<PAGE>
1995
Annual ------------
Report DELAWARE
GROUP
U.S. GOVERNMENT
FUND
------------
[PHOTO OF VARIOUS PHILADELPHIA HISTORICAL SITES APPEARS HERE]
A Tradition of Sound Investing Since 1929
[LOGO OF DELAWARE GROUP APPEARS HERE]
<PAGE>
U.S. Government
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Fund Investment
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Objective
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To seek 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.
[PHOTO OF VARIOUS PHILADELPHIA HISTORICAL SITES APPEARS HERE]
About Our Cover
- ---------------
Headquartered in Philadelphia, Pennsylvania, Delaware Group shares in the
tradition of a city built on the vision of opportunity. Amidst the city's
historic sites, symbolic of our nation's freedom and prosperity, Delaware Group
provides both individual and institutional investors with a conservative,
disciplined approach to money management.
Delaware Group
- ---------------
A Tradition of
- ---------------
Sound Investing
- ---------------
Delaware's investment experience dates back to 1929. Our first mutual fund
was established in 1938. Headquartered in Philadelphia with an affiliate in
London, Delaware provides a full range of mutual fund investments, annuities and
retirement plan services. Delaware International Advisers Ltd., our London-based
international affiliate, was established in 1990.
Delaware Group manages mutual funds with the same time-tested, disciplined
strategies demanded by the large public and private pension plans, foundations
and endowments that are among our clients. With over 60 years of investment
management standing behind us, we have experience you can count on and a
commitment to excellent service.
Today, Delaware manages some $27 billion in mutual funds and institutional
investment advisory accounts. We measure our success by the financial success
and satisfaction of our nearly 500,000 shareholders.
<PAGE>
August 15, 1995
Dear
- --------------------------------------------------------------------------------
Shareholder:
- --------------------------------------------------------------------------------
Isaac Newton's law of gravity is a fundamental principle of physics. During
fiscal 1995, the 17th century English scientist's theory could be observed at
work on U.S. interest rates.
A nervous bond market pushed yields on 30-year U.S. Treasury Bonds to more
than 8.1% in early November 1994, amid concerns about inflation and the
expectation that the Federal Reserve Board would continue to raise short-term
interest rates. With the coming of spring, however, sentiment changed. The
market correctly anticipated a reversal of Fed policy that resulted from new
concerns about possible slower economic growth or recession. Like an apple
falling from a tree, long-bond yields dropped to a low of 6.47% on June 22.
Considering that calendar year 1994 provided a negative return for most
government funds, according to Lipper Analytical Services, the recent change in
Fed policy was welcome. U.S. Government Fund A Class shares provided an
attractive total return of +6.82% at net asset value (capital change plus
reinvested dividends) for the fiscal year ended July 31, 1995. The table on this
page presents the Fund's total return throughout fiscal 1995 relative to the
returns offered by five-year U.S. Treasury Notes and U.S. Treasury Bonds.
As of July 31, the Fund's 30-day yield, calculated according to Securities
and Exchange Commission guidelines, was 6.20%. We are pleased to report that
during fiscal 1995 the Fund's Class A shares had the second highest distribution
rate based on net asset value, among the 161 funds tracked by Lipper Analytical
Services that specialize in intermediate U.S. Government securities. Unlike the
30-day yield quoted above, the distribution rate may include capital gains and
does not reflect any unrealized gains or losses in the portfolio.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return
6 Months Ended:
--------------------
1/31/95 7/31/95 Fiscal 1995
<S> <C> <C> <C>
U.S. Government Fund A +0.11% +6.71% +6.82%
5-Year U.S. Treasury +0.34% +8.98% +9.35%
10-Year U.S. Treasury +0.16% +11.44% +11.62%
30-Year U.S. Treasury -0.93% +13.93% +12.87%
</TABLE>
Source: Bloomberg Business News. U.S. Government Fund A Class performance is
based on net asset value. Unlike U.S. Government Fund, the payment of
principal and interest on U.S. Treasuries is guaranteed by the U.S.
Government. Past performance is not a guarantee of future results. For
performance of other Classes see page 8.
- --------------------------------------------------------------------------------
The above chart shows that both the Fund and the bond market have performed
substantially better since January than they did in the prior six months. As you
can see,
1
<PAGE>
the change in direction was more pronounced among U.S. Treasuries with longer
maturities.
Though U.S. Government Fund A Class shareholders enjoyed an increase in
share value between January and July, it may not have been as large as some
funds that bet rates would fall sharply. However, we believe the relatively
conservative strategy -- i.e., a focus on the income component of total return
- -- implemented by Roger A. Early, Vice President and Senior Portfolio Manager,
puts the Fund in a favorable position should the pace of the current economic
expansion gradually increase in the year ahead.
As of August 30, the yield on 30-year U.S. Treasury Bonds was approximately
6.7%, a slightly higher level than in June, amid renewed optimism that the pace
of economic growth may increase. Meanwhile, inflation as measured by change in
the consumer price index during the preceding 12 months was a mild 2.89%.
We hope you will read the remainder of this report which contains a review
of the Fund's performance in fiscal 1995. The report also details how the Fund
is positioned for the coming months.
On August 16, the Fund marked its 10th anniversary of providing
shareholders with monthly income through a professionally managed portfolio. We
thank you for your investment in the Fund and will strive to warrant your
confidence for many years to come.
/s/ Wayne A. Stork
Wayne A. Stork
Chairman, Board of Directors
Portfolio
- --------------------------------------------------------------------------------
Manager's
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Report
- --------------------------------------------------------------------------------
Bond prices and yields have been volatile for the past year as the bond market
turned its attention from concern about inflation and the industrial production
pressures of a booming economy to speculation about a possible recession, weak
consumer spending and bloated inventories. Investors in U.S. Government
securities recovered some of 1994's capital losses as intermediate interest
rates declined 1.6 percentage points from their 1994 highs as of the end of
July, pushing bond prices higher.
In the six months through July, the U.S. Government Fund Class A shares
provided a total return of +6.71% at net asset value with dividends reinvested
while employing a relatively defensive strategy. For the entire fiscal year,
total return was +6.82% at net asset value with dividends reinvested.
Compare that to the +5.6% average annual return for intermediate U.S.
Government bonds since the end of World War II as tracked by Ibbotson and
Sinquefeld, an investment research firm, and you can see that the 1995 rally in
bonds has been very pronounced.
This year's drop in interest rates took place as bondholders witnessed a
slowing in economic activity combined with only a modest increase in consumer
prices. In fact, the bond rally was unusual in that it occurred despite a final
rate increase by the
2
<PAGE>
[GRAPH APPEARS HERE]
Fannie Mae Yield Table
Fannie Mae 30-Year Mortgage Rates
<TABLE>
<S> <C>
Jan. 9.45
9.25
9.33
9.19
Feb. 9.28
9.18
9.04
8.88
March 8.96
8.83
8.73
8.69
8.84
April 8.57
8.57
8.51
8.60
May 8.26
8.35
8.22
8.03
June 7.67
7.88
7.95
7.76
7.93
July 7.73
7.76
8.02
8.04
</TABLE>
This shows 90-day commitment rates by the Federal National Mortgage Association
for new 30-year residential mortgage rates.
Source: Bloomberg Business News
The average interest rate consumers paid on new conventional fixed-rate
mortgages dropped substantially between December and June. Typically, a rate
decline of this magnitude stimulates home buying because consumers can enjoy
interest savings of more than $125 a month on a 30-year, $100,000 mortgage.
Federal Reserve Board in early February. Typically, "fighting the Fed" or
anticipating that the bond market will move in the opposite direction of the
Federal Reserve's most recent policy has not been a successful strategy for
fixed-income investors. That was not the case in the first part of 1995,
especially for intermediate and longer term bonds, which had the strongest price
increases.
In addition to our concerns about "fighting the Fed," our view is that
sustained bond rallies usually start during a recession. Several economic
indicators that have consistently preceded recessions and sustained bond rallies
include a major drop in stock prices and a yield curve in which shorter term
rates are higher than long-term rates. These events had not yet occurred by
July 31. With this in mind, and knowing that bond price declines normally
continue through the end of economic expansions, we concluded that the rally
would not be sustained.
The Fund's portfolio reflects our opinion that the economy's current
condition is akin to the growth slowdowns of 1966-1967 and 1986. During both
periods, interest rates declined, spurring renewed economic growth. In the mid-
1960s and mid-1980s, the economy, like the economy of the mid-1990s, had enjoyed
several years of expansion. Still, there was more room to grow.
Consequently, we are looking for an economic rebound in the second half of
1995, especially given the fact that bonds rallied in anticipation of the
Federal Reserve Board's decision to cut the Federal Funds rate, which occurred
on July 6.
As you can see from the chart above, conventional mortgage rates tumbled to
7.67% by early June, down sharply from a December peak of 9.45%, suggesting
there may be a greater level of home buying later this year, which may fuel
economic growth.
The Fund's Investment Strategy
Throughout the year ended July 31, 1995, the U.S. Government Fund continued to
seek an attractive level of income while maintaining a high-quality, defensive
portfolio invested primarily in U.S. Government securities.
3
<PAGE>
In late 1994 as interest rates rose, the Fund reduced the percentage of its
holdings in U.S. Treasury Notes and Bonds from 41% of net assets to just under
32% as of July 31, 1995. The Fund's modest position in corporate bonds was
increased slightly to 13.22% of net assets during that time.
This strategy produced a total return of +0.11% during the first half of
fiscal 1995, a period of great difficulty for the bond market. The increased
corporate bond position boosted Fund income, since corporate bonds have higher
yields than government securities. It also helped reduce the Fund's sensitivity
to interest rates since corporate bonds are evaluated according to credit risk,
unlike Treasuries. The value of corporate bonds does fluctuate with interest
rates, but generally not as much as government securities, according to Ibbotson
Associates.
[GRAPH APPEARS HERE]
Historical Yield Curve
U.S. Treasury Yields Have Declined Since January...
<TABLE>
<CAPTION>
July 31, 1994 January 31, 1995 July 31, 1995
<S> <C> <C> <C>
3 Month 4.374% 5.990% 5.572%
6 Month 4.868 6.403 5.586
1 Year 5.366 6.781 5.645
2 Year 5.999 7.235 5.866
3 Year 6.272 7.343 5.985
5 Year 6.737 7.502 6.151
10 Year 7.109 7.577 6.424
30 Year 7.394 7.696 6.844
Source: Bloomberg Business News
</TABLE>
Interest rates on U.S. Treasury securities changed substantially over the past
year. Note that the difference between interest rates on very short maturity
securities (three-month T-Bills) and intermediate-term securities (two- to five-
year maturity Treasury Notes) has "flattened" since January.
The second half of fiscal 1995 marked a turnaround in the bond market that
allowed the Fund to benefit from capital appreciation. Since long-term
government securities were a smaller share of the portfolio, however, the Fund's
share value did not rise in value as sharply as 10-year or 30-year U.S. Treasury
Bonds.
At the end of the fiscal year, the Fund's holdings had an average effective
maturity of 6.0 years, an effective duration of 4.1 years, and an average
overall quality of AAA, the highest available. Duration was shorter than in
fiscal 1994, in part because of the Fund's sale of long-term Treasuries.
Duration is the most common measure of a bond's sensitivity to interest rates.
It indicates the approximate percentage of change in a bond's price given a 1%
change in interest rates.
As of July 31, more than 41% of the portfolio's net assets were invested in
U.S. Treasury and U.S. Government agency securities. Approximately 42% of the
portfolio was invested in mortgage-backed
4
<PAGE>
securities and collateralized mortgage obligations. Approximately 15% of the
portfolio consisted of high-quality corporate bonds and asset-backed securities
such as auto loans and credit card balances. Corporate issues added in the year
included bonds of financial services companies that met our requirements for
high current income, liquidity and quality.
A significant amount of the Fund's U.S. Treasury and government agency
bonds sell at a premium to par value, that is, more than the price a bondholder
receives if the bond is held to maturity and principal is returned. Generally,
these are older bonds that were issued when interest rates were higher than
current levels. They provide the Fund with a higher level of income than newer
issues and are also less interest rate sensitive, providing a cushion if
interest rates rise. However, premium bonds generally depreciate to par value as
the bond's maturity nears, which may result in capital losses.
On August 6, the Federal National Mortgage Association and Government
National Mortgage Association reported that mortgage prepayment activity has
increased this summer. While such refinancing by consumers can have a negative
effect on mortgage-related securities - a type of bond that comprises a
substantial share of Fund assets - we took steps to help protect the portfolio
from prepayments before the rate drop occurred.
Emphasis on residential mortgages has given the Fund an average yield-to-
maturity almost 1 percentage point higher than comparable maturity U.S.
Treasuries whose principal and interest payments, unlike those of fund shares,
are guaranteed by the U.S. Government. We expect to maintain the Fund's focus in
this sector, which typically offers better yields and a more defensive interest
rate profile than Treasuries. As of early August, 10-year obligations of the
Government National Mortgage Association (Ginnie
[PIE CHARTS APPEAR HERE]
Portfolio Pies
How Our Portfolio Mix Has Changed...
<TABLE>
<S> <C>
U.S. Government Obligations (Treasuries) 40.94
Cash & Other 2.72
Government National Mortgage Associaton Obligations 21.61
Collateralized Mortgage Obligations 19.86
Corporate Bonds 9.16
Government Agency Obligations 5.71
U.S. Government Fund Net Assets as of July 31, 1994
</TABLE>
<TABLE>
<S> <C>
U.S. Government Obligations (Treasuries) 31.78
Cash & Other 2.06
Government National Mortgage Associaton Obligations 19.37
Collateralized Mortgage Obligations 19.19
Corporate Bonds 13.22
Government Agency Obligations 9.45
Mortgage Backed Securities 3.1
Asset Backed Securities 1.83
U.S. Government Fund Net Assets as of July 31, 1995
</TABLE>
During fiscal 1995, your Fund reduced its holdings in U.S. Treasury Bonds and
mortgage-backed securities issued by the Federal Home Loan Mortgage Corp. The
Fund increased the percentage of its holdings in government agency obligations.
These include bonds issued by Federal agencies such as the Small Business
Administration.
5
<PAGE>
Mae) averaged 1.15 percentage points higher than a 10-year U.S. Treasury Note.
The sharp drop in mortgage interest rates this year, shown in the chart on
page 3, has the potential to trigger refinancing activity, increasing consumer
prepayments. However, we believe the Fund's mortgages are less likely to be
refinanced because many loans date from the 1986-1987 period, and have already
been through several periods of low interest rates and heavy refinancing
activity. We think the Fund's sensitivity in this area is more limited than the
market as a whole.
Outlook
The bond market's volatility since early 1994 has attracted a lot of headlines.
But investors should keep in mind that the direction of interest rates has been
generally downward since the early 1980s. Given the Federal Reserve's apparent
success at keeping inflation at a modest 2% to 3% level, this trend seems likely
to be sustained for the remainder of the 1990s.
[PHOTO OF ROGER EARLY SENIOR PORTFOLIO MANAGER APPEARS HERE]
In an environment where the short-term direction of interest rates is
difficult to judge, the U.S. Government Fund will stand by its strategy of
maximizing income and avoiding unnecessary risks. We believe this relatively
conservative investment style should best serve the Fund's more than 10,000
income-oriented investors and may provide reasonable participation should the
bond market continue its long-term rally.
/s/ Roger A. Early
Roger A. Early
Vice President and Senior Portfolio Manager
U.S. Government Fund
6
<PAGE>
A Perspective
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on Long-Term
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
The chart on page 8 shows the Fund's performance in relation to the
performance of the area of the bond market in which the Fund's portfolio manager
invests. You can see on the next page that the U.S. Government Fund has provided
an attractive average annual return of +7.02% over its almost 10-year lifetime
(including the effect of sales charges). However, it did not keep pace with the
Lehman Brothers Government Bond Index.
One reason for this is that the Index is a hypothetical portfolio so that
its performance includes none of the actual costs of buying or selling
securities or the other expenses associated with running a portfolio. Also the
Index includes a larger percentage of Treasuries than the Fund held for most of
this period. As mentioned earlier, Treasuries are often more interest rate
sensitive than mortgage-related securities and do not provide as high an income
stream.
As noted in the chairman's letter, long-term Treasuries performed very well
in the six months ended July 31 as well as most of the past 10 years. Since
price appreciation is not a primary objective of the U.S. Government Fund, in an
environment characterized by falling interest rates, the portfolio manager
focuses on maximizing income. We aim to provide shareholders with an attractive
income stream as you can see from the dividend summary below.
[BAR CHART APPEARS HERE]
U.S. Government Fund A Class Annual Income Dividends
<TABLE>
<S> <C>
'86 $ 983
'87 1,067
'88 1,065
'89 1,102
'90 1,169
'91 1,282
'92 1,428
'93 1,542
'94 1,568
'95 1,567
1985 - 1995 Total=$12,773
</TABLE>
Fiscal Years Ended 7/31
Note: Chart assumes $10,000 invested at inception on Aug. 16, 1985, including
maximum sales charge and reinvestment of all dividends. Past performance is not
a guarantee of future results. Performance for other U.S. Government Fund
Classes will vary due to differing charges and fee expenses. For more
performance information see page 8.
This chart shows that a $10,000 investment in the U.S. Government Fund A
Class on August 16, 1985 would have generated a total of $12,773 in dividends if
dividends were continuously reinvested.
7
<PAGE>
This chart shows what a $10,000 investment in U.S. Government Fund A Class would
have grown to since its inception, assuming the reinvestment of dividends. The
Fund's performance is compared to that of the Lehman Brothers Government Bond
Index.
[CHART APPEARS HERE]
Performance Chart
A Look at Long-Term Performance Growth of a $10,000 Investment August 1985
through July 1995
<TABLE>
<CAPTION>
Lehman Brothers Government Bond Index Delaware Group U.S. Government Fund
<S> <C> <C>
July '85 $ 10,000 $ 9,520
Jan. '86 11,031.53 9,890
July '86 12,166.80 10,347
Jan. '87 12,790.14 10,927
July '87 12,551.58 10,996
Jan. '88 13,352.42 11,359
July '88 13,391.01 11,914
Jan. '89 14,015.12 12,070
July '89 15,430.1 12,913
Jan. '90 15,584.69 13,463
July '90 16,365.26 13,836
Jan. '91 17,372.14 14,731
July '91 18,009.51 15,284
Jan. '92 19,514.11 16,883
July '92 20,755.53 17,256
Jan. '93 21,704.23 17,959
July '93 22,993.54 19,017
Jan. '94 23,838.27 19,359
July '94 22,961.18 18,135
Jan. '95 23,143.49 18,235
July '95 25,172.54 19,650
</TABLE>
This chart shows what a $10,000 investment in U.S. Government Fund A Class would
have grown to since its inception, assuming the investment of dividends. The
Fund's performance is compared to that of the Lehman Brothers Government Bond
Index.
Chart assumes $10,000 invested on Aug. 16, 1985 and includes the impact of the
4.75% sales charge and the reinvestment of all dividends. Return and share value
will fluctuate with rising and falling interest rates so that an investor's
shares, when redeemed, may be worth more or less than their original cost. The
illustration does not show the impact of taxes. Performance for other U.S.
Government Fund Classes will vary due to differing charges and expenses.
U.S. Government Fund's Performance
Annual Total Return through July 31, 1995
Class A (Est. 1985)
Average Annual Total Returns
Lifetime +7.02%
Five Years +5.90%
One Year +1.74%
Class B (Est. 1994)
Average Annual Total Returns
Lifetime
+4.45% Excluding Sales Charge
+1.40% Including Sales Charge
One Year
+6.08% Excluding Sales Charge
+2.15% Including Sales Charge
Return and share value fluctuate so that shares, when redeemed, may be worth
more or less than the original investment. Past performance is not a guarantee
of future results.
Class A returns reflect the impact of the 4.75% maximum sales charge and the
12b-1 fee, and take into account the reinvestment of all distributions.
Class B performance reflects the reinvestment of all distributions. Class B
shares do not carry a front-end sales charge, but are subject to a 1% annual
distribution and service fee. They are subject to a deferred sales charge of up
to 4% if redeemed before the end of the sixth year. Lifetime performance
excluding sales charge assumes the investment was not redeemed. Class B was
initially offered on 5/2/94.
The average annual total returns for U.S. Government Fund's Institutional Class,
which is available without sales or asset-based distribution charges only to
certain eligible institutional accounts, were +7.24% and +7.14%, respectively,
for the five-year and one-year periods ended July 31, 1995.
8
<PAGE>
Financial
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Statements
- --------------------------------------------------------------------------------
Delaware Group Government Fund, Inc. -
Government Income Series*
Statement of Net Assets
July 31, 1995
<TABLE>
<CAPTION>
Par Market
Value Value
<S> <C> <C>
U.S. Government Obligations - 31.78%
U.S. Treasury Bonds 13.375% 8/15/01.................... $ 8,050,000 $ 10,912,499
U.S. Treasury Bonds 14.25% 2/15/02..................... 31,190,000 44,413,933
U.S. Treasury Strip 0.00% 11/15/06..................... 22,500,000 10,645,873
U.S. Treasury Strip 0.00% 2/15/17...................... 20,700,000 4,511,151
------------
Total U.S. Government Obligations
(cost $68,485,350).................................. 70,483,456
------------
Government National Mortgage
Association Obligations (GNMA) -
19.37%
GNMA Project Loan 8.00% 2030........................... 3,045,000 3,080,208
GNMA II 9.00% 2001 to 2005............................. 1,603,632 1,683,323
GNMA II 10.00% 2015 to 2021............................ 5,979,790 6,440,524
GNMA I 10.00% 2018..................................... 2,064,128 2,251,189
GNMA I GPM (Graduated Payment Mortgage)
10.25% 2019 to 2021................................. 1,268,695 1,385,256
GNMA II GPM 10.25% 2018 to 2019........................ 125,848 137,410
GNMA II 10.50% 2015 to 2021............................ 2,742,958 2,985,078
GNMA I GPM 10.75% 2017................................. 44,317 48,610
GNMA II GPM 10.75% 2016 to 2019........................ 1,436,292 1,575,433
GNMA I 11.00% 2009 to 2015............................. 4,027,700 4,496,372
GNMA I GPM 11.00% 2010 to 2013......................... 561,607 625,977
GNMA II 11.00% 2015 to 2019............................ 727,771 803,892
GNMA I 11.50% 2015..................................... 172,172 194,070
GNMA I GPM 11.50% 2013 to 2014......................... 670,459 754,364
GNMA II 11.50% 2014 to 2015............................ 189,539 210,921
GNMA II GPM 11.50% 2014 par............................ 23,948 26,815
GNMA I GPM 11.75% 2013................................. 690,309 781,990
GNMA I 12.00% 2011 to 2015............................. 8,148,683 9,279,313
GNMA I GPM 12.00% 2011 to 2013......................... 252,595 287,642
GNMA II 12.00% 2014 to 2015............................ 602,362 684,118
GNMA II GPM 12.00% 2013................................ 402,005 457,469
GNMA II Jumbo 12.00% 2014.............................. 523,188 592,667
GNMA I GPM 12.25% 2014................................. 196,618 225,127
GNMA I 12.50% 2010 to 2016............................. 1,460,222 1,681,537
GNMA II 12.50% 2013 to 2015............................ 1,977,924 2,274,064
------------
Total Government National Mortgage
Association Obligations
(cost $42,478,940).................................. 42,963,369
------------
Government Agency Obligations - 9.45%
Cajun Electric Power 9.52% 3/15/19..................... 10,000,000 10,987,500
Federal Home Loan Bank Step Up
Coupon 8.00% 8/8/14................................. 2,000,000 1,970,000
Small Business Administration
2.199% 10/23/13 (Interest only)/1/.................. 38,684,945 3,539,068
Small Business Administration
2.610% 1/8/14 (Interest only)/1/.................... 41,036,975 4,462,771
------------
Total Government Agency Obligations
(cost $23,691,370).................................. 20,959,339
------------
Collateralized Mortgage Obligations -
19.19%
Collateralized Mortgage Securities Corporation
11.45% 11/1/15...................................... 572,061 627,122
Federal Home Loan Mortgage Corporation
26-F 9.50% 2/15/20.................................. 1,810,121 1,911,687
Federal Home Loan Mortgage Corporation
1765-B BA 10.00% 1/15/17............................ 2,352,067 2,462,320
Federal Home Loan Mortgage Corporation
1614 10.00% 6/15/20................................. 6,118,335 6,544,311
Federal Home Loan Mortgage Association
Alpha 7.00% 11/1/10................................. 188,729 179,293
Federal Home Loan Mortgage Association
88-15A 9.00% 6/25/18................................ 67,676 71,386
Federal Home Loan Mortgage Association
10.75% 9/1/11....................................... 189,152 212,382
Federal National Mortgage Association
11.00% 4/1/09....................................... 3,564,075 3,884,842
Federal National Mortgage Association
Alpha 11.50% 5/1/09................................. 3,332,024 3,665,227
Federal National Mortgage Association
Strip Series F-2 11.50% 5/25/09..................... 1,566,737 1,723,411
Federal National Mortgage Association
Strip Series C-2 12.00% 5/25/09..................... 4,240,385 4,749,231
Federal National Mortgage Association
Strip Series 35-2 12.00% 7/25/18.................... 3,749,539 4,222,918
Investor GNMA Mortgage-Backed Securities
Trust Series 84-F5
10.875% 10/25/13.................................... 3,626,367 4,041,659
Kidder Peabody Mortgage Assets Trust
20C 9.50% 10/01/18.................................. 866,000 915,678
Resolution Trust Corporation
1995-C1 6.55% 2/25/27............................... 2,500,000 2,445,313
Travelers Mortgage Securities
1-Z2 12.00% 3/1/14.................................. 4,354,449 4,912,363
------------
Total Collateralized Mortgage Obligations
(cost $42,741,205).................................. 42,569,143
------------
ASSET-BACKED SECURITIES - 1.83%
Standard Credit Card Master Trust
1994-2A 7.25% 4/7/08................................ 4,000,000 4,056,400
------------
Total Asset-Backed Securities
(cost $4,143,125)................................... 4,056,400
------------
</TABLE>
9
- -------------------------
* This Fund is known and does business as U.S. Government Fund.
<PAGE>
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Par Market
Value Value
<S> <C> <C>
CORPORATE BONDS - 13.22%
British Columbia Hydro
12.50% 1/15/14...................................... $7,000,000 $ 8,470,000
Hydro-Quebec 13.25% 12/15/13........................... 2,270,000 2,786,425
NCNB Corp. 10.20% 7/15/15.............................. 4,000,000 4,895,000
Quebec Province 13.25% 9/15/14......................... 4,360,000 5,466,350
RBSG Capital 10.125% 3/1/04............................ 1,908,000 2,249,055
Republic of Finland 9.625% 4/1/28...................... 5,000,000 5,456,250
------------
Total Corporate Bonds
(cost $28,399,240).................................. 29,323,080
------------
AGENCY MORTGAGE-BACKED SECURITIES -
3.10%
Federal Home Loan Mortgage Corporation
10.25% 4/1/08....................................... 103,559 112,264
Federal Home Loan Mortgage Corporation
11.50% 7/1/99 to 3/1/16............................. 5,222,952 5,809,902
Federal Home Loan Mortgage Corporation
Gold 12.00% 12/1/10................................. 504,979 576,465
Federal National Mortgage Association
11.25% 6/1/00 to 1/1/01............................. 249,622 268,656
Federal National Mortgage Association
14.25% 9/1/99....................................... 99,135 111,031
------------
Total Agency Mortgage-Back Securities
(cost $6,732,154)................................... 6,878,318
------------
TOTAL MARKET VALUE OF SECURITIES OWNED -
97.94% (cost $216,671,384).......................... 217,233,105
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES -
2.06%............................................... 4,559,468
------------
NET ASSETS:
APPLICABLE TO 26,215,651 GOVERNMENT FUND A
CLASS SHARES 940,568 GOVERNMENT B CLASS
SHARES AND 1,057,903 GOVERNMENT FUND
INSTITUTIONAL SHARES OUTSTANDING; EQUIVALENT
TO $7.86 PER SHARE - 100.00%........................ $221,792,573
============
COMPONENTS OF NET ASSETS AT JULY 31, 1995
Common stock, $.01 par value, 200,000,000 shares
authorized to the Fund.............................. $261,001,287
Accumulated net undistributed loss:
Net realized loss from security transactions........... (39,770,435)
Net unrealized appreciation of investments............. 561,721
------------
Total Net Assets....................................... $221,792,573
============
</TABLE>
- -------------------------
/1/ This security represents the right to receive the monthly interest payments
on an underlying pool of loans. No payments of principal on the pool are
passed through to interest-only holders.
See accompanying notes
Delaware Group Government Fund, Inc. -
Government Income Series
Statement of Operations
Year Ended July 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest..................................................... $21,777,248
EXPENSES:
Management fees ($1,338,755)
and directors' fees ($16,535)............................. $1,355,290
Distribution expenses........................................ 670,986
Dividend disbursing and transfer
agent fees and expenses................................... 377,841
Custodian.................................................... 83,550
Reports and statements to shareholders....................... 79,160
Salaries..................................................... 58,564
Registration fees............................................ 50,596
Taxes, other than income..................................... 33,719
Professional fees............................................ 21,323
Other........................................................ 82,484 2,813,513
---------- -----------
NET INVESTMENT INCOME........................................ 18,963,735
-----------
NET REALIZED LOSS AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized loss from
security transactions..................................... (10,373,225)
Net unrealized appreciation of
investments during the period............................. 6,214,405
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS............................................ (4,158,820)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................. $14,804,915
-----------
COMPUTATION OF NET ASSET VALUE AND OFFERING
PRICE FOR THE U.S. GOVERNMENT FUND A CLASS -
July 31, 1995
Net asset value per share (A)................................ $7.86
Sales charge (4.75% of offering price or 4.96% of amount
invested per share)(B).................................... .39
=====
Offering price............................................... $8.25
=====
</TABLE>
- -------------------------
(A) Net asset value per share as illustrated is the estimated amount which would
be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of $100,000 or
more for U.S. Government Fund A Class.
See accompanying notes
10
<PAGE>
Delaware Group Government Fund, Inc. -
Government Income Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
7/31/95 7/31/94
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 18,963,735 $ 20,651,759
Net realized loss from
security transactions............................ (10,373,225) (17,423,444)
Net unrealized appreciation
(depreciation) during the period................. 6,214,405 (12,175,863)
------------ ------------
Net increase (decrease) in net assets
resulting from operations........................ 14,804,915 (8,947,548)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
U.S. Government Fund A Class........................ (17,686,022) (19,323,672)
U.S. Government Fund B Class........................ (376,635) (16,264)
U.S. Government Fund Institutional Class............ (901,078) (1,311,823)
------------ ------------
(18,963,735) (20,651,759)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
U.S. Government Fund A Class..................... 31,347,463 68,533,648
U.S. Government Fund B Class..................... 6,000,585 2,212,838
U.S. Government Fund
Institutional Class........................... 2,264,170 5,414,311
Net asset value of shares issued upon
reinvestment of dividends from net
investment income:
U.S. Government Fund A Class..................... 9,991,918 10,968,182
U.S. Government Fund B Class..................... 198,985 10,324
U.S. Government Fund
Institutional Class........................... 898,901 1,309,324
------------ ------------
50,702,022 88,448,627
------------ ------------
Cost of shares repurchased:
U.S. Government Fund A Class..................... (54,016,027) (52,578,968)
U.S. Government Fund B Class..................... (1,016,216) (9,670)
U.S. Government Fund
Institutional Class........................... (8,504,256) (7,365,833)
------------ ------------
(63,536,499) (59,954,471)
------------ ------------
Increase (decrease) in net assets derived
from capital share transactions.................. (12,834,477) 28,494,156
------------ ------------
NET DECREASE IN NET ASSETS.......................... (16,993,297) (1,105,151)
NET ASSETS:
Beginning of period................................. 238,785,870 239,891,021
------------ ------------
End of period....................................... $221,792,573 $238,785,870
============ ============
</TABLE>
See accompanying notes
Delaware Group Government Fund, Inc. -
Government Income Series
Notes to Financial Statements
July 31, 1995
Delaware Group Government Fund, Inc., (the "Company") is a diversified, open-end
investment company of the series type, organized under the laws of Maryland and
is registered under the Investment Company Act of 1940 (as amended). The Company
is organized as a Maryland corporation and currently offers the Government
Income Series (the "Fund"). The Fund offers three classes of shares.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund for financial
statement preparation.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of 4:00 pm on the valuation date. 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 when 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.
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 is required in the financial
statements.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Group 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 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.
Class Accounting - Investment income, common expenses and gain (loss) are
allocated to the various classes of the Fund on the basis of daily net assets.
Distribution expenses relating to a specific class are charged directly to that
class.
Other - Expenses common to all funds within the Delaware Group 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 an accrual basis. Original issue discounts are accreted to
interest income over the lives of the respective securities. The Fund declares
dividends daily from net investment income and pays such dividends monthly.
11
<PAGE>
Notes to Financial Statements (Continued)
2. Investment Management Fees 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 average
daily net assets of the Fund less fees paid to the independent directors. At
July 31, 1995, the Fund had a liability for Investment Management fees and other
expenses payable to DMC for $18,035.
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 Class. No distribution expenses are paid by
the Institutional Class. For the year ended July 31, 1995, the Fund paid DDLP
$68,701 for commissions earned on sales of U.S. Government Fund shares. At July
31, 1995, the Fund had a liability for distribution fees and other expenses
payable to DDLP for $11,185.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Fund. For the year
ended July 31, 1995, the Fund expensed $377,841 for these services. At July 31,
1995, the Fund had a liability for such fees and other expenses payable to DSC
for $1,547.
Certain officers of the Investment Manager are officers, directors and/or
employees of the Fund. These officers, directors and employees are paid no
compensation by the Fund.
On April 3, 1995, Delaware Management Holdings, Inc., the indirect parent of
DMC, DDLP and DSC, through a merger transaction (the "Merger") became a wholly-
owned subsidiary of Lincoln National Corporation. Other than the resulting
change in ownership, the Merger will not materially change the manner in which
DMC, DDLP or DSC have heretofore conducted their relationship with the Fund.
3. Investments
During the year ended July 31, 1995, the Fund made purchases of $72,928,811 and
sales of $56,722,655 of investment securities other than U.S. Government
securities and temporary cash investments.
At July 31, 1995, unrealized depreciation for federal income tax purposes
aggregated $921,252 of which $4,569,558 related to unrealized appreciation of
securities and $5,490,810 related to unrealized depreciation of securities.
The realized loss for federal income tax purposes was $9,205,797 for the year
ended July 31, 1995. For federal income tax purposes, the Fund had accumulated
capital losses at July 31, 1995, of $38,309,234 which may be carried forward and
applied against future capital gains. The capital loss carryforward expires as
follows: 1996 - $5,736,818, 1997 - $2,596,096, 1998 -$1,746,916, 2001 -
$1,622,896, 2002 - $17,400,711 and 2003 - $9,205,797. At July 31, 1995, the Fund
reclassified $1,310,956 from accumulated net undistributed realized loss from
security transactions to common stock due to the expiration of a capital loss
carryforward.
On July 31, 1995, the Fund had a receivable for investment securities sold of
$3,112,248.
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
7/31/95 7/31/94
<S> <C> <C>
Shares sold:
U.S. Government Fund A Class.................. 4,028,169 7,858,366
U.S. Government Fund B Class.................. 767,507 276,928
U.S. Government Fund Institutional Class...... 290,401 620,478
Shares issued upon reinvestment of
dividends from net investment income:
U.S. Government Fund A Class.................. 1,279,474 1,283,572
U.S. Government Fund B Class.................. 25,477 1,297
U.S. Government Fund Institutional Class...... 115,153 153,345
--------- ----------
6,506,181 10,193,986
--------- ----------
Shares repurchased:
U.S. Government Fund A Class.................. (6,923,016) (6,116,272)
U.S. Government Fund B Class.................. (129,422) (1,219)
U.S. Government Fund Institutional Class...... (1,100,347) (850,281)
--------- ----------
(8,152,785) (6,967,772)
--------- ----------
Net increase (decrease)....................... (1,646,604) 3,226,214
========= ==========
</TABLE>
5. Lines of Credit
The Fund has a committed line of credit for $500,000. No amount was outstanding
at July 31, 1995 or at any time during the last fiscal year.
6. Concentration of 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 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 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 a 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 effect
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 July 31, 1995, 3.61% of the Fund's net
assets was invested in interest-only CMOs.
12
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
U.S. Government Fund A Class
---------------------------------------------------------------
Year Ended
7/31/95 7/31/94 7/31/93 7/31/92 7/31/91
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $8.000 $9.010 $9.020 $8.700 $8.590
Income from investment operations:
Net investment income........................... 0.656 0.714 0.763 0.769 0.753
Net realized and unrealized gain (loss)
from security transactions................... (0.140) (1.010) (0.010) 0.320 0.110
------ ------ ------ ------ ------
Total from investment operations................ 0.516 (0.296) 0.753 1.089 0.863
Less distributions:
Dividends....................................... (0.656) (0.714) (0.763) (0.769) (0.753)
Distributions from net realized gain on
security transactions........................ none none none none none
------ ------ ------ ------ ------
Total distributions............................. (0.656) (0.714) (0.763) (0.769) (0.753)
------ ------ ------ ------ ------
Net asset value, end of period..................... $7.860 $8.000 $9.010 $9.020 $8.700
====== ====== ====== ====== ======
Total return/1/.................................... 6.82% (3.51%) 8.70% 12.98% 10.48%
Ratios/Supplemental Data:
Net Assets, end of period (000 omitted)......... $206,083 $222,555 $223,416 $184,401 $150,491
Ratio of expenses to average net assets......... 1.24% 1.23% 1.26% 1.17% 1.13%
Ratio of net income to average net assets....... 8.40% 8.31% 8.45% 8.60% 8.74%
Portfolio turnover.............................. 70% 309% 285% 196% 149%
</TABLE>
- -------------------------
/1/ Does not reflect the maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase.
13
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
U.S. Government Fund U.S. Government Fund
B Class Institutional Class
------------------------- -----------------------------------------------------
Period
from
5/2/94/2/
Year Ended to Year Ended
7/31/95 7/31/94 7/31/95 7/31/94 7/31/93 7/31/92/1/ 7/31/91
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $8.000 $8.190 $8.000 $9.010 $9.020 $8.700 $8.590
Income from investment operations:
Net investment income....................... 0.601 0.151 0.679 0.739 0.791 0.792 0.774
Net realized and unrealized gain (loss)
from security transactions............... (0.140) (0.190) (0.140) (1.010) (0.010) 0.320 0.110
------ ------ ------ ------ ------ ------ ------
Total from investment operations............ 0.461 (0.039) 0.539 (0.271) 0.781 1.112 0.884
Less distributions:
Dividends................................... (0.601) (0.151) (0.679) (0.739) (0.791) (0.792) (0.774)
Distributions from net realized gain
on security transactions................. none none none none none none none
------ ------ ------ ------ ------ ------ ------
Total distributions......................... (0.601) (0.151) (0.679) (0.739) (0.791) (0.792) (0.774)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period................. $7.860 $8.000 $7.860 $8.000 $9.010 $9.020 $8.700
====== ====== ====== ====== ====== ====== ======
Total return/3/................................ 6.08% (0.46%) 7.14% (3.23%) 9.04% 13.27% 10.76%
Ratios/Supplemental Data:
Net assets, end of period (000 omitted)..... $7,394 $2,215 $8,316 $14,016 $16,475 $19,421 $13,427
Ratio of expenses to average net assets..... 1.94% 1.94% 0.94% 0.94% 0.97% 0.91% 0.88%
Ratio of net income to average net assets... 7.66% 7.60% 8.66% 8.60% 8.74% 8.85% 8.99%
Portfolio turnover.......................... 70% 309% 70% 309% 285% 196% 149%
</TABLE>
- -------------------------
The per share data for the period 1990 to 1991 is derived from data of the
Government Income Series I class which, like the U.S. Government Fund
Institutional Class, a new class of shares, was not subject to Rule 12b-1
distribution expenses. Government Income Series I class was converted into U.S.
Government Fund A Class on June 1, 1992, pursuant to a Plan of Recapitalization
approved by shareholders of Government Income Series I class.
/1/ The per share data and ratios for Government Income Series I class and the
U.S. Government Fund Institutional Class have been combined for 1992. For
the 10 months ended May 31, 1992, the Government Income Series I class'
operating expenses and net investment income per share were $.068 and $.657,
respectively. For the two months ended July 31, 1992, the U.S. Government
Fund Institutional Class' operating expenses and net investment income per
share were $.014 and $.135, respectively. All net investment income was
distributed to shareholders.
/2/ Date of initial public offering; ratios have been annualized and total
return has not been annualized. In addition, total return does not reflect
any contingent deferred sales charge.
/3/ Does not include contingent deferred sales charge which varies from 1%-4%
depending upon the holding period for U.S. Government Fund B Class.
14
<PAGE>
Delaware Group Government Fund, Inc.
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Government Fund, Inc. - Government Income Series
We have audited the accompanying statement of net assets of Delaware Group
Government Fund, Inc. - Government Income Series as of July 31, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Government Fund, Inc. - Government Income Series at July 31,
1995, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
September 7, 1995
15
<PAGE>
A Report on U.S. Government Fund's Annual Meeting
At an annual meeting of shareholders held on March 29, 1995, the following
matters were submitted for shareholder vote: the election of directors, the
ratification of the selection of Ernst & Young LLP as independent auditors of
the Fund and the approval of a new investment management agreement. The new
investment management agreement was proposed in connection with the April 3,
1995, merger of Delaware Management Holdings, Inc. (the parent company of
Delaware Management Company, Inc.) and a subsidiary of Lincoln National
Corporation. Whenever there is a change in control of an investment manager, the
Investment Company Act of 1940 requires shareholders to vote on a new investment
management agreement.
Below are the names of each director elected at the meeting as well as the
results of the other matters voted on by shareholders.
<TABLE>
Number of Votes*
------------------------------------------------
For Against/Withheld Abstentions
<S> <C> <C> <C>
Election of Directors:
Wayne A. Stork....................... 16,869,232 492,287 --
Walter P. Babich..................... 16,870,023 491,496 --
Anthony D. Knerr..................... 16,870,449 491,070 --
Ann R. Leven......................... 16,864,410 497,109 --
W. Thacher Longstreth................ 16,869,779 497,740 --
Charles E. Peck...................... 16,870,023 491,496 --
Selection of Ernst & Young LLP as
Independent Auditors................. 16,456,591 126,875 778,052
Approval of the New
Investment Management
Agreement............................ 16,117,492 290,271 953,755
</TABLE>
* Please note that the results of this meeting were not audited by
Ernst & Young LLP.
<PAGE>
This 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 Prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the Fund. Summary
investment results are documented in the current Statement of Additional
Information.
If used with prospective investors after September 30, 1995, this report must be
accompanied by a U.S. Government Fund Performance Update for the most recently
completed calendar quarter. The figures in this report represent past results.
The return and principal value of an investment in the Fund will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
Board
- ---------------
Members
- ---------------
Wayne A. Stork
Chairman, Delaware Group of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
Vice Chairman, Packquisition Corp.
Philadelphia, PA
Charles E. Peck
Secretary of Enterprise Homes, Inc.
Fredericksburg, VA
former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
Affiliated
- ---------------
Officers
- ---------------
George M. Chamberlain, Jr.
Senior Vice President and Secretary,
Delaware Group of Funds
Philadelphia, PA
Keith E. Mitchell
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
David K. Downes
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer
Delaware Group of Funds
Philadelphia, PA
<PAGE>
Delaware Group
- ---------------
of Funds
- ---------------
For Growth of Capital
Trend Fund
DelCap Fund
Value Fund
For Total Return
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
For Global Diversification
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
U.S. Government Fund
Limited-Term Government Fund
For Tax-Free Current Income
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Tax-Free Pennsylvania Fund
Money Market Funds
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
Closed-End Equity/Income*
Dividend and Income Fund
Global Dividend and Income Fund
This report must be preceded or accompanied by a current U.S. Government Fund
prospectus. For a prospectus of any other Delaware Group fund, contact your
financial adviser or Delaware Group.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend and
Income Fund purchases can be made through any registered broker.
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,
are not obligations of or deposits of any bank or any credit union, and involve
investment risk, including the possible loss of principal. Shares of the Fund
are not bank or credit union deposits.
Investment Manager
Delaware Management Company, Inc.
Philadelphia
International Affiliate
Delaware International Advisers Ltd.
London
National Distributor
Delaware Distributors, L.P.
Philadelphia
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
Nationwide (800) 523-4640;
In Philadelphia (215) 988-1333
Securities Dealers Only
Nationwide (800) 362-7500;
In Philadelphia (215) 988-1050
(C) Delaware Distributors, L.P.
[RECYCLED PAPER LOGO APPEARS HERE] Printed in the U.S.A. on recycled paper.
