LIMITED-TERM
GOVERNMENT FUND
[GRAPHIC OMITTED: ILLUSTRATION OF A BODY OF WATER FLOWING OVER A DAM
WITH MOUNTAINS IN THE BACKGROUND]
FOR CURRENT INCOME
service and guidance
professional management
goals
1998
Semi-Annual Report
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
JULY 3, 1998
DEAR SHAREHOLDER:
ROBUST U.S. ECONOMIC GROWTH, low inflation and a strong U.S. dollar
invigorated the bond market during winter and spring. Bond prices
rose while yields fell to historic lows. This presented a challenge
to investors seeking to strike a balance between capital appreciation
and income.
Limited-Term Government Fund provided a total return of +2.44%
(for Class A shares with distributions reinvested at net asset value)
for the six months ended June 30, 1998. The income-oriented character of
your Fund did not allow it to benefit from the bond market rally as much
as our benchmark, the Merrill Lynch One-to-Three Year Government Bond
Index.
We focused on higher yielding mortgage securities rated AAA, the
highest credit quality available. However, an increase in mortgage
prepayments reduced the value of many mortgage bonds during the six
months ended June 30, 1998.
As of June 30, 1998, your Fund's 30-day current yield measured by
Securities and Exchange Commission (SEC) guidelines was 5.43% - more
than 100 basis points higher than the average of your Fund's peers.
WE FOCUSED ON HIGHER YIELDING MORTGAGE SECURITIES RATED AAA,
THE HIGHEST CREDIT QUALITY AVAILABLE.
During the fiscal period, low inflation enabled the Federal
Reserve Board to maintain its interest rate target at 5.5%. Inflation
was virtually dormant and the unemployment rate fell to a 28-year low.
These factors combined to push first-time mortgage applications and
homeowner refinancing to a historic high.
The Fund's investment portfolio experienced less refinancing than
the market as a whole. Through our disciplined analysis of the fixed
income market, we reduced your Fund's prepayment exposure which helped
preserve principal.
CUMULATIVE RETURN
Six Months Ended
June 30, 1998
Limited-Term Government Fund A Class +2.44%
Merrill Lynch One-to-Three Year Government Bond Index +2.49%
Lipper Short-Intermediate Government Fund Average
(100 Funds) +2.84%
U.S. Consumer Price Index (Inflation) +0.77%
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.
Your Fund's holdings of U.S. Treasuries rose in value, adding
stability to its share price. Treasury bonds appeared attractive during
the fiscal period because:
(bullet) Federal fiscal discipline generated a budget surplus for the
first time since 1969;
(bullet) Demand for government securities from foreign investors
increased amid slumping stock and bond markets in Asia;
(bullet) A strong U.S. dollar allowed many foreign investors to convert
a Treasury bond's income payments to local currencies at attractive
exchange rates.
On the pages that follow, Roger A. Early, your Fund's portfolio
manager, explains Limited-Term Government Fund's positioning during the
period and provides an outlook for the rest of 1998. He also provides
additional insight as to how your Fund managed mortgage prepayment risk.
Sincerely,
/S/Wayne A. Stork
WAYNE A. STORK
Chairman
/s/Jeffrey J. Nick
JEFFREY J. NICK
President and Chief Executive Officer
[GRAPHIC OMITTED: worm chart of AS THE WORLD TURNS TO TREASURIES,
THE YIELD CURVE TURNS FLAT]
AS THE WORLD TURNS TO TREASURIES, THE YIELD CURVE TURNS FLAT
Maturity December 31, 1997 June 30, 1998
3 Months 5.342% 5.093%
6 Months 5.435% 5.233%
Years
1 5.476% 5.365%
2 5.642% 5.475%
3 5.669% 5.491%
5 5.705% 5.465%
10 5.741% 5.446%
30 5.924% 5.626%
Long-term interest rates have fallen much faster than intermediate-term
rates since January. As of June 30, 1998, two-year U.S. Treasury notes
yielded more than 10-year notes.
Source: Bloomberg Business News.
PORTFOLIO MANAGER'S REVIEW
BY MAINTAINING A CONSISTENT INVESTMENT discipline, your Fund sought to
maximize income during a period of declining bond yields. We slightly
increased your Fund's allocation to mortgage bonds during the first
half of fiscal 1998. Your Fund focused on bonds issued by the
Federal Home Loan Mortgage Corporation (FHLMC) and Federal National
Mortgage Association (FNMA).
These two agencies typically issue bonds with a higher coupon than
conventional Government National Mortgage Association (GNMA) bonds,
another segment of the bond market in which your Fund invests. The yield
difference is due to the slightly higher liquidity of GNMA bonds. All
three varieties of mortgage bonds are rated AAA.
WE FAVORED ASSET-BACKED SECURITIES ISSUED BY CREDIT CARD COMPANIES AND
AUTOMOBILE LEASING AGENCIES. THESE TWO INDUSTRIES, IN PARTICULAR,
BENEFITED FROM A LOW UNEMPLOYMENT RATE THAT ALLOWED CONSUMERS TO PAY OFF
DEBT.
An increase in mortgage prepayments reduced the value of many
mortgage bonds during the six months ended June 30, 1998. We
sought to lessen prepayment risks by investing in:
(bullet) Seasoned mortgage bonds - those issued prior to 1991. Such
bonds experienced the last sustained wave of mortgage refinancing in
1993. We believe homeowners who refinanced earlier this decade, when
mortgage rates were lower, have less reason to refinance again.
(bullet) Preselected mortgage pools - we invested in pools of mortgages
with low loan balances. Our investment experience indicates that
homeowners with balances below $65,000 are less inclined to refinance.
(bullet) Discount mortgages - issued when interest rates were lower.
Discount mortgages have interest rates lower than current rates - so
there is no incentive for homeowners to refinance.
[GRAPHIC OMITTED pie chart PORTFOLIO HIGHLIGHTS AND ASSET MIX]
PORTFOLIO HIGHLIGHTS AND ASSET MIX
June 30, 1998
Asset-Backed Securities 17.6%
Cash 2.4%
Mortgage-Backed Securities 58.6%
Collateralized Mortgage Obligations (CMOs) 7.1%
U.S. Treasuries 12.0%
Corporate Bonds & Government Agencies 2.3%
June 30, December 31,
1998 1997
Average Effective Duration 2.0 years 2.3 years
Average Effective Maturity 3.5 years 3.9 years
Average Quality AAA AAA
Thirty-Day Current SEC Yield* 5.43% 5.63%
*For A Class shares measured according to Securities and Exchange
Commission guidelines. B and C Class thirty-day current SEC yields were
each 4.72% as of June 30, 1998. Institutional Class 30-day yield was
5.73%.
By maintaining a small position in Collateralized Mortgage
Obligations (CMOs), we were further able to minimize prepayment risks.
CMOs generally yield less than GNMAs, but their income stream is more
predictable.
Select CMOs allow us to lock in a higher-than-average yield for a
certain period of time, typically two years. This lessens the cash flow
uncertainties characteristic of traditional mortgage bonds such as
GNMAs, and acts as call protection against principal prepayments.
As of June 30, 1998, 17.6% of your Fund's net assets was allocated
to asset-backed securities, virtually the same as in December. Asset-
backed bonds represent pooled debt - originated by providers of credit
such as banks, who then pass income to investors.
The strong U.S. economy provided a favorable environment for
certain types of asset-backed bonds since December. We preferred asset-
backed securities issued by credit card companies and automobile leasing
agencies. These two sectors benefited from a low unemployment rate and
high consumer confidence.
Yields of short- and intermediate-term U.S. Treasury bonds traded
within a fairly narrow range throughout the period. In order to enhance
your Fund's yield, we slightly increased our exposure to short-term
corporate bonds and reduced your Fund's Treasury holdings. When
investing in corporate bonds, your Fund seeks only those bonds rated AAA
by Standard & Poor's and Moody's Investors Services, two of the best
known independent bond rating agencies.
Since December, we have modestly decreased your Fund's duration to
2.0 years as of June 30, 1998. We believe that a slightly lower duration
may help preserve capital should bond prices become volatile later this
year. Duration measures a bond's sensitivity to interest rates by
indicating the approximate percentage of change in a bond's price given
a 1% change in interest rates.
HOW INTEREST RATES AFFECT PREPAYMENT RISK
If 10-Year U.S. Treasury notes yield 6.00% 5.75% 5.50% 5.25% 5.00%
Mortgage rates are likely to be 7.50% 7.25% 7.00% 6.75% 6.50%
Percentage of homeowners for whom
refinancing may be attractive 25% 29% 42% 57% 64%
Mortgage rates shown above are an estimate of Federal Home Loan Mortgage
Corp. average commitment rates for conventional 30-year fixed-rate
mortgages for a single-family home. Refinancing estimates are as of
6/98. As of 6/30/98, a 10-year U.S. Treasury note yielded 5.44%. Source:
Donaldson Lufkin & Jenrette.
Outlook
For the balance of 1998, we believe that selected U.S. government
securities can continue to offer attractive income potential and
stability of principal.
Continued U.S. economic expansion along with a tight labor market
often lead to wage increases and consequently, an acceleration of
inflation. However, we believe interest rates are unlikely to rise much
from current levels.
To help reduce mortgage prepayment risk, we anticipate taking
greater advantage of technology that allows us to buy pre-selected pools
of mortgage loans. This strategy has allowed us to efficiently search
the market for mortgages that have a more attractive risk/reward
profile.
As of mid year, the effects of financial turmoil along the Pacific
Rim have had only a minor effect on the U.S. economy. However, as the
region recovers, we believe many Asian countries will increase exports
to the U.S. to rebuild their economies and pay down debt. This increased
supply of goods and services may help limit consumer price increases,
but may also eat away at the profits of domestic companies over the long
term.
TO HELP REDUCE MORTGAGE PREPAYMENT RISK, WE ANTICIPATE TAKING GREATER
ADVANTAGE OF TECHNOLOGY THAT ALLOWS US TO BUY PRE-SELECTED POOLS OF
MORTGAGE LOANS.
Over the coming months, we believe that stable interest rates and
the possibility of moderating economic growth bode well for the U.S.
economy. In his semi-annual report to Congress in June, Federal Reserve
Board chairman Alan Greenspan said traditional inflationary pressures
were subdued.
The U.S. economy has benefited from what Greenspan termed a
"virtuous cycle" - a climate of low inflation that has reduced interest
rates and stimulated investment. As always, we will continue following a
consistent investment discipline to maximize income and reduce
volatility.
ROGER A. EARLY
Vice President and
Senior Portfolio Manager
July 3, 1998
[PHOTO OF KEYBOARD]
[GRAPHIC OMITTED bar chart LIMITED-TERM GOVERNMENT FUND'S INCOME
POTENTIAL]
LIMITED-TERM GOVERNMENT FUND'S INCOME POTENTIAL
Annual Income From a $100,000 Investment Since Inception
November 24, 1985 to June 30, 1998
Total Income = $144,804
Yearly Income
June 1986 $ 5,037
June 1987 $ 7,595
June 1988 $ 8,337
June 1989 $10,038
June 1990 $11,007
June 1991 $11,794
June 1992 $12,316
June 1993 $11,981
June 1994 $12,036
June 1995 $14,030
June 1996 $13,492
June 1997 $13,494
June 1998 $13,646
Chart assumes a $100,000 investment on November 24, 1985, includes the
effect of a 2% 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.
LIMITED-TERM GOVERNMENT FUND PERFORMANCE
Average Annual Returns Through June 30, 1998
Lifetime Ten Years Five Years One Year
Class A (Est. 11/24/85)
Excluding Sales Charge +6.43% +6.31% +3.83% +4.66%
Including Sales Charge +6.20% +6.01% +3.26% +1.75%
Class B (Est. 5/2/94)
Excluding Sales Charge +3.94% +3.78%
Including Sales Charge +3.94% +1.82%
Class C (Est. 11/28/95)
Excluding Sales Charge +3.95% +3.78%
Including Sales Charge +3.95% +2.80%
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 the original
cost. Past performance is not a guarantee of future results. Performance
for Class B and C shares excluding sales charge assumes either the
investment was not redeemed or that contingent sales charges did not
apply.
Class A shares have a 2.75% maximum 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 2% if redeemed before the end of the
third year.
Class C shares have a 1% annual distribution and service fee. If shares
are redeemed within 12 months, a 1% contingent deferred sales charge
applies.
Limited-Term Government Fund's Institutional Class is available without
sales or asset-based distribution charges only to certain eligible
institutional accounts. As of June 30, 1998, the average annual total
returns for the lifetime, 10-year, five-year and one-year periods and
cumulative six-month return were +6.56%, +6.47%, +3.98%, +4.82% and
+2.52% respectively.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC. -
LIMITED-TERM GOVERNMENT FUND
STATEMENT OF NET ASSETS
JUNE 30, 1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ---------
<S> <C> <C>
AGENCY MORTGAGE-BACKED SECURITIES - 39.07%
Federal Home Loan Mortgage Corporation 6.00%
2/1/11 to 11/1/26 $33,095,335 $32,937,616
Federal Home Loan Mortgage Corporation 7.55%
5/15/20 255,888 257,357
Federal Home Loan Mortgage Corporation 8.00%
5/1/05 to 7/1/11 8,177,044 8,508,636
Federal Home Loan Mortgage Corporation 8.50%
12/1/08 to 11/1/10 2,233,486 2,338,415
Federal Home Loan Mortgage Corporation 8.75%
5/1/10 829,418 886,175
Federal Home Loan Mortgage Corporation 9.00%
6/1/09 to 1/1/24 6,483,666 6,803,112
Federal Home Loan Mortgage Corporation 9.50%
11/1/05 to 2/15/20 7,048,305 7,546,323
Federal Home Loan Mortgage Corporation 11.00%
2/1/14 to 11/1/15 400,549 444,757
Federal Home Loan Mortgage Corporation 11.50%
3/1/01 to 3/1/16 4,252,668 4,811,679
Federal National Mortgage Association 6.00%
2/1/01 5,779,280 5,770,249
Federal National Mortgage Association 6.00%
5/1/11 8,509,120 8,466,575
Federal National Mortgage Association 6.50%
3/1/09 to 12/1/10 7,941,838 8,023,882
Federal National Mortgage Association 7.00%
2/1/26 to 3/1/28 11,521,179 11,725,470
Federal National Mortgage Association 7.50%
2/1/27 to 12/1/27 14,442,216 14,848,629
Federal National Mortgage Association 8.00%
7/1/02 to 1/1/23 1,673,156 1,734,752
Federal National Mortgage Association 8.50%
8/1/07 to 8/1/17 9,595,877 10,047,710
Federal National Mortgage Association 9.00%
8/1/04 to 4/1/16 2,440,283 2,593,525
Federal National Mortgage Association 9.25%
7/1/08 to 8/1/16 2,064,033 2,200,977
Federal National Mortgage Association 10.00%
1/1/19 669,799 726,102
Federal National Mortgage Association 11.00%
12/25/03 to 8/1/20 9,926,714 10,921,006
Federal National Mortgage Association 12.50%
2/1/11 134,987 155,023
Federal National Mortgage Association 13.00%
7/1/15 168,905 197,460
------------
Total Agency Mortgage-Backed Securities
(Cost $138,309,251) 141,945,430
------------
ASSET-BACKED SECURITIES - 17.63%
American Express Credit Account Master Trust
Series 1996-1 Class A 6.80% 12/15/03 9,000,000 9,218,700
CIT Group Securitization Series 1995-2 Class A2
6.00% 5/15/26 1,026,524 1,027,447
Chemical Master Credit Card Trust Series 1995-3
Class A1 6.23% 4/15/05 3,500,000 3,555,069
Citibank Credit Card Master Trust I Series 1998-1
Class A 5.75% 1/15/03 3,630,000 3,628,866
First Sierra Receivables Series 1997-1 Class A2
6.35% 7/10/00 8,318,872 8,345,493
FirstBank Auto Receivables Grantor Trust Series 1995-B
Class A 6.40% 7/17/00 3,025,442 3,033,492
Heller Equipment Asset Receivables Trust Series 1997-1
Class A2 6.39% 5/25/05 8,269,969 8,317,935
MetLife Capital Equipment Loan Trust Series 1997-A
Class A 6.85% 5/20/08 4,088,000 4,201,238
Sears Credit Account Master Trust Series 1995-5
Class A 6.05% 1/16/08 10,000,000 10,045,443
Standard Credit Card Master Trust Series 1994-4
Class A 8.25% 11/7/03 5,320,000 5,686,293
World Omni Automobile Lease Securitization
Series 1997-B Class A4 6.20% 11/25/03 6,950,000 6,990,310
------------
Total Asset-Backed Securities
(Cost $63,756,427) 64,050,286
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO) - 7.05%
Federal Home Loan Mortgage Corporation Series 1608
Class GA 9.00% 6/15/21 10,000,000 10,716,772
Federal Home Loan Mortgage Corporation-69 Class F
9.00% 12/15/05 1,278,205 1,331,236
Federal National Home Loan Association-1989-15D
10.00% 9/25/18 62,027 62,027
Federal National Mortgage Association
Series 1993-12 Class ED 7.50% 2/25/06 8,375,000 8,702,430
Federal National Mortgage Association
Series 1989-1 Class C 10.30% 3/25/18 131,352 131,303
Federal National Mortgage Association
Series 1989-19 Class A 10.30% 4/25/19 3,846,145 4,217,810
Investor GNMA Mortgage-Backed Securities Trust
Series 84-F5 10.875% 10/25/13 121,637 137,574
Prudential Home Mortgage Securities Series 1992-2
Class A17 8.30% 3/25/07 304,406 304,035
------------
Total Collateralized Mortgage Obligations
(Cost $25,377,561) 25,603,187
------------
CORPORATE BONDS - 1.53%
Credit Foncier de France 8.00% 1/14/02 5,230,000 5,550,338
------------
Total Corporate Bonds
(Cost $5,493,383) 5,550,338
------------
FEDERAL FARM CREDIT OBLIGATIONS - 0.72%
Federal Farm Credit 6.45% 10/7/09 2,010,000 2,116,730
Federal Farm Credit 6.28% 11/26/12 475,000 494,190
------------
Total Federal Farm Credit Obligations
(Cost $2,567,830) 2,610,920
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS - 19.51%
GNMA 7.625% 2/15/22 1,821,101 1,870,599
GNMA 8.00% 11/15/16 to 5/15/17 10,415,170 10,948,949
GNMA 9.00% 4/15/16 to 1/15/22 36,182,905 39,267,107
GNMA 9.50% 6/15/16 to 11/20/21 995,430 1,083,147
GNMA 9.75% 11/20/16 377,545 408,222
GNMA 10.00% 1/20/20 to 11/20/20 1,269,935 1,406,452
GNMA 10.50% 11/15/15 to 6/20/20 123,761 135,169
GNMA 11.00% 10/15/00 to 5/15/20 3,843,529 4,362,964
GNMA 11.50% 7/15/15 to 2/15/19 50,005 57,318
GNMA 12.00% 10/15/10 to 5/20/16 148,456 172,415
GNMA 12.25% 8/15/13 to 1/15/14 256,544 297,992
GNMA 12.50% 12/15/10 to 6/15/15 146,770 171,949
GNMA 13.75% 9/1/14 50,090 58,746
GNMA GPM 11.50% 4/15/10 to 4/15/13 205,049 235,295
GNMA II 9.50% 11/20/20 to 11/20/21 3,609,889 3,901,495
GNMA II 10.00% 7/20/20 to 11/20/20 859,286 951,661
GNMA II 10.50% 11/15/15 to 1/15/16 353,047 386,915
GNMA II 11.00% 9/20/15 to 10/20/15 1,150,117 1,307,177
GNMA II 11.50% 12/20/17 to 10/20/18 306,721 345,828
GNMA II 12.00% 3/20/14 to 5/20/16 2,343,429 2,714,271
GNMA II 12.50% 10/20/13 to 1/20/14 662,364 771,314
------------
Total Government National Mortgage Association
Obligations (Cost $69,301,323) 70,854,985
------------
U.S. TREASURY OBLIGATIONS - 12.02%
U.S. Treasury Note 5.75% 10/31/00 15,000,000 15,076,499
U.S. Treasury Note 8.875% 2/15/99* 28,000,000 28,575,680
------------
Total U.S. Treasury Obligations
(Cost $44,264,452) 43,652,179
------------
REPURCHASE AGREEMENTS - 0.55%
With Chase Manhattan 5.85% 7/1/98
(dated 6/30/98, collateralized by
$762,000 U.S. Treasury Notes 5.375% due
6/30/03, market value $758,101) 743,000 743,000
With J.P. Morgan Securities 5.75% 7/1/98
(dated 6/30/98, collateralized by
$634,000 U.S. Treasury Notes 6.25% due
6/30/02, market value $649,637) 636,000 636,000
With PaineWebber 5.75% 7/1/98
(dated 6/30/98, collateralized by
$621,000 U.S. Treasury Notes 6.375% due
4/30/02, market value $649,775) 636,000 636,000
------------
Total Repurchase Agreements
(Cost $2,015,000) 2,015,000
------------
TOTAL MARKET VALUE OF SECURITIES OWNED
(cost $351,085,227) - 98.08% $356,282,325
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.92% 6,981,831
------------
NET ASSETS APPLICABLE TO 42,498,737 SHARES
($0.001 PAR VALUE) OUTSTANDING - 100.00% $363,264,156
============
NET ASSET VALUE - LIMITED TERM GOVERNMENT
FUND A CLASS ($327,651,853 / 38,332,391 SHARES) $8.55
=======
NET ASSET VALUE - LIMITED TERM GOVERNMENT
FUND B CLASS ($11,691,470 / 1,367,804 SHARES) $8.55
=======
NET ASSET VALUE - LIMITED TERM GOVERNMENT
FUND C CLASS ($2,476,049 / 289,675 SHARES) $8.55
=======
NET ASSET VALUE - LIMITED TERM GOVERNMENT
FUND INSTITUTIONAL CLASS
($21,444,784 / 2,508,867 SHARES) $8.55
=======
COMPONENTS OF NET ASSETS AT JUNE 30, 1998:
Common stock, ($0.001 par value, 2,000,000,000 shares
authorized to the Limited-Term Government Fund
with 950,000,000 shares allocated to the
Limited-Term Government Fund A Class, 200,000,000 shares
allocated to the Limited-Term Government Fund B Class,
50,000,000 shares allocated to the Limited-Term
Government Fund C Class and 200,000,000 shares
allocated to the Limited-Term Government Fund
Institutional Class $505,230,762
Distributions in excess of net investment income (44,235)
Accumulated net realized loss on investments (146,500,719)
Net unrealized appreciation of investments and futures contracts 4,578,348
------------
Total net assets $363,264,156
============
NET ASSET VALUE AND OFFERING PRICE PER
SHARE - LIMITED-TERM GOVERNMENT FUND A CLASS
Net asset value A Class (A) $8.55
Sales charge (2.75% of offering price, or 2.81%
of amount invested per share) (B) 0.24
-------
Offering price $8.79
=======
------------------------
(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 $3,000,000 pledged as initial margin for futures transactions.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP LIMITED-TERM
GOVERNMENT FUNDS, INC. -
LIMITED-TERM GOVERNMENT FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME:
Interest $14,050,109
EXPENSES:
Management fees $930,303
Dividend disbursing and transfer agent fees
and expenses 452,441
Distribution expense 325,584
Accounting and Administration 97,628
Reports and statements to shareholders 46,996
Registration fees 45,500
Custodian fees 20,000
Professional fees 18,559
Taxes (other than taxes on income) 4,700
Directors' fees 4,630
Other 3,478 1,949,819
------------ ------------
NET INVESTMENT INCOME 12,100,290
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investment transactions (804,845)
Net realized loss on futures contracts (2,154,757)
------------
Net realized loss (2,959,602)
Net change in unrealized appreciation/depreciation
of investments (35,423)
------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (2,995,025)
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $9,105,265
============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP LIMITED-TERM
GOVERNMENT FUNDS, INC. -
LIMITED-TERM GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR
6/30/98 ENDED
(UNAUDITED) 12/31/97
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $12,100,290 $30,659,479
Net realized loss on investment transactions (2,959,602) (8,298,077)
Net change in unrealized appreciation/depreciation
of investments (35,423) 803,169
------------ ------------
Net increase in net assets resulting from operations 9,105,265 23,164,571
------------ ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
Limited-Term Government Fund A Class (10,961,008) (27,691,360)
Limited-Term Government Fund B Class (334,322) (748,542)
Limited-Term Government Fund C Class (74,555) (204,751)
Limited-Term Government Fund Institutional Class (784,636) (2,015,579)
------------ ------------
(12,154,521) (30,660,232)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Limited-Term Government Fund A Class 92,326,022 58,211,511
Limited-Term Government Fund B Class 1,592,992 2,658,303
Limited-Term Government Fund C Class 417,123 1,790,424
Limited-Term Government Fund Institutional Class 2,178,321 13,605,681
Net asset value of shares issued upon reinvestment
of dividends from net investment income
Limited-Term Government Fund A Class 7,385,857 17,601,442
Limited-Term Government Fund B Class 224,756 470,077
Limited-Term Government Fund C Class 64,854 179,712
Limited-Term Government Fund Institutional Class 767,144 1,940,559
------------ ------------
104,957,069 96,457,709
------------ ------------
Cost of shares repurchased:
Limited-Term Government Fund A Class (124,372,505) (178,698,086)
Limited-Term Government Fund B Class (2,148,016) (3,756,166)
Limited-Term Government Fund C Class (1,566,719) (1,420,524)
Limited-Term Government Fund Institutional Class (14,236,415) (12,454,483)
------------ ------------
(142,323,655) (196,329,259)
------------ ------------
Decrease in net assets derived from capital share
transactions (37,366,586) (99,871,550)
------------ ------------
NET DECREASE IN NET ASSETS (40,415,842) (107,367,211)
NET ASSETS:
Beginning of year 403,679,998 511,047,209
------------ ------------
End of year $363,264,156 $403,679,998
============ ============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC. - LIMITED-TERM GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period were
as follows:
LIMITED-TERM GOVERNMENT FUND A CLASS
--------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
6/30/981 1997 1996 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $8.620 $8.770 $9.050 $8.990 $9.840 $10.000
Income from
investment
operations:
Net investment
income 0.278 0.596 0.600 0.699 0.667 0.681
Net realized
and unrealized
gain (loss) on
investments (0.069) (0.150) (0.280) 0.060 (0.850) (0.160)
-------- -------- -------- -------- -------- --------
Net increase
(decrease) in
net assets
from investment
operations 0.209 0.446 0.320 0.759 (0.183) 0.521
-------- -------- -------- -------- -------- --------
Less dividends:
Dividends from
net investment
income (0.279) (0.596) (0.600) (0.699) (0.667) (0.681)
-------- -------- -------- -------- -------- --------
Total dividends (0.279) (0.601) (0.600) (0.699) (0.667) (0.681)
Net asset value,
end of period $8.550 $8.620 $8.770 $9.050 $8.990 $ 9.840
======== ======== ======== ======== ======== ========
Total return2 2.44% 5.23% 3.69% 8.71% (1.88%) 5.31%
Ratios and
supplemental
data:
Net assets,
end of period
(000 omitted) $327,652 $355,079 $464,649 $653,451 $789,525 $1,126,031
Ratio of
expenses to
average net
assets 1.02% 0.98% 0.93% 0.96% 0.91% 0.88%
Ratio of net
investment
income to
average net
assets 6.48% 6.83% 6.80% 7.71% 7.10% 6.77%
Portfolio
turnover 34% 79% 83% 73% 148% 171%
- ------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Does not include maximum sales charge of 2.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding throughout each period were
as follows:
LIMITED-TERM GOVERNMENT FUND B CLASS
------------------------------------------------------
SIX MONTHS PERIOD
ENDED YEAR ENDED DECEMBER 31, 5/2/942
6/30/981 1997 1996 1995 TO 12/31/94
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.620 $8.770 $9.050 $8.990 $9.430
Income from investment
operations:
Net investment income 0.242 0.522 0.524 0.622 0.399
Net realized and
unrealized gain (loss)
on investments (0.069) (0.150) (0.280) 0.060 (0.440)
-------- -------- -------- -------- --------
Net increase (decrease)
in net assets from
investment operations 0.173 0.372 0.244 0.682 (0.041)
-------- -------- -------- -------- --------
Less dividends:
Dividends from net
investment income (0.243) (0.522) (0.524) (0.622) (0.399)
-------- -------- -------- -------- --------
Total dividends (0.243) (0.522) (0.524) (0.622) (0.399)
Net asset value,
end of period $8.550 $8.620 $8.770 $9.050 $8.990
======== ======== ======== ======== ========
Total return4 2.01% 4.35% 2.81% 7.80% (0.44%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $11,691 $12,119 $12,959 $12,313 $6,282
Ratio of expenses to
average net assets 1.87% 1.83% 1.78% 1.81% 1.76%
Ratio of net investment
income to average net assets 5.63% 5.98% 5.91% 6.86% 6.25%
Portfolio turnover 34% 79% 83% 73% 148%
LIMITED-TERM GOVERNMENT FUND C CLASS
------------------------------------------
SIX MONTHS YEAR ENDED PERIOD
ENDED DECEMBER 31, 11/28/953
6/30/981 1997 1996 TO 12/31/95
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.620 $8.770 $9.050 $9.010
Income from investment operations:
Net investment income 0.242 0.522 0.524 0.051
Net realized and unrealized
gain (loss) on investments (0.069) (0.150) (0.280) 0.040
-------- -------- -------- --------
Net increase (decrease) in net
assets from investment operations 0.173 0.372 0.244 0.091
-------- -------- -------- --------
Less dividends:
Dividends from net investment income (0.243) (0.522) (0.524) (0.051)
-------- -------- -------- --------
Total dividends (0.243) (0.522) (0.524) (0.051)
Net asset value, end of period $8.550 $8.620 $8.770 $9.050
======== ======== ======== ========
Total return4 2.01% 4.34% 2.81% 3
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $2,476 $3,580 $3,090 $33
Ratio of expenses to average
net assets 1.87% 1.83% 1.78% 3
Ratio of net investment income
to average net assets 5.63% 5.98% 5.78% 3
Portfolio turnover 34% 79% 83% 3
- ------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized but
total return has not been annualized.
3 Date of initial public offering; the ratios of expenses and net
investment income to average net assets, portfolio turnover and total
return have been omitted as management believes that such ratios and
return for the relatively short period are not meaningful.
4 Does not include any applicable contingent deferred sales charges
which varies from 1%-2% for the Limited-Term Government Fund B Class and
1% for the Limited-Term Government Fund C Class, depending upon the
holding period.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding throughout each period were
as follows:
LIMITED-TERM GOVERNMENT FUND INSTITUTIONAL CLASS
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
6/30/981 1997 1996 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.620 $8.770 $9.050 $8.990 $9.840 $10.000
Income from
investment
operations:
Net investment
income 0.285 0.610 0.613 0.712 0.681 0.696
Net realized and
unrealized gain
(loss) on
investments (0.069) (0.150) (0.280) 0.060 (0.850) (0.160)
-------- -------- -------- -------- -------- --------
Net increase
(decrease) in
net assets
from investment
operations 0.216 0.460 0.333 0.772 (0.169) 0.536
-------- -------- -------- -------- -------- --------
Less dividends:
Dividends from
net investment
income (0.286) (0.610) (0.613) (0.712) (0.681) (0.696)
-------- -------- -------- -------- -------- --------
Total dividends (0.286) (0.605) (0.613) (0.712) (0.681) (0.696)
Net asset value,
end of period $8.550 $8.620 $8.770 $9.050 $8.990 $ 9.840
======== ======== ======== ======== ======== ========
Total return 2.52% 5.39% 3.84% 8.87% (1.74%) 5.44%
Ratios and
supplemental data:
Net assets,
end of period
(000 omitted) $21,445 $32,902 $30,349 $37,460 $37,328 $47,700
Ratio of expenses
to average
net assets 0.87% 0.83% 0.78% 0.81% 0.76% 0.74%
Ratio of net
investment income
to average
net assets 6.63% 6.98% 6.92% 7.86% 7.25% 6.91%
Portfolio turnover 34% 79% 83% 73% 148% 171%
- ------------------------
1 Ratios have been annualized and total return has not been annualized.
See accompanying notes
</TABLE>
DELAWARE GROUP LIMITED TERM GOVERNMENT FUNDS, INC. - LIMITED TERM
GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
Delaware Group Limited Term Government Funds, Inc. - Limited Term
Government Fund (the "Fund"), a series of Delaware Group Limited Term
Government Funds, Inc. (the "Company"), is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Company is organized as a Maryland corporation. The Fund
offers four classes of shares. The Limited Term Government Fund A Class
carries a front-end sales charge of 2.75%. The Limited Term Government
Fund B Class carries a back-end deferred sales charge, Limited Term
Government Fund C Class carries a level load deferred sales charge and
Limited Term Government Fund Institutional Class has no sales charge.
The investment objective of the Fund is to seek a high, stable level of
current income while attempting to minimize fluctuations in principal
and provide maximum liquidity.
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 Fund's 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.
Other - Expenses common to all funds within the Delaware Investments
Family of Funds are allocated amongst the funds on the basis of average
net assets. Security transactions are recorded on the date the
securities are purchased or sold (trade date). Costs used in calculating
realized gains and losses on the sale of investment securities are those
of the specific securities sold. Interest income is recorded on the
accrual basis. Premiums and discounts are on a pro-rata basis and are
included in interest income. 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.
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.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Fund pays Delaware Management Company (DMC), the investment manager of
the Fund, an annual fee which is calculated daily at the rate of 0.50%
of the net assets of the Fund less the fees paid to the unaffiliated
directors. At June 30, 1998, the Fund had a liability for investment
management fees and other expenses payable to DMC for $39,571.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate
of DMC, to provide dividend disbursing, transfer agent and accounting
services for the Fund. For the six months ended June 30, 1998, the Fund
expensed $452,441 for dividend disbursing and transfer agent services
and $74,434 for accounting services.
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 0.15% of the average daily net assets of the A
Class and 1.00% of the average daily net assets of the B and C Classes.
No distribution expenses are paid by the Institutional Class. For the
six months ended June 30, 1998, the Fund expensed $325,584 for
distribution expenses.
At June 30, 1998, DDLP earned $21,109 for commissions on sales of the
Limited-Term 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
During the six months ended June 30, 1998, the Fund made purchases of
$12,212,110 and sales of $48,122,709 of investment securities other than
U.S. government securities and temporary cash investments. During the
six months ended June 30, 1998, the Fund made purchases of $51,671,752
and sales $63,310,470 of long term U.S. government securities.
At June 30, 1998, the aggregate cost of securities for federal income
tax purposes was $351,085,227.
At June 30, 1998, unrealized appreciation for federal income tax
purposes aggregated $5,197,098 of which $6,106,026 related to unrealized
appreciation of securities and $908,928 related to unrealized
depreciation of securities.
For federal income tax purposes, the Fund had an accumulated capital
loss of $144,622,930 at December 31, 1997 which may be carried forward
and applied against future capital gains. The capital loss carryforward
expires as follows: 1998 - $707,105; 2001 - $2,978,605; 2002 -
$85,079,081; 2003 - $29,779,768; 2004 - $16,636,244 and 2005 -
$9,442,127.
During the six months ended June 30, 1998, 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.
At June 30, 1998, the Fund had outstanding 450 short futures on 20 Year
U.S. Treasury Notes, which expire in September 1998. The notional value
of such contracts on June 30, 1998 was $55,617,188 which resulted in an
unrealized loss of $618,750.
Risks may arise upon entering into futures contracts from potential
imperfect correlations between the futures contracts and the underlying
securities and from the possibility of an illiquid secondary market for
these instruments.
4. Capital Stock
Transactions in capital stock shares were as follows:
SIX MONTHS YEAR
ENDED ENDED
6/30/98 12/31/97
---------- ----------
Shares sold:
Limited-Term Government Fund A Class 10,764,665 6,685,846
Limited-Term Government Fund B Class 185,556 305,510
Limited-Term Government Fund C Class 48,594 205,434
Limited-Term Government Fund
Institutional Class 253,518 1,563,123
Shares issued upon reinvestment of
dividends from net investment income
Limited-Term Government Fund A Class 859,687 2,018,710
Limited-Term Government Fund B Class 26,164 53,933
Limited-Term Government Fund C Class 7,549 20,588
Limited-Term Government Fund
Institutional Class 89,296 222,771
---------- ----------
12,235,029 11,075,915
---------- ----------
Shares repurchased:
Limited-Term Government Fund A Class (14,491,519) (20,490,985)
Limited-Term Government Fund B Class (250,107) (431,069)
Limited-Term Government Fund C Class (181,848) (162,983)
Limited-Term Government Fund
Institutional Class (1,651,491) (1,429,136)
---------- ----------
(16,574,965) (22,514,173)
Net decrease (4,339,936) (11,438,258)
========== ==========
5. Credit and Market 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 CMOs 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 state
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 June 30, 1998 the Fund had no
holdings in interest-only CMOs.
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF LIMITED-TERM
GOVERNMENT FUND SHAREHOLDERS, BUT IT MAY BE USED with prospective
investors when preceded or accompanied by a current Prospectus for
Limited-Term Government Fund, which sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. You
should read the prospectus carefully before you invest. Summary
investment results are documented in the Fund's current Statement of
Additional Information. 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, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
[PHOTO OF GLOBES]
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES ONLY
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments.
Mutual funds can be a valuable part of your financial plan; however,
shares of the Fund 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 amount invested. Shares of the Fund are
not bank or credit union deposits.
[copyright] Delaware Distributors, L.P.
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Printed in the USA
on recycled paper
SA-022 [6/98] PP8/98
(897)
