<PAGE>
FOR CURRENT INCOME
U.S. GOVERNMENT FUND
(photo of illustration from current income brochure)
service and guidance
professional management
goals
1999
Semi-Annual
Report
DELAWARE(SM)
INVESTMENTS
=====================
Philadelphia o London
<PAGE>
for current
income
2
February 5, 1999
Dear Shareholder:
AN UNEXPECTED CHAIN OF ECONOMIC events led to extreme performance within the
bond market over the past six months. Numerous global economies fell victim to
economic hardships, causing their currencies to de-stabilize. A responsive
Federal Reserve Board, concerned about the U.S. economy, lowered the Federal
Funds Rate (the overnight lending rate between banks) three times this autumn.
Equity markets rallied, investment grade bond prices soared and 30 year Treasury
yields dropped to 4.7%.
U.S. Government Fund provided a total return of +4.05% (for Class A shares
with dividends reinvested at net asset value) for the six months ended January
31, 1999. Your Fund sought to maximize income by focusing on mortgage-backed
securities and by maintaining a relatively conservative risk profile.
Since the summer, the Fund did not rise in value as much as its unmanaged
benchmark, the Lehman Brothers Government Bond Index. The Index was more heavily
weighted in U.S. Treasuries than the Fund: 55%, compared to U.S. Government
Fund's 28% as of January 31, 1999. Because of this lesser weighting, and because
Treasuries were the best performing sector during autumn, we did not capture the
attractive price appreciation provided by these investments to the extent the
Index did.
Due in part to our focus on mortgage-backed securities, the Fund provided an
attractive stream of current income during the past six months. Then, late in
the year interest rates stabilized allowing mortgage securities to outpace
Treasuries. Paul Grillo, your Fund's senior portfolio manager, discusses this in
detail in his commentary on the pages that follow.
CUMULATIVE TOTAL RETURN
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Six Months Ended
January 31, 1999
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U.S. Government Fund A Class +4.05%
Lipper General U.S. Government Fund Average (192 funds) +4.60%
Lehman Brothers Government Bond Index +6.05%
- -------------------------------------------------------------------------------
Performance is calculated at net asset value without effect of sales charges and
assumes reinvestment of distributions. Interest and principal repayment at
maturity for U.S. Treasury securities are guaranteed by the U.S. government,
unlike mutual fund dividends and share values. Complete Fund performance for all
classes can be found on page 7. Past performance does not guarantee future
results. A direct investment in the unmanaged Lehman Brothers Government Bond
Index is not possible.
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for current
income
3
The forward momentum of the U.S. economy continues, although we expect at a
slower pace than in previous years. We are still in the throes of our nation's
longest peacetime economic expansion - a healthy seven and a half years.
Unemployment is at a 28-year low, consumer confidence continues to soar and the
inflation rate was only 1.5% last year.
Continued economic prosperity may reinforce the stock market's recent
outperformance of bonds. Despite this, we believe that bonds remain an important
part of a well-balanced portfolio. U.S. Government Fund's primary objective - to
provide high current income consistent with safety of principal - offers
shareholders a strong bond component for a diversified portfolio.
Thank you for your continued confidence in Delaware Investments.
Sincerely,
/s/ Jeffrey J. Nick
- ------------------------------------
JEFFREY J. NICK
Chairman, President
and Chief Executive Officer
Delaware Investments Family of Funds
Jeffrey J. Nick Named Chairman
On December 17, 1998, Jeffrey J. Nick was named Chairman of the Delaware
Investments Family of Funds. He replaces Wayne A. Stork who has retired as
Chairman of the Board of Directors, but continues to serve as a Board Member.
Mr. Nick was named President and Chief Executive Officer of Delaware Investments
Family of Funds in October 1997. He has been CEO of Lincoln National Investment
Companies, an indirect parent company of Delaware Investments, since October
1996 and previously managed Lincoln's operations in the United Kingdom. Mr. Nick
holds an MBA from the University of Chicago and a Bachelor of Arts degree from
Princeton University.
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for current
income
4
PORTFOLIO MANAGER'S REVIEW
BY PAUL GRILLO
Vice President and Senior Portfolio Manager
February 5, 1999
The first half of fiscal 1999 began with the continued rumblings of overseas
economic troubles. Indonesia, and then Russia, suffered corrections or
devaluation of their national currencies, spreading concerns of global recession
to U.S. and other markets. As a result, investors the world over flocked to the
safety of U.S. Treasuries. Throughout this period of uncertainty, we strove to
position U.S. Government Fund as a conservative haven for Delaware Investments
shareholders.
Later in autumn as interest rates were lowered, increased demand for
Treasuries caused yields to drop. In an effort to maintain an attractive income
flow, we increased our holdings of non-Treasury securities. Mortgage-backed
securities, which are insured directly or indirectly by the U.S. government,
offered higher income potential than Treasury bonds. During this time, we also
purchased more asset-backed securities, focusing on bonds rated AAA, the highest
quality rating available, and corporate bonds rated A or better.
Consistent with our investment objective, our primary aim is to provide our
shareholders with:
o a steady income flow; and,
o a conservatively managed portfolio with very high quality securities.
On the pages that follow, we have included a review of how each sector we
focused on contributed to your Fund's performance during the first half of
fiscal 1999.
U.S. GOVERNMENT FUND A CLASS
- ------------------------------------------------------------------------------
INCOME FROM A $100,000 INVESTMENT SINCE INCEPTION
TOTAL INCOME = $183,107
1/31/86 $ 4,677
1/31/87 $10,653
1/31/88 $10,796
1/31/89 $10,761
1/31/90 $11,591
1/31/91 $12,175
1/31/92 $13,836
1/31/93 $15,119
1/31/94 $15,909
1/31/95 $15,541
1/31/96 $16,033
1/31/97 $15,008
1/31/98 $15,446
1/31/99 $15,562
Chart assumes a $100,000 investment on August 16, 1985, includes the effect of a
4.75% front-end sales charge and reinvestment of distributions. Performance of
other Fund classes will vary due to other charges and expenses. Past performance
does not guarantee future results. Sales charges are reduced on purchases of
$100,000 or more.
<PAGE>
for current
income
5
U.S. TREASURIES
Treasuries fared well amid a global flight to quality that occurred in response
to overseas economic turbulence in mid-summer and early autumn. Economic
uncertainty in worldwide equity markets motivated investors to move their assets
into the safest possible vehicles. Investors flocked toward U.S. Treasuries
hoping to find a sanctuary for their assets.
During this time we weighted the portfolio more heavily in Treasuries and, in
an attempt to increase your fund's yield, slightly extended duration. Duration
is the most common measure of a bond's sensitivity to interest rates. It
indicates the approximate change in a bond's price given a 1% movement in
interest rates.
Increased demand for Treasuries from U.S. and foreign investors, combined
with reduced Treasury supply that resulted from the U.S. budget surplus, made
Treasuries a hot commodity. That put us in a favorable position. We were able to
lend Treasuries to other institutions. The added income we earned contributed
to your Fund's performance.
With autumn, however, came a drastically different scenario. After a
September interest rate cut failed to boost the economy, the Federal Reserve
Board took further action. In October, mid-way between scheduled meetings, the
Federal Reserve Board lowered the Federal Funds rate for the second time in less
than 30 days, providing additional liquidity to the economy. This unexpected
turn of events calmed U.S. markets tremendously, bolstering investor confidence.
Compounded by a third interest rate cut in November, U.S. Treasury prices
dropped, hurting our performance in this sector. We purchased fewer of these
securities in the months that followed thus reducing Treasury holdings to
roughly one-quarter of your fund's assets at the end of the period.
PORTFOLIO HIGHLIGHTS AND ASSETS MIX
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JANUARY 31, 1999
U.S. Treasuries 27.7%
*Mortgage-Backed Securities 30.5%
Asset-Backed Securities 3.5%
Collateralized Mortgage
Obligations (CMOS) 14.1%
Corporate Bonds 13.6%
U.S. Government Obligations 9.8%
Municipal Bonds 0.8%
*Includes Agency Mortgage-Backed Securities and Government National Mortgage
Association Obligations (GNMA's). The percentages in the chart have been
adjusted to reflect actual portfolio holdings without including the effect of
cash which is included in the net assets listed in the financial section of the
report.
July 31, January 31,
1998 1999
- -------------------------------------------------------------------------------
Average Effective Duration 4.8 years 4.7 years
Average Effective Maturity 8.3 years 7.2 years
Average Quality AAA AAA
Current 30-Day SEC Yield+ 5.33% 4.4%
Number of Bonds 269 274
+For Class A shares measured according to Securities and Exchange Commission
guidelines. For B and C class shares, the 30-day SEC current yield as of
January 31, 1999 was 3.92%. Institutional Class yield was 4.92%.
<PAGE>
for current
income
6
MORTGAGE-BACKED SECURITIES
During the period, mortgage-backed securities enabled the Fund to generate a
higher level of income than if we had focused on other types of bonds. Mortgage
investment payments are received on a monthly basis, providing investors like us
with a stable income stream. During the winter, we increased your Fund's
holdings of these bonds, which make it possible for investors to receive
interest and principal payments from mortgage payments of homeowners. Mortgage
securities that are backed by the U.S. government, or one of its agencies are
considered to be of very high quality.
Declining interest rates during the early part of the period posed a threat
to mortgage investors as homeowners rushed to refinance their loans at lower
rates. Refinancing forces investors to reinvest that money - often at lower
rates. We sought to lessen prepayment risks by investing in particular types of
mortgage pools:
o MORTGAGES WITH LOW-AVERAGE LOAN BALANCES - Homeowners with lower mortgage
balances are often less likely to refinance;
o DISCOUNT MORTGAGES - Mortgages issued when interest rates were lower than
current rates give homeowners less incentive to refinance;
o SEASONED MORTGAGE BONDS - Bonds that have stood the test of time by
successfully trading in the secondary market for a substantial period of time
are less prone to prepayment risk; and,
o COMMUNITY REINVESTMENT ACT BONDS - Mortgages backed by U.S. agencies and
subsidized for certain lower middle class residents at lower interest rates
than conventional mortgages leave homeowners with no incentive to refinance.
CORPORATE BONDS AND ASSET BACKED SECURITIES
In order to increase your Fund's income potential, during the past six months we
increased our positioning in corporate and asset-backed bonds. These types of
bonds have the potential to provide higher income than government and
government-backed securities. Your Fund invests only in corporate and
asset-backed bonds rated A or better by Moody's or Standard & Poor's. U.S.
Government Fund is allowed to invest up to 20% of the Fund's assets in
non-government securities at any given time, an option we are taking advantage
of as we increase our holdings in this area and attempt to reap the benefits of
continued economic expansion.
Impressive job growth, low inflation and high consumer confidence continue to
abound, and we expect corporate bonds and asset-backed securities to fare well
in this environment over the coming months.
OUTLOOK
Looking forward to the remainder of fiscal 1999, we expect domestic and European
equity markets to remain the focal points for most investors. This means that
bonds are likely to remain in the shadow of
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for current
income
7
stocks. Conflicting economic data over the past year may be the signal that the
economy is ready to slow down from its previous brisk pace. But our ball isn't
ready to roll to a stop just yet. Seven and a half years of economic expansion
doesn't come to an end overnight. For the early part of the year, we have
positioned U.S. Government Fund to take advantage of a bond market that we think
will range from weak-to-stable. The strong U.S. economy should continue its
forward momentum through the winter, allowing mortgage-backed and corporate
bonds to fare well. As we move into spring, we expect to see foreign economic
weakness seep into the U.S., augmenting the flight to quality we have witnessed
over the past six months.
As always, our main focus is to provide high current income while maintaining
stability for our shareholders. For the remainder of the fiscal year, we plan
to:
o remain at our maximum weighting for asset-backed and corporate bonds;
o add additional mortgage-backed securities that meet our selection criteria;
and,
o possibly add Treasuries of slightly longer maturity if we begin to see slower
economic growth.
By focusing in these areas, we believe we are positioning your Fund to meet
its objectives.
U.S. GOVERNMENT FUND PERFORMANCE
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH JANUARY 31, 1999
Lifetime Ten Years Five Years One Year
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Class A (Est. 8/16/85)
Excluding Sales Charge +7.40% +7.35% +4.93% +6.46%
Including Sales Charge +7.00% +6.82% +3.92% +1.39%
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Class B (Est. 5/2/94)
Excluding Sales Charge +5.75% +5.72%
Including Sales Charge +5.43% +1.72%
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Class C (Est. 11/28/95)
Excluding Sales Charge +5.73% +5.72%
Including Sales Charge +5.73% +4.72%
ALL PERFORMANCE INCLUDES REINVESTMENT OF DISTRIBUTIONS AND APPLICABLE SALES
CHARGE AS DESCRIBED BELOW. RETURN AND SHARE VALUE WILL FLUCTUATE SO THAT SHARES,
WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. PERFORMANCE FOR CLASS B AND
CLASS C SHARES EXCLUDING SALES CHARGE ASSUMES EITHER CONTINGENT SALES CHARGES
DID NOT APPLY OR THE INVESTMENT WAS NOT REDEEMED.
CLASS A shares have a 4.75% front-end sales charge and a 12b-1 fee.
CLASS B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year.
CLASS C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
Average annual total returns for the lifetime, ten-year, five-year and one-year
periods ended January 31, 1999, for U.S. Government Fund's Institutional Class
were +7.63%, +7.65%, +5.24% and +6.78%, respectively. The Institutional Class
was made available without sales charges only to certain eligible institutional
accounts on 11/9/92; performance prior to that date was adjusted to eliminate
the effect of the sales charge.
<PAGE>
8 for current income
FINANCIAL STATEMENTS
DELAWARE GROUP GOVERNMENT FUND, INC.
GOVERNMENT INCOME SERIES*
STATEMENT OF NET ASSETS
JANUARY 31, 1999 (UNAUDITED)
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PRINCIPAL MARKET
AMOUNT VALUE
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AGENCY MORTGAGE-BACKED SECURITIES - 23.26%
FHA Project Loan 8.75% 10/1/27 ..................... $ 690,725 $ 737,133
Federal Home Loan Mortgage Corporation
6.00% 11/1/26 ................................... 709,508 709,508
9.00% 12/1/05 ................................... 1,189,302 1,238,361
9.50% 2/15/20 ................................... 654,487 697,413
10.00% 1/1/19 ................................... 362,362 401,655
10.25% 4/1/08 ................................... 30,745 33,636
11.50% 7/1/99 to 3/1/16 ......................... 1,529,433 1,730,375
Federal Home Loan Mortgage Corporation-Gold
7.50% 3/1/28 .................................... 326,222 336,722
12.00% 12/1/10 .................................. 69,302 79,546
Federal National Mortgage Association
6.00% 12/1/28 ................................... 8,981,082 8,885,658
6.50% 11/1/28 ................................... 4,974,682 5,027,539
7.00% 3/1/28 to 9/1/29 .......................... 17,259,770 17,664,206
7.50% 12/1/27 to 3/1/28 ......................... 5,943,225 6,134,522
10.00% 7/1/20 to 5/1/22 ......................... 1,304,085 1,431,365
10.75% 9/1/11 ................................... 94,532 104,635
11.25% 6/1/00 to 1/1/01 ......................... 65,148 70,095
14.25% 9/1/99 ................................... 6,607 6,671
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TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(COST $44,961,720) .............................. 45,289,040
-----------
ASSET-BACKED SECURITIES - 3.52%
ADVANTA Home Equity Loan Trust
92-4 A1 7.20% 11/25/08 .......................... 1,205,708 1,219,272
AFC Home Equity Loan Trust series
1992-1A 7.50% 03/15/07 .......................... 611,317 610,801
CIT RV 1998-A A5 6.12% 7/15/14 ..................... 3,000,000 3,051,900
Sears Credit Account Master Trust
5.25% 11/15/05 .................................. 2,000,000 1,975,625
-----------
TOTAL ASSET-BACKED SECURITIES
(COST $6,814,694) ............................... 6,857,598
-----------
COLLATERALIZED MORTGAGE
OBLIGATIONS (CMO) - 14.14%
Collateralized Mortgage Securities Corporation F-1
11.45% 11/1/15 .................................. 193,475 215,507
Federal Home Loan Mortgage Corporation
6.75% 11/15/21 .................................. 5,874,003 6,046,906
Federal Home Loan Mortgage Corporation 1608 GA
9.00% 6/15/21 ................................... 4,691,612 5,009,641
Federal Home Loan Mortgage Corporation 2122 PY
8.50% 2/1/29 .................................... 4,028,795 4,295,703
Federal National Mortgage Association 35-2
12.00% 7/25/18 .................................. 1,395,080 1,553,567
- -------------
This Fund is known and does business as U.S. Government Fund.
<PAGE>
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PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (CMO) (Continued)
Federal National Mortgage Association 88-15A
9.00% 6/25/18 ................................... $ 24,530 $ 25,934
Federal National Mortgage Association Alpha H-2
11.50% 5/1/09 ................................... 1,531,604 1,698,141
Federal National Mortgage Association C-2
12.00% 5/1/09 ................................... 1,932,328 2,145,734
Federal National Mortgage Association D-2
11.00% 4/1/09 ................................... 1,657,119 1,817,753
Federal National Mortgage Association F--2
11.50% 5/25/09 .................................. 789,408 875,111
Federal National Mortgage Association J-1
7.00% 11/1/10 ................................... 72,671 74,539
Investor GNMA Mortgage-Backed Securities
Trust Series 84-F5 10.88% 10/25/13 .............. 1,461,323 1,623,325
Travelers Mortgage Securities 1-Z2
12.00% 03/1/14 .................................. 1,966,109 2,150,941
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TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $27,563,218) .............................. 27,532,802
-----------
CORPORATE BONDS - 13.60%
American General Institute
7.57% 12/1/46 ................................... 2,000,000 2,210,000
Cit Group Holdings 5.625% 10/15/03 ................. 1,700,000 1,712,750
Comm Credit 10.00% 5/15/09 ......................... 1,500,000 1,968,750
Credit Foncier de France 8.00% 1/14/02 ............. 2,300,000 2,443,750
General Electric Capital 8.85% 3/1/07 .............. 5,950,000 7,281,312
NationsBank 10.20% 7/15/15 ......................... 4,000,000 5,445,000
Philip Morris 7.20% 2/1/07 ......................... 2,000,000 2,180,000
RBSG Capital 10.125% 3/1/04 ........................ 1,908,000 2,234,745
United Health Care 144A 6.60% 12/1/03 .............. 1,000,000 1,018,750
-----------
TOTAL CORPORATE BONDS (COST $25,076,679) ........... 26,495,057
-----------
GOVERNMENT AGENCY OBLIGATIONS - 9.79%
Federal Home Loan Mortgage Corporation
8.065% 1/27/05 .................................. 3,500,000 4,014,223
Federal National Mortgage Association
6.00% 5/15/08 ................................... 7,350,000 7,767,077
Federal National Mortgage Association Global Bond
7.40% 7/1/04 .................................... 2,000,000 2,216,205
Federal National Mortgage Association FRN
5.85% 2/12/03 ................................... 5,000,000 5,067,522
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TOTAL GOVERNMENT AGENCY OBLIGATIONS
(COST $18,913,051) .............................. 19,065,027
-----------
<PAGE>
for current income 9
U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS - 8.86%
GNMA
6.50% 12/15/23 .................................. $ 475,774 $ 484,249
9.00% 11/15/21 .................................. 1,141,414 1,219,173
9.50% 9/15/17 to 3/15/23 ........................ 1,754,840 1,899,114
10.00% 1/15/18 to 9/15/18 ....................... 679,205 753,282
11.00% 12/15/09 to 8/15/13 ...................... 1,743,802 1,983,291
11.50% 7/15/15 .................................. 81,572 92,666
12.00% 5/15/11 to 12/15/15 ...................... 3,451,271 3,983,807
12.25% 3/15/14 .................................. 112,605 129,988
12.50% 5/15/10 to 1/15/16 ....................... 621,992 724,623
GNMA GPM
10.25% 3/15/19 .................................. 23,891 26,011
11.50% 3/15/13 .................................. 256,467 291,650
11.75% 8/15/13 .................................. 431,300 492,760
GNMA II
9.00% 10/20/01 to 10/20/05 ...................... 574,294 604,532
10.00% 11/20/15 to 5/20/21 ...................... 1,528,001 1,684,576
10.50% 3/20/16 to 7/20/21 ....................... 914,550 1,020,006
11.00% 5/20/15 to 7/20/19 ....................... 172,119 193,900
11.50% 10/20/14 to 10/20/15 ..................... 134,840 152,961
12.00% 1/20/14 to 3/20/15 ....................... 151,774 175,113
12.50% 10/20/13 to 7/20/15 ...................... 858,712 999,470
GNMA II GPM
10.25% 3/20/18 to 5/20/19 ....................... 35,374 38,514
10.75% 1/20/16 to 2/20/18 ....................... 251,759 275,913
12.00% 11/20/13 ................................. 18,427 21,213
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
OBLIGATIONS (COST $16,783,666) .................. 17,246,812
-----------
MUNICIPAL BOND - 0.77%
Cook County, Illinois Chicago Heights School District,
Taxable-Series B
13.15% 12/1/05 .................................. 1,055,000 1,510,570
-----------
TOTAL MUNICIPAL BOND (COST $1,409,177) ............. 1,510,570
-----------
U.S. TREASURY OBLIGATIONS - 27.65%
U.S. Treasury Bond
7.625% 02/15/25 ................................. 3,400,000 4,497,591
+10.375% 11/15/12 ................................ 20,445,000 28,159,972
U.S. Treasury Note
4.25% 11/15/03 .................................. 4,000,000 3,948,689
4.75% 11/15/08 .................................. 8,950,000 9,019,120
10.75% 8/15/05 .................................. 6,180,000 8,222,355
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $51,752,200) .............................. 53,847,727
-----------
<PAGE>
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PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 5.95%
With Chase Manhattan 4.68% 02/01/99
(dated 01/29/99, collateralized by $1,222,000
U.S. Treasury Notes 6.375% due 03/31/01,
market value $1,289,687 and $1,172,000 U.S.
Treasury Notes 6.625% due 6/30/01, market
value $1,229,784 and $1,172,000 U.S. Treasury
Notes 7.875% due 8/15/01, market value
$1,302,445 and $104,000 U.S. Treasury Notes
5.625% due 12/31/02,
market value $107,792) .......................... $ 3,851,000 $ 3,851,000
With JP Morgan Securities 4.70% 02/01/99
(dated 1/29/99, collateralized by $1,847,000
U.S. Treasury Notes 5.50% due 3/31/03,
market value $1,935,529 and $1,247,000
U.S. Treasury Notes 5.375% due 6/30/03,
market value $1,286,769 and $680,000 U.S.
Treasury Notes 5.75% due 8/15/03, market
value $726,956) ................................. 3,865,000 3,865,000
With PaineWebber 4.70% 02/01/99
(dated 1/29/99, collateralized by $1,225,000
U.S. Treasury Notes 6.00% due 6/30/99, market
value $1,238,191 and $1,247,000 U.S. Treasury
Notes 5.50% due 02/29/00, market value $1,286,043
and $479,000 U.S. Treasury Notes 6.25% due
04/30/01, market value $501,911 and $858,000
U.S. Treasury Notes 6.00% due 07/31/02, market
value $918,722) ................................. 3,865,000 3,865,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $11,581,000) .............................. 11,581,000
------------
TOTAL MARKET VALUE OF SECURITIES
(cost $204,855,405) - 107.54% ............................... $209,425,633
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (7.54%) ...................................... (14,685,534)
------------
NET ASSETS APPLICABLE TO SHARES 24,985,135
($0.01 par value) OUTSTANDING - 100.00% ..................... $194,740,099
============
NET ASSET VALUE - U.S. GOVERNMENT FUND
A CLASS ($138,324,380 / 17,747,012) ......................... $7.79
=====
NET ASSET VALUE - U.S. GOVERNMENT FUND
B CLASS ($22,299,454 / 2,861,002) ........................... $7.79
=====
NET ASSET VALUE - U.S. GOVERNMENT FUND
C CLASS ($3,928,816 / 504,067) .............................. $7.79
=====
NET ASSET VALUE - U.S. GOVERNMENT FUND
INSTITUTIONAL CLASS ($30,187,449 / 3,873,054) ............... $7.79
<PAGE>
10 for current income
U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT JANUARY 31, 1999:
Common stock, ($0.01 par value, 500,000,000 shares
authorized to the Fund with 80,000,000 shares allocated
to the U.S. Government Fund A Class, 80,000,000 shares
allocated to the U.S. Government Fund B Class,
50,000,000 shares allocated to the U.S. Government Fund
C Class, 20,000,000 shares allocated to the U.S.
Government Fund Institutional Class ........................... $226,335,440
Distribution in excess of net investment income .................. (18,152)
Accumulated net realized loss on investments ..................... (36,202,022)
Net unrealized appreciation of investments and futures contracts . 4,624,833
------------
Total net assets ................................................. $194,740,099
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
U.S. GOVERNMENT FUND A CLASS
Net asset value per share (A) .................................... $7.79
Sales charge (4.75% of offering price or 5.01% of
amount invested per share) .................................... 0.39
-----
Offering price ................................................... $8.18
=====
- -------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $100,000
or more.
- -------------
GPM - Graduate Payment Mortgage.
+Principal amount of $2,000,000 pledged as initial margin for futures
transactions.
See accompanying notes
<PAGE>
DELAWARE GROUP GOVERNMENT FUND, INC. -
GOVERNMENT INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS:
Investments at market (cost $204,855,405) ..................... 209,425,633
Receivable for securities sold ................................ 10,222,772
Interest receivable ........................................... 2,637,737
Subscriptions Receivable ...................................... 517,932
Other assets .................................................. 18,510
------------
Total Assets ............................................... 222,822,584
------------
LIABILITIES:
Payable for securities purchase ............................... 24,227,638
Other accounts payable and accrued expenses ................... 3,612,628
Liquidations payable .......................................... 242,219
------------
Total Liabilities .......................................... 28,082,485
------------
TOTAL NET ASSETS .............................................. $194,740,099
============
See accompanying notes
<PAGE>
for current income 11
DELAWARE GROUP GOVERNMENT FUND, INC. -
GOVERNMENT INCOME SERIES
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ....................................... $ 6,665,381
EXPENSE:
Management fees ................................ $ 539,661
Distribution expense ........................... 314,007
Dividend disbursing and transfer agent fees
and expenses ................................ 216,788
Accounting and administration .................. 54,926
Registration fees .............................. 32,000
Professional fees .............................. 9,500
Reports and statements to shareholders ......... 6,623
Directors' fees ................................ 4,184
Custodian fees ................................. 450
-----------
Total expenses ................................. 1,178,139
-----------
NET INVESTMENT INCOME .......................... 5,487,242
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments ............... (1,039,257)
Net realized loss on futures contracts ......... (251,877)
-----------
Net realized loss on investments ............... (1,291,134)
Net change in unrealized appreciation/depreciation
of investments and futures contracts ........ 2,783,449
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .............................. 1,492,315
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................. $ 6,979,557
===========
See accompanying notes
<PAGE>
DELAWARE GROUP GOVERNMENT FUND, INC. -
GOVERNMENT INCOME SERIES
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
SIX MONTHS
ENDED
1/31/99 YEAR ENDED
(UNAUDITED) 7/31/98
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ........................... $ 5,487,242 $ 11,326,268
Net realized loss on investments ................ (1,291,134) (58,287)
Net change in unrealized appreciation/
depreciation of investments and
futures contracts ............................ 2,783,449 (889,791)
------------ ------------
Net increase in net assets resulting
from operations .............................. 6,979,557 10,378,190
------------ ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class ...................................... (4,247,603) (9,370,096)
B Class ...................................... (538,961) (799,395)
C Class ...................................... (89,510) (98,357)
Institutional Class .......................... (629,945) (1,063,903)
------------ ------------
(5,506,019) (11,331,751)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ...................................... 35,562,680 35,363,890
B Class ...................................... 13,342,479 9,297,920
C Class ...................................... 3,265,495 2,932,593
Institutional Class .......................... 17,492,024 17,276,780
Net asset value of shares issued upon
reinvestment of dividends from net
investment income
A Class ...................................... 2,586,461 5,430,259
B Class ...................................... 285,975 380,595
C Class ...................................... 75,328 86,512
Institutional Class .......................... 610,525 983,847
------------ ------------
73,220,967 71,752,396
------------ ------------
Cost of shares repurchased:
A Class ...................................... (27,990,596) (51,932,640)
B Class ...................................... (5,038,888) (6,666,858)
C Class ...................................... (1,466,797) (2,273,984)
Institutional Class .......................... (6,014,045) (12,269,379)
------------ ------------
(40,510,326) (73,142,861)
------------ ------------
Increase (decrease) in net assets derived
from capital share transactions .............. 32,710,641 (1,390,465)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ........... 34,184,179 (2,344,026)
NET ASSETS:
Beginning of year ............................... 160,555,920 162,899,946
------------ ------------
End of year ..................................... $194,740,099 $160,555,920
============ ============
See accompanying notes
<PAGE>
12 for current income
DELAWARE GROUP GOVERNMENT FUND, INC. - GOVERNMENT INCOME SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND A CLASS
----------------------------------------------------------------------------
SIX MONTHS
ENDED 1/31/99(3) YEAR ENDED JULY 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $7.720 $7.760 $7.590 $7.860 $8.000 $9.010
Income (loss) from investment operations:
Net investment income ............................ 0.237 0.528 0.544 0.588 0.656 0.714
Net realized and unrealized gain (loss)
on investments and futures contracts ........... 0.070 (0.040) 0.170 (0.270) (0.140) (1.010)
------ ------ ------ ------ ------ ------
Total from investment operations ................. 0.307 0.488 0.714 0.318 0.516 (0.296)
------ ------ ------ ------ ------ ------
Less dividends:
Dividends from net investment income ............. (0.237) (0.528) (0.544) (0.588) (0.656) (0.714)
------ ------ ------ ------ ------ ------
Total dividends .................................. (0.237) (0.528) (0.544) (0.588) (0.656) (0.714)
------ ------ ------ ------ ------ ------
Net asset value, end of period ...................... $7.790 $7.720 $7.760 $7.590 $7.860 $8.000
====== ====== ====== ====== ====== ======
Total return(1) ..................................... 4.05% 6.50% 9.77% 4.09% 6.82% (3.51%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......... $138,324 $127,001 $138,844 $164,156 $206,083 $222,555
Ratio of expenses to average net assets .......... 1.23% 1.20% 1.16% 1.20% 1.24% 1.23%
Ratio of net investment income
to average net assets .......................... 6.04% 6.80% 7.13% 7.55% 8.40% 8.31%
Portfolio turnover ............................... 179% 119% 63% 81% 70% 309%
<CAPTION>
U.S. GOVERNMENT FUND B CLASS
----------------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED 1/31/99(3) YEAR ENDED JULY 31, 5/2/94(2) TO
(UNAUDITED) 1998 1997 1996 1995 7/31/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $7.720 $7.760 $7.590 $7.860 $8.000 $8.190
Income (loss) from investment operations:
Net investment income ............................ 0.212 0.474 0.490 0.533 0.601 0.151
Net realized and unrealized gain (loss)
on investments and futures contracts ............ 0.070 (0.040) 0.170 (0.270) (0.140) (0.190)
------ ------ ------ ------ ------ ------
Total from investment operations ................. 0.282 0.434 0.660 0.263 0.461 (0.039)
------ ------ ------ ------ ------ ------
Less dividends:
Dividends from net investment income ............. (0.212) (0.474) (0.490) (0.533) (0.601) (0.151)
------ ------ ------ ------ ------ ------
Total dividends .................................. (0.212) (0.474) (0.490) (0.533) (0.601) (0.151)
------ ------ ------ ------ ------ ------
Net asset value, end of period ...................... $7.790 $7.720 $7.760 $7.590 $7.860 $8.000
====== ====== ====== ====== ====== ======
Total return(1) ..................................... 3.69% 5.76% 9.01% 3.36% 6.08% (0.46%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......... $22,299 $13,642 $10,695 $9,754 $7,394 $2,215
Ratio of expenses to average net assets .......... 1.93% 1.90% 1.86% 1.90% 1.94% 1.94%
Ratio of net investment income
to average net assets ........................... 5.34% 6.10% 6.43% 6.85% 7.66% 7.60%
Portfolio turnover ............................... 179% 119% 63% 81% 70% 309%
</TABLE>
- --------------
(1) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
(2) Date of public offering; ratios have been annualized but total return has
not been annualized.
(3) Ratios have been annualized but total return has not been annualized.
See accompanying notes
<PAGE>
for current income 13
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND C CLASS
--------------------------------------------------
SIX MONTHS PERIOD
ENDED 1/31/99(4) YEAR ENDED JULY 31, 11/28/95(1)
(UNAUDITED) 1998 1997 TO 7/31/96
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................................... $7.720 $7.760 $7.590 $7.950
Income (loss) from investment operations:
Net investment income ............................................... 0.212 0.474 0.491 0.348
Net realized and unrealized gain (loss) on
investments and futures contracts .................................. 0.070 (0.040) 0.170 (0.360)
------ ------ ------ ------
Total from investment operations .................................... 0.282 0.434 0.661 (0.012)
------ ------ ------ ------
Less dividends:
Dividends from net investment income ................................ (0.212) (0.474) (0.491) (0.348)
------ ------ ------ ------
Total dividends ..................................................... (0.212) (0.474) (0.491) (0.348)
------ ------ ------ ------
Net asset value, end of period ......................................... $7.790 $7.720 $7.760 $7.590
====== ====== ====== ======
Total return(2) ........................................................ 3.69% 5.76% 9.01% (0.17%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............................. $3,929 $2,047 $1,308 $1,029
Ratio of expenses to average net assets ............................. 1.93% 1.90% 1.86% 1.90%
Ratio of net investment income to average net assets ................ 5.34% 6.10% 6.43% 6.85%
Portfolio turnover .................................................. 179% 119% 63% 81%
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
-------------------------------------------------------------------------
SIX MONTHS
ENDED 1/31/99(4) YEAR ENDED JULY 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $7.720 $7.760 $7.590 $7.860 $8.000 $9.010
Income (loss) from investment operations:
Net investment income .............................. 0.251 0.550 0.567 0.611 0.679 0.739
Net realized and unrealized gain (loss) on
investments and futures contracts ................. 0.070 (0.040) 0.170 (0.270) (0.140) (1.010)
------ ------ ------ ------ ------ ------
Total from investment operations ................... 0.321 0.510 0.737 0.341 0.539 (0.271)
------ ------ ------ ------ ------ ------
Less dividends:
Dividends from net investment income ............... (0.251) (0.550) (0.567) (0.611) (0.679) (0.739)
------ ------ ------ ------ ------ ------
Total dividends .................................... (0.251) (0.550) (0.567) (0.611) (0.679) (0.739)
------ ------ ------ ------ ------ ------
Net asset value, end of period ........................ $7.790 $7.720 $7.760 $7.590 $7.860 $8.000
====== ====== ====== ====== ====== ======
Total return(3) ....................................... 4.21% 6.80% 10.10% 4.39% 7.14% (3.23%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............ $30,187 $17,865 $12,053 $10,780 $8,316 $14,016
Ratio of expenses
to average net assets ............................. 0.93% 0.90% 0.86% 0.90% 0.94% 0.94%
Ratio of net investment income
to average net assets ............................. 6.34% 7.10% 7.43% 7.85% 8.66% 8.60%
Portfolio turnover ................................. 179% 119% 63% 81% 70% 309%
</TABLE>
- ------------
(1) Date of public offering; ratios have been annualized but total return has
not been annualized.
(2) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
(3) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value.
(4) Ratios have been annualized but total return has not been annualized.
See accompanying notes
<PAGE>
14 for current income
DELAWARE GROUP GOVERNMENT FUND, INC. -
GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
Delaware Group Government Funds, Inc - Government Income Fund (the "Fund") is
registered as a diversified open-end investment company under the Investment
Company Act of 1940, as amended. The Fund is organized as a Maryland
corporation. The Fund offers four classes of shares. The U.S. Government Fund A
Class carries a front-end sales charge of 4.75%. The U.S. Government Fund B
Class carries a back-end deferred sales charge. The U.S. Government Fund C Class
carries a level load deferred sales charge and U.S. Government Fund
Institutional Class has no sales charge. The Fund seeks to provide high current
income consistent with safety of principal by investing primarily in debt
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the fair
value of such securities. Money market instruments having less than 60 days to
maturity are valued at amortized cost, which approximates market value. Other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Fund's Board of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
custodian bank until the maturity of the respective repurchase agreements. Each
repurchase agreement is at least 100% collateralized. However, in the event of
default or bankruptcy by the counterparty to the agreement, realization of the
collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in
<PAGE>
calculating realized gains and losses on the sale of investment securities are
those of the specific securities sold. Interest income is recorded on the
accrual basis. Original issue discounts are accredited to interest income over
the lives of the respective security. The Fund declares dividends daily from net
investment income and pays such dividends monthly.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Fund, an annual fee which is calculated daily at the rate of 0.60% of the net
assets of the Fund, less the fees paid to the unaffiliated directors. At January
31, 1999, the Fund had a liability for investment management fees and other
expenses payable to DMC for $56,544.
The Fund has engaged Delaware Service Company (DSC), an affiliate of DMC, to
provide dividend disbursing, transfer agent and accounting services. At January
31, 1999, the Fund had a liability for such fees and other expenses payable to
DSC of $2,507.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class. No distribution expenses are paid
by the Institutional Class.
For the six months ended January 31, 1999, DDLP earned $22,845 for commissions
on sales of the U.S. Government Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
3. Investments
For the six months ended January 31, 1999, the Fund made purchases of
$11,895,741 and sales of $11,885,100 of investment securities other than U.S.
government securities and temporary cash investments. For the six months ended
January 31, 1999, the Fund made purchases of $183,388,301 and sales of
$149,095,546 of long term U.S. government securities.
At January 31, 1999, the aggregate cost of securities for federal income tax
purposes was $204,857,046.
At January 31, 1999, net unrealized appreciation for federal income tax purposes
aggregate $4,568,587 of which $4,766,689 related to unrealized appreciation of
securities and $198,102 related to unrealized depreciation of securities.
For federal income tax purposes, the Fund had accumulated capital losses of
$35,026,734 at July 31, 1998 which may be carried forward and applied against
future capital gains. The capital loss carry forward expire as follows: 2001 -
$1,622,896, 2002 - $17,400,711, 2003 - $9,205,797, 2004 - $4,166,601, 2005 -
$2,371,574 and 2006 - $259,155.
<PAGE>
for current income 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
During the six months ended January 31, 1999, the Fund entered into future
contracts in accordance with its investment objectives. Upon entering into a
futures contract, the Fund deposits cash or pledges U.S. government securities
to a broker, equal to the minimum "initial margin" requirements of the exchange
on which the contract is traded. Subsequent payments are received from or paid
to the broker each day, based on the daily fluctuation in the market value of
the contract. These receipts or payments are known as "variation margin" and are
recorded daily by the Fund as unrealized gains or losses until the contracts are
closed. When the contracts are closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
Risks may arise upon entering into futures contracts from potential imperfect
correlation between the futures contracts and the underlying securities and from
the possibility of an illiquid secondary market for these instruments.
At January 31, 1999, the Fund had outstanding 20 long futures on the 5 Year U.S.
Treasury Notes, which expire in March 1999 and 82 long futures on the 20 Year
U.S. Treasury Notes, which expire in March 1999. The notional value of such
contracts on January 31, 1999, was $12,042,125 which resulted in an unrealized
gain of $54,605.
4. Capital Stock
Transactions in capital stock shares were as follows:
SIX MONTHS
ENDED YEAR ENDED
1/31/99 7/31/98
---------- ----------
Shares sold:
A Class 4,553,829 4,571,770
B Class 1,703,056 1,201,317
C Class 416,324 379,435
Institutional Class 2,249,040 2,226,903
Shares issued upon reinvestment of
dividends from net investment income
A Class 330,890 701,989
B Class 36,491 49,177
C Class 9,642 11,182
Institutional Class 78,129 127,146
---------- ----------
9,377,401 9,268,919
---------- ----------
Shares repurchased:
A Class (3,587,390) (6,712,206)
B Class (645,521) (861,381)
C Class (187,048) (294,043)
Institutional Class (768,075) (1,592,884)
---------- ----------
(5,188,034) (9,460,514)
---------- ----------
Net increase (decrease) 4,189,367 (191,595)
========== ==========
<PAGE>
5. Market and Credit Risk
The Fund invests in securities whose value is derived from an underlying pool of
mortgages or consumer loans. 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. The Fund invests
in private-backed CMO's only if they are 100% collateralized at the time of
issuance by securities or certificates issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Prepayment of mortgages may
shorten the stated maturity of the obligations 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 and a rapid rate of principal payments may have a material adverse affect
on the Fund's yield to maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities even if the securities are
rated in the highest rating categories. The Fund will, from time to time, invest
in higher risk interest only CMOs. At January 31, 1999 the Fund had no holdings
in interest-only CMO's.
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF U.S. GOVERNMENT FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH prospective investors when preceded or
accompanied by a current U.S. Government Fund Prospectus and the Delaware
Investments Performance Update for the most recently completed calendar quarter.
The Prospectus sets forth details about charges, expenses, investment objectives
and operating policies of each Fund. You should read the prospectus carefully
before you invest. The figures in this report represent past results which are
not a guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
- -------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia
INTERNATIONAL AFFILIATE
Delaware International Advisors, Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
(Photo of globes)
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.BANK (2265)
www.delawarefunds.com
DELAWARE(SM) Be sure to consult your financial
INVESTMENTS adviser when making investments.
============ Mutual funds can be a valuable
Philadelphia o London part of your financial plan;
however, shares of the Funds are
not FDIC or NCUSIF insured, are
not guaranteed by any bank or any
credit union, and involve
investment risk, including the
possible loss of the principal.
Printed in the USA Shares of the Funds are not bank
on recycled paper or credit union deposits.
SA-023[1/99] PP3/99 (C) Delaware Distributors, L.P.
(1493)
