% 1/2/15 250,000 1,800
-------------
7,358,990
-------------
Total Corporate Bonds (cost $111,646,410) 109,957,340
-------------
- --------------------------------------------------------------------------------
Emerging Markets Bonds - 3.17%
- --------------------------------------------------------------------------------
#Adaro Finance 144A 8.50% 12/8/10 400,000 408,000
Naftogaz Ukrainy 8.125% 9/30/09 800,000 809,520
Republic of El Salvador 7.65% 6/15/35 1,000,000 1,075,000
Southern Peru 7.50% 7/27/35 800,000 803,307
Venezuela Government 9.375% 1/13/34 575,000 720,188
-------------
Total Emerging Markets Bonds
(cost $3,593,341) 3,816,015
-------------
Number of Market
Shares Value (U.S.$)
- --------------------------------------------------------------------------------
Common Stock - 1.32%
- --------------------------------------------------------------------------------
@=+==Avado Brands Restricted 906 $ 12,711
B&G Foods 10,500 155,190
+Foster Wheeler 14,383 708,351
+Mirant 20,559 575,652
+Petroleum Geo-Services ADR 1,491 53,661
+XM Satellite Radio Holdings Class A 3,500 91,630
-------------
Total Common Stock (cost $823,926) 1,597,195
-------------
- --------------------------------------------------------------------------------
Preferred Stocks - 0.26%
- --------------------------------------------------------------------------------
Alamosa Delaware 7.50% 225 310,106
-------------
Total Preferred Stocks (cost $188,113) 310,106
-------------
- --------------------------------------------------------------------------------
Warrants - 0.00%
- --------------------------------------------------------------------------------
+#Solutia 144A, exercise price $7.59,
expiration date 7/15/09 450 0
-------------
Total Warrants (cost $38,281) 0
-------------
Principal
Amount (U.S.$)
- --------------------------------------------------------------------------------
Repurchase Agreements - 1.48%
- --------------------------------------------------------------------------------
With BNP Paribas 4.37% 2/1/06
(dated 1/31/06, to be repurchased
at $1,048,427, collateralized by
$493,200 U.S. Treasury Notes
2.00% due 5/15/06, market value
$491,895, $231,300 U.S. Treasury
Notes 2.375% due 8/15/06, market
value $231,160, and $349,600
U.S. Treasury Notes 2.625%
due 11/15/06, market
value $346,446) $ 1,048,300 1,048,300
With Cantor Fitzgerald 4.36% 2/1/06
(dated 1/31/06, to be repurchased
at $739,790, collateralized
by $57,300 U.S. Treasury Bills
due 6/22/06, market value
$56,344, $338,100 U.S. Treasury
Notes 3.50% due 11/15/06, market
value $337,759, and $369,900
U.S. Treasury Notes 3.625% due
7/15/09, market value $360,675) 739,700 739,700
-------------
Total Repurchase Agreements
(cost $1,788,000) 1,788,000
-------------
5
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Market Value of Securities - 98.33%
(cost $119,313,934) $ 118,552,040
-------------
Receivables and Other Assets
Net of Liabilities - 1.67% 2,013,535
-------------
Net Assets Applicable to 28,152,432 Shares
Outstanding - 100.00% $ 120,565,575
=============
Net Asset Value - Delaware High-Yield Opportunities Fund
Class A ($73,647,339 / 17,196,917 Shares) $ 4.28
-------------
Net Asset Value - Delaware High-Yield Opportunities Fund
Class B ($14,899,229 / 3,480,588 Shares) $ 4.28
-------------
Net Asset Value - Delaware High-Yield Opportunities Fund
Class C ($17,246,305 / 4,025,772 Shares) $ 4.28
-------------
Net Asset Value - Delaware High-Yield Opportunities Fund
Class R ($2,761,259 / 643,787 Shares) $ 4.29
-------------
Net Asset Value - Delaware High-Yield Opportunities Fund
Institutional Class ($12,011,443 / 2,805,368 Shares) $ 4.28
-------------
Components of Net Assets at January 31, 2006:
Shares of beneficial interest
(unlimited authorization -- no par) $ 126,118,362
Distributions in excess of net investment income (59)
Accumulated net realized loss on investments (4,790,834)
Net unrealized depreciation of investments (761,894)
-------------
Total net assets $ 120,565,575
=============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ Non-income producing security for the period ended January 31, 2006.
++ Non-income producing security. Security is currently in default.
o Variable rate securities. The interest rate shown is the rate as of
January 31, 2006.
# Security exempt from registration under Rule 144A of the Securities Act of
1933. At January 31, 2006, the aggregate amount of Rule 144A securities
equals $26,139,613, which represented 21.68% of the Fund's net assets. See
Note 7 in "Notes to Financial Statements."
== Restricted Security. Investment in a security not registered under the
Securities Act of 1933. This security has certain restrictions on resale
which may limit its liquidity. At January 31, 2006, the aggregate amount
of the restricted security equals $12,711, which represented 0.01% of the
Fund's net assets. See Note 7 in "Notes to Financial Statements."
~ Step coupon bond. Indicates security that has a zero coupon that remains
in effect until a predetermined date at which time the stated interest
rate becomes effective.
= Security is being fair valued in accordance with the Fund's fair valuation
policy. At January 31, 2006, the aggregate amount of fair valued
securities equals $92,381, which represented 0.08% of the Fund's net
assets. See Note 1 in "Notes to Financial Statements."
@ Illiquid security. At January 31, 2006, the aggregate amount of illiquid
securities equals $90,581, which represented 0.08% of the Fund's net
assets. See Note 7 in "Notes to Financial Statements."
*** Security is currently in default. The issue has missed the maturity date.
Bankruptcy proceedings are in the process to determine distribution of
assets. The date listed is the estimate of when the proceedings will be
finalized.
Summary of Abbreviations:
ADR - American Depositary Receipt
CBO - Collateralized Bond Obligation
REIT - Real Estate Investment Trust
Net Asset Value and Offering Price per Share -
Delaware High-Yield Opportunities Fund
Net asset value Class A (A) $ 4.28
Sales charge (4.50% of offering price) (B) 0.20
-------------
Offering price $ 4.48
=============
(A) Net asset value per share, as illustrated, is the 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
6
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF ASSETS AND LIABILITIES
Assets:
Investments at market (cost $119,313,934) $ 118,552,040
Subscriptions receivable 3,602,611
Receivables for securities sold 1,825,454
Interest receivable 2,435,765
-------------
Total assets 126,415,870
-------------
Liabilities:
Payables for securities purchased 5,047,675
Cash overdraft 9,405
Liquidations payable 413,032
Distributions payable 214,551
Due to manager and affiliates 164,282
Other accrued expenses 1,350
-------------
Total liabilities 5,850,295
-------------
Total Net Assets $ 120,565,575
=============
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statement Six Months Ended January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF OPERATIONS
Investment Income:
Interest $ 5,073,056
Dividends 6,855 $ 5,079,911
----------- -------------
Expenses:
Management fees 398,876
Distribution expenses -- Class A 117,613
Distribution expenses -- Class B 80,429
Distribution expenses -- Class C 86,866
Distribution expenses -- Class R 7,105
Dividend disbursing and transfer agent fees and expenses 99,612
Registration fees 30,500
Accounting and administration expenses 24,922
Legal and professional fees 13,850
Reports and statements to shareholders 9,419
Trustees' fees 3,261
Pricing fees 2,671
Custodian fees 2,007
Insurance fees 1,732
Taxes (other than taxes on income) 586
Other 1,770 881,219
-----------
Less expenses absorbed or waived (79,722)
Less waiver of distribution expenses -- Class R (1,184)
-------------
Total expenses 800,313
-------------
Net Investment Income 4,279,598
-------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments (17,112)
Net change in unrealized appreciation/depreciation of
investments (2,190,097)
-------------
Net Realized and Unrealized Loss on Investments (2,207,209)
-------------
Net Increase in Net Assets Resulting from Operations $ 2,072,389
=============
See accompanying notes
7
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Statements
- --------------------------------------------------------------------------------
OF CHANGES IN NET ASSETS
Six Months
Ended Year
1/31/06 Ended
(Unaudited) 7/31/05
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 4,279,598 $ 6,467,649
Net realized gain (loss) on investments (17,112) 3,043,673
Net change in unrealized appreciation/depreciation of investments (2,190,097) 637,493
-------------- -------------
Net increase in net assets resulting from operations 2,072,389 10,148,815
-------------- -------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (2,917,674) (4,849,108)
Class B (542,812) (1,128,412)
Class C (585,760) (933,276)
Class R (85,899) (46,738)
Institutional Class (325,568) (281,747)
-------------- -------------
(4,457,713) (7,239,281)
-------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 18,184,527 70,584,839
Class B 1,161,425 5,349,318
Class C 3,618,111 12,078,605
Class R 989,422 2,031,372
Institutional Class 4,115,260 6,748,592
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 2,109,256 3,385,760
Class B 222,995 467,373
Class C 312,144 533,685
Class R 84,202 43,848
Institutional Class 234,455 242,707
-------------- -------------
31,031,797 101,466,099
-------------- -------------
Cost of shares repurchased:
Class A (28,070,741) (37,336,171)
Class B (2,820,191) (4,728,835)
Class C (3,840,212) (4,258,285)
Class R (304,224) (66,598)
Institutional Class (129,053) (251,115)
-------------- -------------
(35,164,421) (46,641,004)
-------------- -------------
Increase (decrease) in net assets derived from capital share transactions (4,132,624) 54,825,095
-------------- -------------
Net Increase (Decrease) in Net Assets (6,517,948) 57,734,629
Net Assets:
Beginning of period 127,083,523 69,348,894
-------------- -------------
End of period (including distributions in excess of net investment
income of $59 and $59, respectively) $ 120,565,575 $ 127,083,523
============== =============
See accompanying notes
8
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund Class A
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.950 $ 4.850
Income (loss) from investment operations:
Net investment income(3) 0.155 0.292 0.335 0.377 0.344 0.444
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.074) 0.184 0.243 0.532 (0.488) (0.893)
----------- ------- ------- ------- ----------- ---------
Total from investment operations 0.081 0.476 0.578 0.909 (0.144) (0.449)
----------- ------- ------- ------- ----------- ---------
Less dividends and distributions from:
Net investment income (0.161) (0.326) (0.338) (0.359) (0.386) (0.451)
----------- ------- ------- ------- ----------- ---------
Total dividends and distributions (0.161) (0.326) (0.338) (0.359) (0.386) (0.451)
----------- ------- ------- ------- ----------- ---------
Net asset value, end of period $ 4.280 $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.950
=========== ======= ======= ======= =========== =========
Total return(4) 1.92% 11.61% 14.97% 28.02% (3.87%) (9.96%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 73,648 $82,988 $44,428 $29,385 $ 14,767 $ 18,478
Ratio of expenses to average net assets 1.13% 1.16% 1.13% 1.13% 1.13% 1.30%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.26% 1.28% 1.38% 1.56% 1.44% 1.40%
Ratio of net investment income to average net assets 7.15% 6.68% 8.05% 10.36% 9.05% 10.06%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 7.02% 6.56% 7.80% 9.93% 8.74% 9.96%
Portfolio turnover 165% 229% 644% 832% 609% 1,201%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was a decrease in net investment
income per share of $0.030, an increase in net realized and unrealized
gain (loss) per share of $0.030, and a decrease in the ratio of net
investment income to average net assets of 0.79%. Per share data and
ratios for periods prior to August 1, 2001 have not been restated to
reflect these changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information the years ended July 31, 2004, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share for the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
9
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund Class B
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.960 $ 4.850
Income (loss) from investment operations:
Net investment income(3) 0.140 0.262 0.305 0.352 0.317 0.413
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.074) 0.184 0.244 0.532 (0.498) (0.886)
----------- ------- ------- ------- ----------- ---------
Total from investment operations 0.066 0.446 0.549 0.884 (0.181) (0.473)
----------- ------- ------- ------- ----------- ---------
Less dividends and distributions from:
Net investment income (0.146) (0.296) (0.309) (0.334) (0.359) (0.417)
----------- ------- ------- ------- ----------- ---------
Total dividends and distributions (0.146) (0.296) (0.309) (0.334) (0.359) (0.417)
----------- ------- ------- ------- ----------- ---------
Net asset value, end of period $ 4.280 $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.960
=========== ======= ======= ======= =========== =========
Total return(4) 1.56% 10.85% 14.19% 27.14% (4.80%) (10.44%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 14,899 $16,661 $15,015 $15,464 $ 9,435 $ 11,210
Ratio of expenses to average net assets 1.83% 1.86% 1.83% 1.83% 1.83% 2.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.96% 1.98% 2.08% 2.26% 2.14% 2.10%
Ratio of net investment income to average net assets 6.45% 5.98% 7.35% 9.66% 8.35% 9.36%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 6.32% 5.86% 7.10% 9.23% 8.04% 9.26%
Portfolio turnover 165% 229% 644% 832% 609% 1,201%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was a decrease in net investment
income per share of $0.030, an increase in net realized and unrealized
gain (loss) per share of $0.030, and a decrease in the ratio of net
investment income to average net assets of 0.79%. Per share data and
ratios for periods prior to August 1, 2001 have not been restated to
reflect these changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information the years ended July 31, 2004, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share for the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
10
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund Class C
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.960 $ 4.850
Income (loss) from investment operations:
Net investment income(3) 0.140 0.262 0.305 0.352 0.317 0.414
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.074) 0.184 0.243 0.532 (0.498) (0.887)
----------- ------- ------- ------- ----------- ---------
Total from investment operations 0.066 0.446 0.548 0.884 (0.181) (0.473)
----------- ------- ------- ------- ----------- ---------
Less dividends and distributions from:
Net investment income (0.146) (0.296) (0.308) (0.334) (0.359) (0.417)
----------- ------- ------- ------- ----------- ---------
Total dividends and distributions (0.146) (0.296) (0.308) (0.334) (0.359) (0.417)
----------- ------- ------- ------- ----------- ---------
Net asset value, end of period $ 4.280 $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.960
=========== ======= ======= ======= =========== =========
Total return(4) 1.56% 10.84% 14.16% 27.13% (4.80%) (10.44%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 17,246 $17,474 $ 8,824 $ 5,916 $ 2,905 $ 3,044
Ratio of expenses to average net assets 1.83% 1.86% 1.83% 1.83% 1.83% 2.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.96% 1.98% 2.08% 2.26% 2.14% 2.10%
Ratio of net investment income to average net assets 6.45% 5.98% 7.35% 9.66% 8.35% 9.36%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 6.32% 5.86% 7.10% 9.23% 8.04% 9.26%
Portfolio turnover 165% 229% 644% 832% 609% 1,201%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was a decrease in net investment
income per share of $0.030, an increase in net realized and unrealized
gain (loss) per share of $0.030, and a decrease in the ratio of net
investment income to average net assets of 0.79%. Per share data and
ratios for periods prior to August 1, 2001 have not been restated to
reflect these changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information the years ended July 31, 2004, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share for the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
11
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund Class R
- ----------------------------------------------------------------------------------------------------------
Six Months 6/2/03(1)
Ended Year Ended to
1/31/06(2) 7/31/05 7/31/04 7/31/03
(Unaudited)
Net asset value, beginning of period $ 4.370 $ 4.210 $ 3.970 $ 3.960
Income (loss) from investment operations:
Net investment income(3) 0.151 0.279 0.322 0.050
Net realized and unrealized gain (loss) on investments (0.074) 0.194 0.242 0.010
----------- ------- ------- ---------
Total from investment operations 0.077 0.473 0.564 0.060
----------- ------- ------- ---------
Less dividends and distributions from:
Net investment income (0.157) (0.313) (0.324) (0.050)
----------- ------- ------- ---------
Total dividends and distributions (0.157) (0.313) (0.324) (0.050)
----------- ------- ------- ---------
Net asset value, end of period $ 4.290 $ 4.370 $ 4.210 $ 3.970
=========== ======= ======= =========
Total return(4) 1.82% 11.52% 14.55% 1.49%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 2,761 $ 2,030 $ 16 $ --
Ratio of expenses to average net assets 1.33% 1.46% 1.43% 1.43%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.56% 1.58% 1.68% 2.25%
Ratio of net investment income to average net assets 6.95% 6.38% 7.75% 9.57%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 6.72% 6.26% 7.50% 8.75%
Portfolio turnover 165% 229% 644% 832%
(1) Date of commencement of operations. Ratios have been annualized and total
return has not been annualized.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information the years ended July 31, 2004 and the period ended July 31,
2003.
(4) Total investment return is based on the change in net asset value of a
share for the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager and distributor, as applicable.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
12
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund Institutional Class
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
1/31/06(2) 7/31/05 7/31/04 7/31/03 7/31/02(1) 7/31/01
(Unaudited)
Net asset value, beginning of period $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.950 $ 4.850
Income (loss) from investment operations:
Net investment income(3) 0.161 0.306 0.347 0.388 0.355 0.458
Net realized and unrealized gain (loss) on investments
and foreign currencies (0.074) 0.184 0.244 0.532 (0.487) (0.893)
----------- ------- ------- ------- ---------- -------
Total from investment operations 0.087 0.490 0.591 0.920 (0.132) (0.435)
----------- ------- ------- ------- ---------- -------
Less dividends and distributions from:
Net investment income (0.167) (0.340) (0.351) (0.370) (0.398) (0.465)
----------- ------- ------- ------- ---------- -------
Total dividends and distributions (0.167) (0.340) (0.351) (0.370) (0.398) (0.465)
----------- ------- ------- ------- ---------- -------
Net asset value, end of period $ 4.280 $ 4.360 $ 4.210 $ 3.970 $ 3.420 $ 3.950
=========== ======= ======= ======= ========== =======
Total return(4) 2.07% 11.96% 15.33% 28.40% (3.57%) (9.67%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 12,012 $ 7,931 $ 1,066 $ 3,316 $ 2,569 $ 3
Ratio of expenses to average net assets 0.83% 0.86% 0.83% 0.83% 0.83% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.96% 0.98% 1.08% 1.26% 1.14% 1.10%
Ratio of net investment income to average net assets 7.45% 6.98% 8.35% 10.66% 9.35% 10.36%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 7.32% 6.86% 8.10% 10.23% 9.04% 10.26%
Portfolio turnover 165% 229% 644% 832% 609% 1,201%
(1) As required, effective August 1, 2001, the Fund adopted the provision of
the AICPA Audit and Accounting Guide for Investment companies that
requires amortization of all premiums and discounts on debt securities and
the recording of paydown gains and losses on mortgage- and asset-backed
securities as an adjustment to interest income. The effect of these
changes for the year ended July 31, 2002 was a decrease in net investment
income per share of $0.030, an increase in net realized and unrealized
gain (loss) per share of $0.030, and a decrease in the ratio of net
investment income to average net assets of 0.79%. Per share data and
ratios for periods prior to August 1, 2001 have not been restated to
reflect these changes in accounting.
(2) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(3) The average shares outstanding method has been applied for per share
information the years ended July 31, 2004, 2003, 2002 and 2001.
(4) Total investment return is based on the change in net asset value of a
share for the period and assumes reinvestment of dividends and
distributions at net asset value. Total investment return reflects waivers
and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
13
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Notes January 31, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS
Delaware Group Income Funds (the "Trust") is organized as a Delaware statutory
trust and offers four Fund: Delaware Corporate Bond Fund, Delaware Delchester
Fund, Delaware Extended Duration Bond Fund and Delaware High-Yield Opportunities
Fund. These financial statements and the related notes pertain to Delaware
High-Yield Opportunities Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered diversified under the Investment Company Act of
1940, as amended, and offers Class A, Class B, Class C, Class R and
Institutional Class shares. Class A shares are sold with a front-end sales
charge of up to 4.50%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months. Class R and Institutional Class shares are not subject to a sales
charge and are offered for sale exclusively to a limited group of investors.
The investment objective of the Fund is to seek total return, and as a secondary
objective, high current income.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time
of the regular close of the New York Stock Exchange (NYSE) on the valuation
date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq
Official Closing Price, which may not be the last sales price. 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. Short-term debt securities 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 under the direction of the
Fund's Board of Trustees. In determining whether market quotations are readily
available or fair valuation will be used, various factors will be taken into
consideration, such as market closures, or with respect to foreign securities,
aftermarket trading or significant events after local market trading (e.g.,
government actions or pronouncements, trading volume or volatility on markets,
exchanges among dealers, or news events).
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
Class Accounting -- Investment income and common expenses are allocated to the
classes of the Fund on the basis of "settled shares" of each class in relation
to the net assets of the Fund. 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(R) Family of Funds pursuant to an
exemptive order issued by the Securities and Exchange Commission. 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 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.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. 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(R) Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. 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. Discounts and premiums on non-convertible bonds
are amortized to interest income over the lives of the respective securities.
Realized gains (losses) on paydowns of mortgage- and asset-backed securities are
classified as interest income. The Fund declares dividends daily from net
investment income and pays such dividends monthly and declares and pays
distributions from net realized gain on investments, if any, annually.
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a Fund of Delaware Management Business
Trust and the investment manager, 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
average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed 0.83% of average daily net assets of the Fund through November 30, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of the Fund's average
daily net assets, for accounting and administration services. The Fund pays DSC
a monthly fee based on the number of shareholder accounts for dividend
disbursing and transfer agent services.
Pursuant to the distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares, and 0.60% of the average daily net assets of Class R shares.
DDLP has contracted to limit distribution and service fees through November 30,
2006 in order to prevent distribution and service fees of Class R shares from
exceeding 0.50% of average daily net assets. Institutional Class shares pay no
distribution and service expenses.
14
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
At January 31, 2006, the Fund had liabilities payable to affiliates as follows
Investment management fee payable to DMC $42,147
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses payable to DSC 22,650
Distribution fee payable to DDLP 94,686
Other expenses payable to DMC and affiliates* 4,799
* DMC, as part of its administrative services, pays operating expenses on
behalf of the Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit,
legal and tax services, registration fees and trustees' fees.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including internal legal services provided to
the Fund by DMC employees. For the six months ended January 31, 2006, the Fund
was charged $4,309 for internal legal services provided by DMC.
For the six months ended January 31, 2006, DDLP earned $14,890 for commissions
on sales of the Fund's Class A shares. For the six months ended January 31,
2006, DDLP received gross contingent deferred sales charge commissions of
$5,759, $32,914 and $4,419 on redemption of the Fund's Class A, Class B and
Class C shares, respectively, and these commissions were entirely used to offset
up-front commissions previously paid by DDLP to broker-dealers on sales of these
shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the six months ended January 31, 2006, the Fund made purchases of
$97,000,944 and sales of $96,934,522 of investment securities other than
short-term investments.
At January 31, 2006, the cost of investments for federal income tax purposes has
been estimated since the final tax characteristics cannot be determined until
the fiscal year end. At January 31, 2006, the cost of investments was
$119,941,289. At January 31, 2006, the net unrealized depreciation was
$1,389,249, of which $2,750,675 related to unrealized appreciation of
investments and $4,139,924 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the six
months ended January 31, 2006 and the year ended July 31, 2005 was as follows:
Six Months Year
Ended Ended
1/31/06* 7/31/05
---------- ----------
Ordinary income $4,457,713 $7,239,281
* Tax information for the period ended January 31, 2006 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of January 31, 2006, the
estimated components of net assets on a tax basis were as follows:
Shares of beneficial interest $126,118,362
Other temporary differences (59)
Capital loss carryforwards (4,163,479)
Unrealized depreciation of investments (1,389,249)
------------
Net assets $120,565,575
============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of market discount and premium on certain debt instruments
and paydown gain (loss) on mortgage- and asset-backed securities. Results of
operations and net assets were not affected by these reclassifications. For the
six months ended January 31, 2006, the Fund recorded an estimate of these
differences since the final tax characteristics cannot be determined until
fiscal year end.
Undistributed net investment income $ 178,115
Accumulated net realized gain (loss) (178,115)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
outstanding at July 31, 2005 will expire as follows: $3,971,857 expires in 2010.
For the six months ended January 31, 2006, the Fund had capital losses of
$191,622, which may increase the capital loss carryforwards.
15
- --------------------------------------------------------------------------------
Delaware High-Yield Opportunities Fund
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
1/30/06 7/31/05
Shares sold:
Class A 4,240,069 16,251,597
Class B 269,816 1,232,222
Class C 840,770 2,768,340
Class R 230,077 466,102
Institutional Class 962,360 1,566,148
Shares issued upon reinvestment of
dividends and distributions:
Class A 493,221 779,426
Class B 52,173 107,654
Class C 73,001 122,839
Class R 19,683 10,143
Institutional Class 54,858 55,865
---------- -----------
7,236,028 23,360,336
---------- -----------
Shares repurchased:
Class A (6,558,532) (8,568,072)
Class B (661,750) (1,088,072)
Class C (892,285) (983,589)
Class R (70,678) (15,381)
Institutional Class (30,171) (57,219)
---------- -----------
(8,213,416) (10,712,333)
---------- -----------
Net increase (decrease) (977,388) 12,648,003
========== ===========
For the six months ended January 31, 2006 and the year ended July 31, 2005,
40,587 Class B shares were converted to 40,587 Class A shares valued at $174,307
and 84,575 Class B shares were converted to 84,505 Class A shares valued at
$368,395, respectively. The respective amounts are included in Class B
redemptions and Class A subscriptions in the table above and the Statements of
Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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. The
Fund had no amounts outstanding as of January 31, 2006, or at any time during
the period.
7. Credit and Market Risks
The Fund invests a portion of its assets in high yield fixed income securities,
which carry ratings of BB or lower by Standard & Poor's Ratings Group and/or Ba
or lower by Moody's Investors Service, Inc. Investments in these higher yielding
securities are generally accompanied by a greater degree of credit risk than
higher rated securities. Additionally, lower rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of the Fund's limitation on investments in illiquid assets. Rule
144A and illiquid securities have been identified on the Statement of Net
Assets.
8. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
16
- --------------------------------------------------------------------------------
About
- --------------------------------------------------------------------------------
THE ORGANIZATION
This semiannual report is for the information of Delaware High-Yield
Opportunities Fund shareholders, but it may be used with prospective investors
when preceded or accompanied by a current prospectus for Delaware High-Yield
Opportunities Fund and the Delaware Investments(R) 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 that 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
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel
and Secretary
Delaware Investments(R) Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel
and Chief Legal Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments(R) Family of Funds
Philadelphia, PA
Contact Information
Investment Manager
Delaware Management Company,
a Series of Delaware Management Business Trust
Philadelphia, PA
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For Shareholders
800 523-1918
For Securities Dealers and Financial
Institutions Representatives Only
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name for
Delaware Management Holdings, Inc. and
its subsidiaries.
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities is available without charge (i) upon request, by calling
800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com;
and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms
N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling 800-SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[DELAWARE INVESTMENTS(R) LOGO]
- --------------------------------------------------------------------------------
Contact Information
Web Site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8:00 a.m. to 7:00 p.m.
Eastern Time:
o For fund information, literature, price, yield, and performance figures.
o For information on existing regular investment accounts and retirement
plan accounts including wire investments, wire redemptions, telephone
redemptions, and telephone exchanges.
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24
hours a day, use this Touch-Tone(R) service.
- --------------------------------------------------------------------------------
(262) Printed in the USA
SA-137 [1/06]CGI 3/06 SEMI-060227-HY OPPS PO10834
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or
statements filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's second fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Delaware Group Income Funds
JUDE T. DRISCOLL
- -----------------------------
By: Jude T. Driscoll
- -----------------------------
Title: Chief Executive Officer
Date: April 5, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
JUDE T. DRISCOLL
- -----------------------------
By: Jude T. Driscoll
----------------------
Title: Chief Executive Officer
Date: April 5, 2006
MICHAEL P. BISHOF
- -----------------------------
By: Michael P. Bishof
----------------------
Title: Chief Financial Officer
Date: April 5, 2006
EXHIBIT 99.CERT
CERTIFICATION
-------------
I, Jude T. Driscoll certify that:
1. I have reviewed this report on Form N-CSR of Delaware Group Income Funds;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in net
assets, and cash flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
control over financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the second
fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: April 5, 2006
JUDE T. DRISCOLL
- ---------------------------------
By: Jude T. Driscoll
--------------------------
Title: Chief Executive Officer
CERTIFICATION
-------------
I, Michael P. Bishof, certify that:
1. I have reviewed this report on Form N-CSR of Delaware Group Income Funds;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in net
assets, and cash flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
control over financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: April 5, 2006
MICHAEL P. BISHOF
- ------------------------------------
By: Michael P. Bishof
-----------------------------
Title: Chief Financial Officer
EXHIBIT 99.906CERT
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the attached report of the registrant on Form N-CSR to be
filed with the Securities and Exchange Commission (the "Report"), each of the
undersigned officers of the registrant does hereby certify, to the best of such
officer's knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the
registrant as of, and for, the periods presented in the Report.
Date: April 5, 2006
JUDE T. DRISCOLL
By: Jude T. Driscoll
----------------
Title: Chief Executive Officer
MICHAEL P. BISHOF
- -------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act, or other document authenticating, acknowledging, or
otherwise adopting the signatures that appear in typed form within the
electronic version of this written statement required by Section 906, has been
provided to the registrant and will be retained by the registrant and furnished
to the SEC or its staff upon request.