<PAGE> 1
SUPPLEMENT DATED APRIL 15, 1995
TO THE CURRENT PROSPECTUSES
OF THE FOLLOWING DELAWARE GROUP FUNDS
DELAWARE GROUP DELAWARE FUND, INC., DELAWARE GROUP TREND FUND, INC.,
DELAWARE GROUP VALUE FUND, INC., DELAWARE GROUP DECATUR FUND, INC.,
DELAWARE GROUP DELCAP FUND, INC., DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC., DELAWARE GROUP GOVERNMENT FUND, INC., DELAWARE GROUP
TAX-FREE FUND, INC., DELAWARE GROUP TREASURY RESERVES, INC., DELAWARE
GROUP TAX-FREE MONEY, INC., DELAWARE GROUP CASH RESERVE, INC.
On March 29, 1995, shareholders of each of the above referenced Funds
or, as relevant, the series thereof, approved a new Investment Management
Agreement with Delaware Management Company, Inc. ("DMC"), an indirect
wholly-owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). The
approval of new Investment Management Agreements was subject to the completion
of the merger (the "Merger") between DMH and a wholly-owned subsidiary of
Lincoln National Corporation ("Lincoln National") which occurred on April 3,
1995. Accordingly, the previous Investment Management Agreements terminated and
the new Investment Management Agreements became effective on that date.
As a result of the Merger, DMC and its two affiliates, Delaware
Service Company, Inc., the Funds' shareholder servicing, dividend disbursing
and transfer agent and Delaware Distributors, L.P., the Funds' national
distributor became indirect wholly-owned subsidiaries of Lincoln National.
Lincoln National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services
industry, including insurance and investment management.
Under the new Investment Management Agreements, DMC will be paid at
the same annual fee rates and on the same terms as it was under the previous
Investment Management Agreements. In addition, the investment approach and
operation of each Fund and, as relevant, each series of a Fund, will remain
substantially unchanged.
PS-OTH-4/95
<PAGE> 2
NOVEMBER 9, 1994
Delaware Group of Funds
U.S. GOVERNMENT FUND
A CLASS/B CLASS
(September 29, 1994)
DELCHESTER FUND
A CLASS/B CLASS
(September 29, 1994)
TREASURY RESERVES INTERMEDIATE FUND
A CLASS/B CLASS
(May 2, 1994)
TREND FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
DELCAP FUND A CLASS/B CLASS
(SEPTEMBER 6, 1994)
DELAWARE FUND
A CLASS/B CLASS
DIVIDEND GROWTH FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
DECATUR INCOME FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
DECATUR TOTAL RETURN FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
VALUE FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
INTERNATIONAL EQUITY FUND
A CLASS/B CLASS
(SEPTEMBER 6, 1994)
SUPPLEMENT TO PROSPECTUSES
DATED AS NOTED ABOVE
The following supplements the information appearing on the front cover of
the Prospectus:
Shares of this Fund are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Shares are not
deposits, obligations of, guaranteed or endorsed by any bank and involve
investment risks including possible loss of principal.
Shares of the Fund are not NCUSIF insured, are not guaranteed by the credit
union, are not obligations of the credit union, and involve investment risk,
including the possible loss of principal. Shares of the Fund are not credit
union deposits.
(over)
<PAGE> 3
The following supplements the section Buying at Net Asset Value under
Buying Shares:
Purchases of Class A Shares also may be made at net asset value by bank
employees that provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of fund shares. Also,
officers, directors and key employees of institutional clients of Delaware
Management Company, Inc. or any of its affiliates may purchase Class A Shares
at net asset value.
The following replaces the second paragraph in the section Other
Payments to Dealers--Class A and Class B Shares under Buying Shares:
In connection with the promotion of Delaware Group fund shares,
Delaware Distributors, Inc. may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising
and may, from time to time, pay or allow additional promotional incentives to
dealers, which shall include non-cash concessions, such as certain luxury
merchandise or a trip to or attendance at a business or investment seminar at a
luxury resort, as part of preapproved sales contests. In addition, Delaware
Distributors, Inc. may pay dealers a commission in connection with net asset
value purchases.
The following replaces the categories of eligible purchasers of
Institutional Class Shares in the section Buying Shares:
(a) retirement plans introduced by persons not associated with brokers
or dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt
employee benefit plans of Delaware Management Company, Inc. or its affiliates
and securities dealer firms with a selling agreement with Delaware
Distributors, Inc.; (c) institutional advisory accounts of Delaware Management
Company, Inc. or its affiliates and those having client relationships with
Delaware Investment Advisers, a division of Delaware Management Company, Inc.,
or its affiliates and their corporate sponsors, as well as subsidiaries and
related employee benefit plans and rollover individual retirement accounts from
such institutional advisory accounts; (d) banks, trust companies and similar
financial institutions investing for their own account or for the account of
their trust customers for whom such financial institution is exercising
investment discretion in purchasing shares of the class; and (e) registered
investment advisers investing on behalf of clients that consist solely of
Institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is
not affiliated or associated with a broker or dealer and derives compensation
for its services exclusively from its clients for such advisory services.
PS-NAV1-11/94-U
<PAGE> 4
- ------------------------------------------------
PROSPECTUS
SEPTEMBER 29, 1994
- ------------------------------------------------
U.S. GOVERNMENT FUND
- ------------------------------------------------
A CLASS SHARES
- ------------------------------------------------
B CLASS SHARES
- ------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- ------------------------------------------------
FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640
PHILADELPHIA 988-1333
INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918
PHILADELPHIA 988-1241
DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
PHILADELPHIA 988-1050
- ------------------------------------------------
<TABLE>
<S> <C>
TABLE OF CONTENTS
- ------------------------------------------------
COVER PAGE 1
- ------------------------------------------------
SYNOPSIS 2
- ------------------------------------------------
SUMMARY OF EXPENSES 3
- ------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------
INVESTMENT OBJECTIVES 6
- ------------------------------------------------
INVESTMENT POLICIES 6
- ------------------------------------------------
THE DELAWARE DIFFERENCE
PLANS AND SERVICES 12
- ------------------------------------------------
RETIREMENT PLANNING 13
- ------------------------------------------------
BUYING SHARES 14
- ------------------------------------------------
REDEMPTION AND EXCHANGE 22
- ------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS 26
- ------------------------------------------------
TAXES 27
- ------------------------------------------------
CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE 28
- ------------------------------------------------
MANAGEMENT OF THE FUND 29
- ------------------------------------------------
</TABLE>
This Prospectus describes the U.S. Government Fund A Class of shares
(the "Class A Shares") and the U.S. Government Fund B Class of shares (the
"Class B Shares") (collectively, the "Classes") of the Government Income Series
(the "Series") of Delaware Group Government Fund, Inc. (the "Fund"), a
professionally-managed mutual fund of the series type. The objective of the
Series is 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.
Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge, and Class B Shares may be purchased at a price equal to the next
determined net asset value per share. The Class A Shares are subject to a
maximum front-end sales charge of 4.75% and annual 12b-1 Plan expenses. The
Class B Shares are subject to a contingent deferred sales charge ("CDSC") which
may be imposed on redemptions made within six years of purchase and 12b-1 Plan
expenses which are higher than those to which Class A Shares are subject and
are assessed against the Class B Shares for no longer than approximately eight
years after purchase. See Summary of Expenses, and Automatic Conversion of
Class B Shares under Buying Shares. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other circumstances. See Buying Shares.
The minimum initial investment for each of the Classes is $1,000.
Subsequent investments must be at least $25 with respect to the Class A Shares
and $100 with respect to the Class B Shares. Class B Shares are also subject to
a maximum purchase limitation of $250,000. The Fund will therefore reject any
order for purchase of more than $250,000 for Class B Shares. See Buying
Shares.
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for
future reference. Part B of the Fund's registration statement, dated September
29, 1994, as it may be amended from time to time, contains additional
information about the Series and has been filed with the Securities and
Exchange Commission. Part B is incorporated by reference into this Prospectus
and is available, without charge, by writing to Delaware Distributors, Inc. at
the above address or by calling the above numbers.
The Series' financial statements appear in its Annual Report, which
will accompany any response to requests for Part B. The Series also offers the
U.S. Government Fund Institutional Class. That class is available for purchase
only by certain enumerated institutions, has no front-end or contingent
deferred sales charge and is not subject to annual 12b-1 Plan expenses.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE> 5
SYNOPSIS
CAPITALIZATION
The Series offers three classes of shares: the Class A Shares, the
Class B Shares and the U.S. Government Fund Institutional Class. The Fund has a
present authorized capitalization of two hundred million shares of capital
stock, with a $.01 par value per share. Eighty million shares of that stock
have been allocated to each of the Classes. Twenty million shares have been
allocated to the U.S. Government Fund Institutional Class. See Shares under
Management of the Fund.
INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT
Delaware Management Company, Inc. (the "Manager") is the investment
manager for the Fund. The Manager or its affiliate, Delaware International
Advisers Ltd., manages the other funds in the Delaware Group. Delaware
Distributors, Inc. (the "Distributor") is the national distributor for the Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing and transfer agent for the Fund and for all of the other mutual
funds in the Delaware Group. See Management of the Fund.
SALES CHARGE
The price of the Class A Shares includes a maximum front-end sales
charge of 4.75% of the offering price, which is equivalent to 4.99% of the
amount invested, reduced on certain transactions of at least $100,000 but under
$1,000,000. For purchases of $1,000,000 or more, the front-end sales charge is
eliminated. Class A Shares are also subject to annual 12b-1 Plan expenses.
The price of the Class B Shares is equal to the net asset value per
share. Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third
and fourth year following purchase; (iii) 2% if shares are redeemed during the
fifth year following purchase and (iv) 1% if shares are redeemed during the
sixth year following purchase. Class B Shares are also subject to annual 12b-1
Plan expenses for no longer than approximately eight years after purchase. See
Buying Shares and Automatic Conversion of Class B Shares thereunder; and
Distribution (12b-1) and Service under Management of the Fund.
MINIMUM INVESTMENT
The minimum initial investment for each of the Classes is $1,000 (see
Part B or contact your investment dealer for each Retirement Plan minimum), and
subsequent investments must be at least $25 for the Class A Shares and $100 for
the Class B Shares. Class B Shares are also subject to a maximum purchase
limitation of $250,000. See Buying Shares.
INVESTMENT OBJECTIVE
The objective of the Series is 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. See
Investment Objectives.
SPECIAL CONSIDERATIONS
The Series may enter into options and futures transactions for hedging
purposes to counterbalance portfolio volatility. While the Series does not
engage in options and futures for speculative purposes, there are risks which
result from use of these instruments by the Series, and the investor should
review the descriptions of such in this Prospectus. See Options and Futures
under Investment Policies.
OPEN-END INVESTMENT COMPANY
The Fund, which was organized as a Maryland corporation in 1985, is an
open-end management investment company and the Series' portfolio of assets is
diversified. See Shares under Management of the Fund.
INVESTMENT MANAGEMENT FEES
The Manager furnishes investment management services to the Fund,
subject to the supervision and direction of the Board of Directors. Under the
Investment Management Agreement, the annual compensation paid to the Manager is
equal to .60% of its average daily net assets, less a proportionate share of
all directors' fees paid to the unaffiliated directors by the Series. See
Management of the Fund.
REDEMPTION AND EXCHANGE
The Class A Shares of the Series are redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Series nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value which may be subject to a contingent deferred sales charge
if such purchase triggered the payment of a dealer's commission. The Class B
Shares of the Series are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request, less, in the
case of redemptions, any applicable CDSC. Neither the Series nor the
Distributor assesses any additional charges for redemptions or exchanges of the
Class B Shares. See Redemption and Exchange.
2
<PAGE> 6
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to the Class A and Class B Shares follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................. 4.75% None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................. None None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption
proceeds, as applicable)............................................ None* 4.00%*
Redemption Fees....................................................... None** None**
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES CLASS A CLASS B
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) SHARES SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees....................................................... 0.59% 0.59%
12b-1 Plan Expenses (including service fees).......................... 0.29%***+ 1.00%+
Other Operating Expenses.............................................. 0.35% 0.35%++
----- -----
Total Operating Expenses.......................................... 1.23%*** 1.94%
===== =====
</TABLE>
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Classes will bear
directly or indirectly. *With respect to the Class A Shares, purchases of $1
million or more may be made at net asset value; however, if in connection with
any such purchase, certain dealer commissions are paid to financial advisers
through whom such purchases are effected, a contingent deferred sales charge of
1% will be imposed in the event of certain redemptions within 12 months of
purchase ("Limited CDSC"). The Class B Shares are subject to a CDSC of: (i) 4%
if shares are redeemed within two years of purchase; (ii) 3% if shares are
redeemed during the third and fourth year following purchase; (iii) 2% if
shares are redeemed during the fifth year following purchase; (iv) 1% if shares
are redeemed during the sixth year following purchase; and (v) 0% thereafter.
See Contingent Deferred Sales Charge for Certain Purchases of Class A Shares
Made at Net Asset Value under Redemption and Exchange; and Deferred Sales
Charge Alternative--Class B Shares under Buying Shares. **CoreStates Bank, N.A.
currently charges $7.50 per redemption for redemptions payable by wire. ***The
actual 12b-1 Plan expenses to be paid and, consequently, the Total Operating
Expenses of the Class A Shares, may be somewhat more (but the 12b-1 Plan
expenses may be no more than .30%) or somewhat less (but the 12b-1 Plan
expenses may be no less than .10%) because of the formula adopted by the Board
of Directors for use in calculating the 12b-1 Plan expenses beginning June 1,
1992. See Distribution (12b-1) and Service. +Class A Shares and Class B Shares
are subject to separate 12b-1 Plans. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by
rules of the National Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service. ++"Other Operating Expenses" for Class B
Shares are estimates based on the actual expenses incurred by the Class A
Shares for its fiscal year ended July 31, 1994. Also, see U.S. Government Fund
Institutional Class for expense information about that class.
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods assuming (1) a 5% annual
rate of return and (2) redemption at the end of each time period. As noted in
the table above, the Series charges no redemption fees with respect to the Class
A Shares and, if shares are redeemed within six years after purchase, the Series
charges a CDSC with respect to the Class B Shares.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES $59(1) $85 $112 $189 CLASS B SHARES $60 $91 $125 $208(2)
</TABLE>
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES $59 $85 $112 $189 CLASS B SHARES $20 $61 $105 $208(2)
</TABLE>
(1) Under certain circumstances, a Limited CDSC, which has not been
reflected in this calculation, may be imposed in the event of certain
redemptions within 12 months of purchase. See Contingent Deferred
Sales Charge for Certain Purchases of Class A Shares Made at Net Asset
Value under Redemption and Exchange.
(2) At the end of no more than approximately eight years after purchase,
Class B Shares will be automatically converted into Class A Shares.
The example above assumes conversion of Class B Shares at the end of
year eight. However, the conversion may occur as late as three months
after the eighth anniversary of purchase, during which time the higher
12b-1 Plan fees payable by Class B Shares will continue to be
assessed. See Automatic Conversion of Class B Shares under Buying
Shares for a description of the automatic conversion feature. Years
nine and ten reflect expenses of the Class A Shares. The conversion
will constitute a tax-free exchange for federal income tax purposes.
See Taxes.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
3
<PAGE> 7
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Delaware Group Government Fund-Government Income Series and have been audited
by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes, and the report of
Ernst & Young LLP covering such financial information and highlights, all of
which are incorporated by reference into Part B. Further information about the
Series' performance is contained in its Annual Report to shareholders. A copy
of the Series' Annual Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
-------------------------------------------------------------------------------------------
PERIOD
8/16/85(1)
YEAR ENDED THROUGH
7/31/94 7/31/93 7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87 7/31/86
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period . . . . . . . . . . . . . $9.010 $9.020 $8.700 $8.590 $8.750 $8.650 $8.810 $9.320 $9.330
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income . . . . . . 0.714 0.763 0.769 0.753 0.749 0.772 0.817 0.901 0.919
Net Gains or Losses on Securities
(both realized and unrealized) . (1.010) (0.010) 0.320 0.110 (0.160) 0.100 (0.160) (0.465) (0.010)
-------- -------- -------- -------- ------- -------- -------- -------- -------
Total From Investment Operations. (0.296) 0.753 1.089 0.863 0.589 0.872 0.657 0.436 0.909
-------- -------- -------- -------- ------- -------- -------- -------- -------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment
income) . . . . . . . . . . . . . (0.714) (0.763) (0.769) (0.753) (0.749) (0.772) (0.817) (0.901) (0.919)
Distributions (from capital gains). none none none none none none none (0.045) none
Returns of Capital . . . . . . . . none none none none none none none none none
-------- -------- -------- -------- ------- -------- -------- -------- -------
Total Distributions . . . . . . . (0.714) (0.763) (0.769) (0.753) (0.749) (0.772) (0.817) (0.946) (0.919)
-------- -------- -------- -------- ------- -------- -------- -------- -------
Net Asset Value, End of Period . . $8.000 $9.010 $9.020 $8.700 $8.590 $8.750 $8.650 $8.810 $9.320
======== ======== ======== ======== ======= ======== ======== ======== =======
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(4) . . . . . . . . . . (3.51%) 8.70% 12.98% 10.48% 7.14% 10.65% 7.79% 4.80% 10.22%
- ---------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(000 omitted) . . . . . . . . . . $222,555 $223,416 $184,401 $150,491 $140,772 $138,904 $158,167 $154,735 $73,622
Ratio of Expenses to Average Daily
Net Assets. . . . . . . . . . . . 1.23% 1.26% 1.17% 1.13% 1.14% 1.22% 1.02%(2) 0.97%(2) 0.95%(2)
Ratio of Net Investment Income to
Average Daily Net Assets . . . . 8.31% 8.45% 8.60% 8.74% 8.75% 9.01% 9.29%(3) 9.62%(3) 9.51%(3)
Portfolio Turnover Rate . . . . . 309% 285% 196% 149% 127% 172% 210% 210% 321%
</TABLE>
- -------------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Ratios of expenses to average daily net assets prior to expense
limitation were 1.09% for 1988, 1.30% for 1987 and 1.39% for 1986.
(3) Ratios of net investment income to average daily net assets prior to
expense limitation were 9.21% for 1988, 9.29% for 1987 and 9.07% for
1986.
(4) Does not reflect maximum sales charge of 4.75%. Total return for 1986,
1987 and 1988 reflect the expense limitations referenced in notes 2
and 3.
4
<PAGE> 8
FINANCIAL HIGHLIGHTS
(Continued)
<TABLE>
<CAPTION>
CLASS B SHARES
--------------
PERIOD
5/2/94(1)
THROUGH
7/31/94
<S> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . $8.190
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . 0.151
Net Gains or Losses on Securities
(both realized and unrealized) . . . . . . . . . . . . (0.190)
-------
Total From Investment Operations . . . . . . . . . . . (0.039)
-------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income) . . . . . . . . . (0.151)
Distributions (from capital gains) . . . . . . . . . . . none
Returns of Capital . . . . . . . . . . . . . . . . . . . none
-------
Total Distributions . . . . . . . . . . . . . . . . . . (0.151)
-------
Net Asset Value, End of Period . . . . . . . . . . . . . $8.000
=======
- -------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . (0.46%)(1)
- ------------
- -------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000 omitted) . . . . . . . . . $2,215
Ratio of Expenses to Average Daily Net Assets . . . . . 1.94%(2)
Ratio of Net Investment Income to Average Daily
Net Assets . . . . . . . . . . . . . . . . . . . . . . 7.60%(2)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 309%
</TABLE>
- -------------------------
(1) Date of initial public offering; total return has not been annualized.
Total return for this short of a time period may not be representative
of longer-term results. In addition, total return does not include any
CDSC.
(2) Ratios have been annualized.
5
<PAGE> 9
INVESTMENT OBJECTIVES
The investment objective of the Series described below is a matter of
fundamental policy and may not be changed without shareholder approval.
The objective of the Series is 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, including
securities issued or backed by U.S. government agencies and
government-sponsored corporations which may not be backed by the full faith and
credit of the U.S. government, such as the Export-Import Bank, Federal Housing
Authority, Federal National Mortgage Association and Federal Home Loan Banks and
mortgage-backed securities issued by nongovernment entities but collateralized
by securities of the U.S. government, its agencies and instrumentalities. The
weighted average maturity will be approximately ten years. Although these
securities are guaranteed as to principal and interest by the U.S. government or
its instrumentalities, the market value of these securities, upon which daily
net asset value is based, may fluctuate and is not guaranteed. The Series may
also invest up to 20% of its assets in (1) corporate notes and bonds rated A or
above, (2) certificates of deposit and obligations of both U.S. and foreign
banks if they have assets of at least one billion dollars, (3) commercial paper
rated P-1 by Moody's Investors Service, Inc. ("Moody's") and/or A-1 by Standard
& Poor's Corporation ("Standard & Poor's") and (4) asset-backed securities rated
Aaa by Moody's or AAA by Standard & Poor's.
U.S. government securities include U.S. Treasury securities consisting
of Treasury Bills, Treasury Notes and Treasury bonds. Some of the other
government securities in which the Series may invest include securities of the
Federal Housing Administration, the Government National Mortgage Association,
the Department of Housing and Urban Development, the Export-Import Bank, the
Farmers Home Administration, the General Services Administration, the Maritime
Administration and the Small Business Administration. The maturities of such
securities usually range from three months to 30 years.
INVESTMENT POLICIES
GNMA SECURITIES--The Series may invest in certificates of the Government
National Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. Each Certificate evidences an interest in a specific pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. Scheduled payments
of principal and interest are made to the registered holders of GNMA
Certificates. The GNMA Certificates in which the Series will invest are of the
modified pass-through type. GNMA guarantees the timely payment of monthly
installments of principal and interest on modified pass-through Certificates at
the time such payments are due, whether or not such amounts are collected by the
issuer on the underlying mortgages. The National Housing Act provides that the
full faith and credit of the United States is pledged to the timely payment of
principal and interest by GNMA of amounts due on these GNMA Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments with maximum maturities of 30 years. The average
life is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of prepayments of
refinancing of such mortgages or foreclosure. Such prepayments are passed
through to the registered holder with the regular monthly payments of principal
and interest, and have the effect of reducing future payments. Due to the GNMA
guarantee, foreclosures impose no risk to principal investments.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates vary widely, it is not possible to accurately predict the
average life of a particular pool. However, statistics indicate that the average
life of the type of mortgages backing the majority of GNMA Certificates is
approximately 12 years. For this reason, it is standard practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The assumed
average life of pools of mortgages having terms of less than 30 years is less
than 12 years, but typically not less than five years.
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The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Such fees in the aggregate usually amount to approximately 1/2 of 1%.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Prepayments generally occur when interest rates have
fallen. Reinvestments of prepayments will be at lower rates. Historically,
actual average life has been consistent with the 12-year assumption referred to
above. The actual yield of each GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying the Certificates and may differ from
the yield based on the assumed average life. Interest on GNMA Certificates is
paid monthly rather than semi-annually as for traditional bonds.
MORTGAGE-BACKED SECURITIES--The Series may also invest in securities
issued by certain private, nongovernment corporations, such as financial
institutions, if the securities are fully collateralized at the time of issuance
by securities or certificates issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Two principal types of mortgage-backed securities
are collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs).
CMOs are debt securities issued by U.S. government agencies or by
financial institutions and other mortgage lenders and collateralized by a pool
of mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in sequence
as the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or
interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
CMOs and REMICs issued by private entities are not government securities
and are not directly guaranteed by any government agency. They are secured by
the underlying collateral of the private issuer. The Series will invest in such
private-backed securities only if they are 100% collateralized at the time of
issuance by securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities. The Series currently invests in privately-issued CMOs and
REMICs only if they are rated at the time of purchase in the two highest grades
by a nationally-recognized rating agency.
ASSET-BACKED SECURITIES--As noted and subject to the limitations set
forth above, the Series may also invest in securities which are backed by assets
such as receivables on home equity and credit card loans, and receivables
regarding automobile, mobile home and recreational vehicle loans, wholesale
dealer floor plans and leases. Such receivables are securitized in either a
pass-through or a pay-through structure. Pass-through securities provide
investors with an income stream consisting of both principal and interest
payments in respect of the receivables in the underlying pool. Pay-through
asset-backed securities are debt obligations issued usually by a special purpose
entity, which are collateralized by the various receivables and in which the
payments on the underlying receivables provide the funds to pay the debt service
on the debt obligations issued. The Series may invest in these and other types
of asset-backed securities that may be developed in the future. It is the
Series' current policy to limit asset-backed investments to those represented by
interests in credit card receivables, wholesale dealer floor plans, home equity
loans and automobile loans.
Due to the shorter maturity of the collateral backing such securities,
there is less of a risk of substantial prepayment than with mortgage-backed
securities. Such asset-backed securities do, however, involve certain risks not
associated with mortgage-backed securities, including the risk that security
interests cannot be adequately or in many cases, ever, established. In addition,
with respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the outstanding balance. In the case of automobile
receivables, there is a risk that the holders may not have either a proper or
first security interest in all of the obligations backing such receivables due
to the large number of vehicles involved in a typical issuance and technical
requirements under state laws. Therefore, recoveries on repossessed collateral
may not always be available to support payments on the securities. For further
discussion concerning the risks of investing in such asset-backed securities,
see Part B.
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REPURCHASE AGREEMENTS--In order to invest its cash reserves or when in a
temporary defensive posture, the Series may enter into repurchase agreements
with banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Series) acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the
purchaser's holding period. Generally, repurchase agreements are of short
duration, often less than one week but on occasion for longer periods. Not more
than 10% of the Series' assets may be invested in repurchase agreements of over
seven-days' maturity or other illiquid assets. Should an issuer of a repurchase
agreement fail to repurchase the underlying security, the loss to the Series, if
any, would be the difference between the repurchase price and the market value
of the security. The Series will limit its investments in repurchase agreements
to those which the Manager under the guidelines of the Board of Directors
determines to present minimal credit risks and which are of high quality. In
addition, the Series must have collateral of at least 100% of the repurchase
price, including the portion representing the Series' yield under such
agreements which is monitored on a daily basis. Such collateral is held by the
Morgan Guaranty Trust Company of New York ("Custodian") in book entry form. Such
agreements may be considered loans under the Investment Company Act of 1940 (the
"1940 Act"), but the Series considers repurchase agreements contracts for the
purchase and sale of securities, and it seeks to perfect a security interest in
the collateral securities so that it has the right to keep and dispose of the
underlying collateral in the event of default.
The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the 1940 Act to allow the
Delaware Group funds jointly to invest cash balances. The Series may invest cash
balances in a joint repurchase agreement in accordance with the terms of the
Order and subject generally to the conditions described above.
OPTIONS--The Series may write put and call options on a covered basis
only, and will not engage in option writing strategies for speculative purposes.
The Series may write covered call options and secured put options from time to
time on such portion of its portfolio, without limit, as the Manager determines
is appropriate in seeking to obtain the Series' investment objective. The Series
may also purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Series' total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Series' total
assets.
A. COVERED CALL WRITING--A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Series, has the
obligation to sell the underlying security at the exercise price during the
option period. There is no percentage limitation on writing covered call
options.
The advantage to the Series of writing covered calls is that the Series
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Series will lose the appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Series to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Series may realize a
net gain or loss from a closing purchase transaction depending upon whether the
net amount of the original premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be partially or entirely offset by the
premium received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security. Conversely, a gain
resulting from a closing purchase transaction could be offset in whole or in
part by a decline in the market value of the underlying security.
If a call option expires unexercised, the Series will realize a
short-term capital gain in the amount of the premium on the option less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security plus the amount of the
premium on the option less the commission paid.
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The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Call options will be written only on a covered basis, which means that
the Series will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Series would be required to continue to hold a security which it
might otherwise wish to sell. Options written by the Series will normally have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to or above the current
market value of the underlying security at the time the option is written.
B. PURCHASING CALL OPTIONS--The Series may purchase call options to the
extent that premiums paid by the Series do not aggregate more than 2% of the
Series' total assets. When the Series purchases a call option, in return for a
premium paid by the Series to the writer of the option, the Series obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage is that the Series may hedge against an increase
in the price of securities which it ultimately wishes to buy. However, the
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Series upon exercise of the option.
The Series may, following the purchase of a call option, liquidate its
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same Series as the option previously purchased. The
Series will realize a profit from a closing sale transaction if the price
received on the transaction is more than the premium paid to purchase the
original call option; the Series will realize a loss from a closing sale
transaction if the price received on the transaction is less than the premium
paid to purchase the original call option.
Although the Series will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that the Series would be
required to exercise its options in order to realize any profit and would incur
brokerage commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Series may expire without any value
to the Series.
C. SECURED PUT WRITING--A put option gives the purchaser of the option
the right to sell, and the writer, in this case the Series, has the obligation
to buy the underlying security at the exercise price during the option period.
During the option period, the writer of a put option may be assigned an exercise
notice by the broker/dealer through whom the option was sold requiring the
writer to make payment of the exercise price against delivery of the underlying
security. In this event, the exercise price will usually exceed the then market
value of the underlying security. This obligation terminates upon expiration of
the put option or at such earlier time at which the writer effects a closing
purchase transaction. The operation of put options in other respects is
substantially identical to that of call options. Premiums on outstanding put
options written or purchased by the Series may not exceed 2% of its total
assets.
The advantage to the Series of writing such options is that it receives
premium income. The disadvantage is that the Series may have to purchase
securities at higher prices than the current market price when the put is
exercised.
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Put options will be written only on a secured basis, which means that
the Series will maintain in a segregated account with its Custodian cash or U.S.
government securities in an amount not less than the exercise price of the
option at all times during the option period. The amount of cash or U.S.
government securities held in the segregated account will be adjusted on a daily
basis to reflect changes in the market value of the securities covered by the
put option written by the Series. Secured put options will generally be written
in circumstances where the Manager wishes to purchase the underlying security
for the Series' portfolio at a price lower than the current market price of the
security. In such event, the Series would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay.
D. PURCHASING PUT OPTIONS--The Series may purchase put options to the
extent that premiums paid for such options do not exceed 2% of the Series' total
assets. The Series will, at all times during which it holds a put option, own
the security covered by such option.
The Series intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Series to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Series will continue to receive interest income on the security.
If the security does not drop in value, the Series will lose the value of the
premium paid. The Series may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such sales will
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option which is sold.
FUTURES--The Series may invest in futures contracts and options on such
futures contracts subject to certain limitations. Futures contracts are
agreements for the purchase or sale for future delivery of securities. When a
futures contract is sold, the Series incurs a contractual obligation to deliver
the securities underlying the contract at a specified price on a specified date
during a specified future month. A purchase of a futures contract means the
acquisition of a contractual right to obtain delivery to the Series of the
securities called for by the contract at a specified price during a specified
future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When the Series enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Series an amount referred to as "initial margin." This amount is maintained by
the futures commission merchant in an account at the Series' Custodian bank.
Thereafter, a "variation margin" may be paid by the Series to, or drawn by the
Series from, such account in accordance with controls set for such account,
depending upon changes in the price of the underlying securities subject to the
futures contract.
The Series may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts for the Series,
which consists of a substantial number of government securities, is to protect
the Series against the adverse effects of fluctuations in interest rates without
actually buying or selling such securities. Similarly, when it is expected that
interest rates may decline, futures contracts may be purchased to hedge in
anticipation of subsequent purchases of government securities at higher prices.
With respect to options on futures contracts, when the Series is not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The writing of a call
option on a futures contract constitutes a partial hedge against declining
prices of the securities which are deliverable upon exercise of the futures
contract. If the futures price at the expiration of the option is below the
exercise price, the Series will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in the
portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities which
are deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Series will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of government securities which the Series
intends to purchase.
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If a put or call option the Series has written is exercised, the Series
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between the value of its
portfolio securities and changes in the value of its futures positions, the
Series' losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The Series will
purchase a put option on a futures contract to hedge the Series' portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Series may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize a loss. For example, if the Series is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of government securities held in its portfolio and interest
rates decrease instead, the Series will lose part or all of the benefit of the
increased value of its government securities which it has because it will have
offsetting losses in its futures position. In addition, in such situations, if
the Series had insufficient cash, it may be required to sell government
securities from its portfolio to meet daily variation margin requirements. Such
sales of government securities may, but will not necessarily, be at increased
prices which reflect the rising market. The Series may be required to sell
securities at a time when it may be disadvantageous to do so.
To the extent that the Series purchases an option on a futures contract
and fails to exercise the option prior to the exercise date, it will suffer a
loss of the premium paid. Further, with respect to options on futures contracts,
the Series may seek to close out an option position by writing or buying an
offsetting position covering the same securities or contracts and have the same
exercise price and expiration date. The ability to establish and close out
positions on options will be subject to the maintenance of a liquid secondary
market, which cannot be assured.
The Series will not enter into futures contracts to the extent that more
than 5% of the Series' assets are required as futures contract margin deposits
and will not invest in futures contracts or options thereon to the extent that
obligations relating to such transactions exceed 20% of the Series' assets.
PORTFOLIO LOAN TRANSACTIONS--The Series may loan up to 25% of its assets
to qualified broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
The major risk to which the Series would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time when the
value of the security goes up. Therefore, the Series will only enter into loan
arrangements after a review of all pertinent facts by the Manager, subject to
overall supervision by the Board of Directors, including the creditworthiness of
the borrowing broker, dealer or institution and then only if the consideration
to be received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the Manager. See Part B.
PORTFOLIO TURNOVER--The Series may experience a high rate of portfolio
turnover, which is not expected to exceed 400%. High portfolio turnover rates
may occur, for example, if the Series writes a substantial number of covered
call options and the market prices of the underlying securities appreciate. A
100% turnover rate would occur if all of the securities in the portfolio were
sold and replaced within one year. The rate of portfolio turnover is not a
limiting factor when the Manager deems it desirable to purchase or sell
securities or to engage in options transactions. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs and may affect taxes payable by the Series' shareholders. The turnover
rate may also be affected by cash requirements from redemptions and repurchases
of the Series' shares. The degree of portfolio activity may affect brokerage
costs of the Series and taxes payable by shareholders.
For the fiscal years ended July 31, 1993 and 1994, the portfolio
turnover rates for the Series were 285% and 309%, respectively.
OTHER RESTRICTIONS--Part B sets forth other more specific investment
restrictions, some of which limit the percentage of assets of the Series which
may be invested in certain types of securities. The Fund may borrow from banks.
No investment securities will be purchased while the Series has an outstanding
borrowing. See Part B.
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THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.
SHAREHOLDER PHONE DIRECTORY
INVESTOR INFORMATION CENTER
800-523-4640
(PHILADELPHIA 988-1333)
FUND INFORMATION; LITERATURE;
PRICE, YIELD AND PERFORMANCE FIGURES
SHAREHOLDER SERVICE CENTER
800-523-1918
(PHILADELPHIA 988-1241)
INFORMATION ON EXISTING REGULAR INVESTMENT
ACCOUNTS AND RETIREMENT PLAN ACCOUNTS;
WIRE INVESTMENTS; WIRE LIQUIDATIONS;
TELEPHONE LIQUIDATIONS; TELEPHONE EXCHANGES
DELAPHONE
800-362-FUND (800-362-3863)
SHAREHOLDER SERVICES
During business hours, you can call the Fund's Shareholder Service
Center. The representatives can answer any of your questions about your account,
the Series, the various service features and other funds in the Delaware Group.
PERFORMANCE INFORMATION
During business hours, you can call the Investor Information Center to
get current yield information. Current yield and total return information may
also be included in advertisements and information given to shareholders. Yields
are computed on an annual basis over a 30-day period.
DELAPHONE SERVICE
Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than the
mailed statements and confirmations seven days a week, 24 hours a day.
STATEMENTS AND CONFIRMATIONS
You will receive monthly statements of your account as well as
confirmations of all investments and redemptions. You should examine statements
and confirmations immediately and promptly report any discrepancy by calling the
Shareholder Service Center.
DUPLICATE CONFIRMATIONS
If your investment dealer is noted on your investment application, we
will send your dealer a duplicate confirmation. This makes it easier for your
investment dealer to help you manage your investments.
DIVIDEND REINVESTMENT PLAN
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your account. Also, you may be
permitted to invest your distributions in certain other funds in the Delaware
Group, subject to the exceptions noted below as well as the eligibility and
minimum purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of the Series or
other Delaware Group funds may be effected without a front-end sales charge.
Class B Shares of the Series or Class B Shares of other Delaware Group funds
acquired through reinvestments of distributions will not be subject to a
contingent deferred sales charge if those shares are later redeemed. See
Automatic Conversion of Class B Shares under Buying Shares for information
concerning the automatic conversion of Class B Shares acquired by reinvesting
dividends.
Holders of Class A Shares of the Series may not invest their
distributions in the Class B Shares of any fund in the Delaware Group, including
the Series. Holders of Class B Shares of the Series may reinvest their
distributions only in the Class B Shares of the funds in the Delaware Group
which offer that class of shares (the "Class B Funds"). See Class B Funds under
Buying Shares for a list of the funds offering Class B Shares. For more
information about reinvestments, please call the Shareholder Service Center.
EXCHANGE PRIVILEGE
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds in the Delaware Group, subject to
the exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus. Shareholders of Class B Shares
of the Series are permitted to exchange all or part of their Class B Shares only
into the corresponding class of shares of the Class B Funds, subject to the
minimum purchase and other requirements set forth in each fund's prospectus.
Exchanges are not permitted between Class A Shares and Class B Shares of any of
the funds of the Delaware Group. See Redemption and Exchange.
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<PAGE> 16
Except as noted below, permissible exchanges can be made without payment
of a front-end sales charge or the imposition of a CDSC at the time of the
exchange, as applicable. Persons exchanging into the Class A Shares from a fund
in the Delaware Group offered without a front-end sales charge may be required
to pay the applicable front-end sales charge. See Investing by Exchange under
How to Buy Shares and Redemption and Exchange.
See Redemption and Exchange for additional information on exchanges.
WEALTH BUILDER OPTION
You may be permitted to elect to have amounts in your account
automatically invested in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Class A and Class B Shares. See Redemption and
Exchange.
RIGHT OF ACCUMULATION
With respect to Class A Shares, the Right of Accumulation feature allows
the combining of Class A Shares and Class B Shares of the Series that are
currently owned with the dollar amount of new purchases for a reduced front-end
sales charge. Under the COMBINED PURCHASES PRIVILEGE, this includes the shares
owned in certain other funds in the Delaware Group. See Buying Shares.
LETTER OF INTENTION
With respect to Class A Shares, the Letter of Intention feature permits
the aggregation of purchases over a 13-month period to obtain a reduced
front-end sales charge. See Part B.
12-MONTH REINVESTMENT PRIVILEGE
The 12-Month Reinvestment Privilege permits shareholders to reinvest
proceeds of Class A Shares redeemed, within one year from the redemption,
without a front-end sales charge. See Part B.
FINANCIAL INFORMATION ABOUT THE FUND
Each fiscal year, you will receive an annual report containing financial
statements audited by Ernst & Young LLP (the Fund's independent auditors), and
an unaudited semi-annual report. These reports provide detailed information
about the Series' investments and performance. The Fund's fiscal year ends on
July 31st.
RETIREMENT PLANNING
An investment in the Series may also be suitable for tax-deferred
Retirement Plans. Among the Retirement Plans noted below, Class B Shares are
available for investment only by Individual Retirement Accounts, Simplified
Employee Pension Plans, 457 Deferred Compensation Plans and 403(b)(7) Deferred
Compensation Plans.
Prototype Profit Sharing and Money Purchase Pension Plans are each
subject to a one-time fee of $200 per plan, or $300 for paired plans. No such
fee is charged for owner-only plans if the Delaware Group does not provide a
Summary Plan Description. In addition, these plans are subject to an annual
maintenance fee of $30 per participant account. Each of the other Retirement
Plans described below (other than 401(k) Defined Contribution Plans) is subject
to an annual maintenance fee of $15 for each participant's account, regardless
of the number of funds selected. Annual maintenance fees for 401(k) Defined
Contribution Plans are based on the number of participants in the Plan and the
services selected by the employer. Fees are quoted upon request. All of the
fees noted above are subject to change. Additional information about fees is
contained in Part B. The minimum initial investment in the Classes (as
available) for each Plan is $250; subsequent investments must be at least $25.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to Retirement Plan shareholders. Certain
Retirement Plans may qualify to purchase the U.S. Government Fund Institutional
Class. For additional information on any of the Plans and Delaware's retirement
services, call the Shareholder Service Center or see Part B.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
Individuals, even if they participate in an employer-sponsored
retirement plan, may establish their own retirement program for investments in
each of the Classes. Contributions to an IRA may be tax-deductible and earnings
are tax-deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted, and in some cases eliminated, for individuals who
participate in certain employer-sponsored retirement plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn on a tax-deferred basis.
13
<PAGE> 17
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A SEP/IRA may be established on a group basis by an employer who wishes
to sponsor a tax-sheltered retirement program by making IRA contributions on
behalf of all eligible employees. Each of the Classes is available for
investment by a SEP/IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")
Offers employers with 25 or fewer eligible employees the ability to
establish a SEP/IRA that permits salary deferral contributions. An employer may
also elect to make additional contributions to this Plan. Class B Shares are not
available for purchase by such Plans.
403(b)(7) DEFERRED COMPENSATION PLAN
Permits employees of public school systems or of certain types of
non-profit organizations to enter into a deferred compensation arrangement for
the purchase of shares of each of the Classes.
457 DEFERRED COMPENSATION PLAN
Permits employees of state and local governments and certain other
entities to enter into a deferred compensation arrangement for the purchase of
shares of each of the Classes.
PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLAN
Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares. Class B Shares are not available for purchase by such Plans.
PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN
Permits employers to establish a tax-qualified plan based on salary
deferral contributions. An employer may elect to make profit sharing
contributions and/or matching contributions into the Plan. Class B Shares are
not available for purchase by such Plans.
BUYING SHARES
PURCHASE AMOUNTS
The minimum initial purchase for each of the Classes is $1,000 and all
subsequent purchases must be $25 or more with respect to the Class A Shares and
$100 or more with respect to the Class B Shares. Retirement Plans have other
minimums. Refer to Part B or call the Shareholder Service Center for more
information on these Plans. Class B Shares are also subject to a maximum
purchase limitation of $250,000.
ALTERNATIVE PURCHASE ARRANGEMENTS
Shares may be purchased at a price equal to the next determined net
asset value per share, plus a sales charge which may be imposed, at the election
of the purchaser, at the time of the purchase with respect to Class A Shares
("front-end sales charge alternative") or on a contingent deferred basis with
respect to Class B Shares ("deferred sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares. Although Class A Shares incur a sales
charge when they are purchased, generally, they are not subject to any sales
charge when they are redeemed but are subject to annual 12b-1 Plan expenses of
up to a maximum of .30% of average daily net assets of such shares. See
Contingent Deferred Sales Charge for Certain Purchases of Class A Shares Made at
Net Asset Value and Distribution (12b-1) and Service. Certain purchases of Class
A Shares qualify for reduced front-end sales charges. See Front-End Sales Charge
Alternative--Class A Shares, below.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares. Class B Shares do not incur a front-end
sales charge when they are purchased, but they are subject to a sales charge if
they are redeemed within six years of purchase and are subject to annual 12b-1
Plan expenses of up to a maximum of 1% (.25% of which are service fees to be
paid by the Series to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for no longer than approximately eight years after purchase. Class B
Shares permit all of the investor's dollars to work from the time the investment
is made. The higher 12b-1 Plan expenses paid by Class B Shares will cause such
shares to have a higher expense ratio and to pay lower dividends than those
related to the Class A Shares. At the end of no more than approximately eight
years after purchase, the Class B Shares are automatically converted into Class
A Shares. See Automatic Conversion of Class B Shares. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes.
14
<PAGE> 18
The alternative purchase arrangements permit investors in the Series to
choose the method of purchasing shares that is most beneficial given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales
charge by purchasing Class A Shares or to have the entire initial purchase price
invested in the Series with the investment thereafter being subject to a CDSC,
if shares are redeemed within six years of purchase, by purchasing Class B
Shares.
As an illustration, investors who qualify for significantly reduced
front-end sales charges on purchases of Class A Shares, as described below,
might elect the front-end sales charge alternative because similar sales charge
reductions are not available for purchases under the deferred sales charge
alternative. Moreover, shares acquired under the front-end sales charge
alternative are subject to annual 12b-1 Plan expenses of up to .30%, whereas
shares acquired under the deferred sales charge alternative are subject to
higher annual 12b-1 Plan expenses of 1% for no more than approximately eight
years after purchase. See Automatic Conversion of Class B Shares. However,
because front-end sales charges are deducted at the time of purchase, such
investors would not have all their funds invested initially. Certain other
investors might determine it to be more advantageous to have all their funds
invested initially, although they would be subject to a CDSC for up to six years
after purchase as well as annual 12b-1 Plan expenses of 1% until the shares are
automatically converted into Class A Shares. The 12b-1 Plan distribution
expenses with respect to the Class B Shares will be offset to the extent any
return is realized on the additional funds initially invested under the deferred
sales charge alternative. However, there can be no assurance as to the return,
if any, that will be realized on such additional funds.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Series, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares, from the proceeds of the
12b-1 Plan fees and, if applicable, the CDSC incurred upon redemption within six
years of purchase. Sales personnel may receive different compensation for
selling Class A or Class B Shares. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE
AND FUNCTION OF THE 12b-1 PLAN AND THE CDSC WITH RESPECT TO THE CLASS B SHARES
ARE THE SAME AS THOSE OF THE 12b-1 PLAN AND THE FRONT-END SALES CHARGE WITH
RESPECT TO THE CLASS A SHARES IN THAT THE FEES AND CHARGES PROVIDE FOR THE
FINANCING OF THE DISTRIBUTION OF THE RESPECTIVE CLASSES. SEE 12b-1 DISTRIBUTION
PLANS--CLASS A AND CLASS B SHARES.
Dividends paid by the Series with respect to the Class A and Class B
Shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that the additional amount of 12b-1 Plan expenses relating to the Class B Shares
will be borne exclusively by such shares. See Calculation of Offering Price and
Net Asset Value Per Share. The shareholders of the Class A and Class B Shares
each have an exchange privilege by which they may exchange their Class A Shares
or Class B Shares for the Class A Shares or Class B Shares, respectively, of
certain other Delaware Group funds. See Exchange Privilege under The Delaware
Difference and Redemption and Exchange.
The NASD has adopted amendments to its Rules of Fair Practice relating
to investment company sales charges. The Series and the Distributor intend to
operate in compliance with these rules with respect to both Class A and Class B
Shares.
FRONT-END SALES CHARGE ALTERNATIVE--CLASS A SHARES
The Class A Shares may be purchased at the offering price which reflects
a maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share. Lower sales charges apply for larger purchases. See
the table below. The Class A Shares represent a proportionate interest in the
Series' assets and are subject to annual 12b-1 Plan expenses. See Distribution
(12b-1) and Service under Management of the Fund.
15
<PAGE> 19
REDUCED FRONT-END SALES CHARGES
Purchases of $100,000 or more at the offering price carry a reduced
front-end sales charge as shown in the following table.
U.S. Government Fund A Class
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Front-End Sales Dealer's
Charge as % of Concession**
Amount of Purchase Offering Amount as % of
Price Invested Offering Price
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.00%
$100,000 but under $250,000 3.75 3.90 3.00
$250,000 but under $500,000 2.50 2.56 2.00
$500,000 but under $1,000,000* 2.00 2.04 1.60
</TABLE>
* There is no front-end sales charge on purchases of $1 million or more but,
under certain limited circumstances, a 1% Limited CDSC may apply with
respect to Class A Shares.
- ----------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify for the
reduced front-end sales charge on the basis of previous purchases and current
purchases. The reduced front-end sales charge will be granted upon confirmation
of the shareholder's holdings by the Fund. Such reduced front-end sales charges
are not retroactive.
From time to time, upon written notice to all of its dealers, the Distributor
may hold special promotions for specified periods during which the Distributor
may reallow dealers up to the full front-end sales charge shown above. In
addition, certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional concession of up to .15% of
the offering price. Dealers who receive 90% or more of the sales charge may be
deemed to be underwriters under the Securities Act of 1933.
** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- ----------------------------------------------------------------------------
For initial purchases of Class A Shares of $1,000,000 or more made on or
after June 1, 1993, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are effected in accordance with
the following schedule:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
AMOUNT OF PURCHASE -------------------
- ------------------ (as a percentage of amount purchased)
<S> <C>
Up to $2 million 1.00%
Next $1 million up to $3 million .75
Next $2 million up to $5 million .50
Amount over $5 million .25
</TABLE>
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of the Series. Financial advisers should contact the Distributor concerning the
applicability and calculation of the dealer's commission in the case of combined
purchases. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. The Distributor also should be consulted
concerning the availability of and program for these payments.
An exchange from other Delaware Group funds will not qualify for payment
of the dealer's commission, unless such exchange is from a Delaware Group fund
with assets as to which a dealer's commission or similar payment has not been
previously paid. The schedule and program for payment of the dealer's commission
are subject to change or termination at any time by the Distributor in its
discretion.
Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Purchases of Class A Shares Made at Net Asset Value
under Redemption and Exchange.
COMBINED PURCHASES PRIVILEGE
By combining your holdings in the Class A Shares with your holdings in
the Class B Shares of the Series and, except as noted below, shares of the other
funds in the Delaware Group, you can reduce the front-end sales charges on any
additional purchases of Class A Shares. Except for shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products, shares of other funds which do not carry a front-end sales
charge or CDSC may not be included, unless they were acquired through an
exchange from one of the other Delaware Group funds which carried a front-end
sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. This allows you to make purchases over a 13-month period and qualify
the entire purchase for a reduction in front-end sales charges on Class A
Shares.
16
<PAGE> 20
Combined purchases of $1,000,000 or more, including certain purchases
made pursuant to a Right of Accumulation or under a Letter of Intention, may
trigger the payment of a dealer's commission and the applicability of a Limited
CDSC. Investors should consult their financial advisers or the Transfer Agent
about the operation of these features. See Reduced Front-End Sales Charges under
Buying Shares.
BUYING AT NET ASSET VALUE
Class A Shares may be purchased at net asset value under the Delaware
Group Dividend Reinvestment Plan and, under certain circumstances, the 12-Month
Reinvestment Privilege and the Exchange Privilege. (See The Delaware Difference
and Redemption and Exchange for additional information.)
Purchases of Class A Shares may be made at net asset value by officers,
directors and employees (including former officers and directors and former
employees who had been employed for at least ten years) and members of their
immediate families of the Manager, any affiliate, any of the funds in the
Delaware Group, certain of their agents and registered representatives and
employees of authorized investment dealers and by employee benefit plans for
such entities. Individual purchases include retirement accounts and must be for
accounts in the name of the individual or a qualifying family member. Purchases
of Class A Shares also may be made at net asset value by persons establishing
rollover IRA accounts with assets distributed from accounts advised by the
Manager or its affiliates. Purchases of Class A Shares may be made by clients of
registered representatives of an authorized investment dealer at net asset value
within six months of a change of the registered representative's employment, if
the purchase is funded by proceeds from an investment where a front-end sales
charge has been assessed and the redemption of the investment did not result in
the imposition of a contingent deferred sales charge or other redemption charge.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
The Fund must be notified in advance that an investment qualifies for
purchase of Class A Shares at net asset value.
GROUP INVESTMENT PLANS
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, Prototype Profit
Sharing, Pension and 401(k) Defined Contribution Plans) may also benefit from
the reduced front-end sales charges relating to the Class A Shares set forth in
the table on page 16, based on total plan assets. In addition, 403(b)(7) and 457
Retirement Plan Accounts may also benefit from a reduced front-end sales charge
on Class A Shares based on the total amount invested by all participants in the
plan by satisfying the following criteria: (i) the employer for which the plan
was established has 250 or more eligible employees and the plan lists only one
broker of record, or (ii) the plan includes employer contributions and the plan
lists only one broker of record. If a company has more than one plan investing
in the Delaware Group of funds, then the total amount invested in all plans
would be used in determining the applicable sales charge reduction. Employees
participating in such Group Investment Plans may also combine the investments
made in their plan account when determining the front-end sales charge on
purchases to non-retirement Delaware Group investment accounts.
For additional information on these Plans, including Plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.
For other Retirement Plans and special services, see Retirement
Planning.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B Shares may be purchased at net asset value without the
imposition of a front-end sales charge at the time of purchase. The Class B
Shares are being sold without a front-end sales charge so that the Series will
invest the full amount of the investor's purchase payment. The Distributor
currently anticipates compensating dealers or brokers for selling Class B Shares
at the time of purchase from its own funds in an amount equal to no more than 4%
of the dollar amount purchased. As discussed below, however, Class B Shares are
subject to annual 12b-1 Plan expenses and, if shares are redeemed within six
years of purchase, a CDSC.
17
<PAGE> 21
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for the distribution and related services provided to,
and the related expenses borne on behalf of, the Series for the benefit of the
Class B Shares in connection with the sale of the Class B Shares, including the
compensation paid to dealers or brokers for selling Class B Shares. Payments to
the Distributor and others under the 12b-1 Plan relating to the Class B Shares
may be, annually, in an amount equal to no more than 1%. The combination of the
CDSC and the proceeds of the 12b-1 Plan fees facilitates the ability of the
Series to sell the Class B Shares without a front-end sales charge being
deducted at the time of purchase.
Shareholders of the Class B Shares exercising the exchange privilege
described below will continue to be subject to the CDSC schedule of the Class B
Shares described in this Prospectus. Such schedule may be higher than the CDSC
schedule relating to the Class B Shares acquired as a result of the exchange.
See Redemption and Exchange.
AUTOMATIC CONVERSION OF CLASS B SHARES
Except for shares acquired through a reinvestment of dividends, Class B
Shares held for eight years after purchase are eligible for automatic conversion
into Class A Shares. The Fund will effect conversions of Class B Shares into
Class A Shares only four times in any calendar year, on the last business day of
the second full week of March, June, September and December (each, a "Conversion
Date"). If the eighth anniversary after a purchase of Class B Shares falls on a
Conversion Date, an investor's Class B Shares will be converted on that date. If
the eighth anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such anniversary.
Consequently, if a shareholder's eighth anniversary falls on the day after a
Conversion Date, that shareholder will have to hold Class B Shares for as long
as an additional three months after the eighth anniversary after purchase before
the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through reinvestment of dividends will
convert to the corresponding Class A Shares of that fund (or, in the case of
Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant Class)
pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
CONTINGENT DEFERRED SALES CHARGE
Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below, charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the lesser of
the net asset value at the time of purchase of the shares being redeemed or the
net asset value of the shares at the time of redemption. For purposes of this
formula, the "net asset value at the time of purchase" will be the net asset
value at purchase of the Class B Shares of the Series even if those shares are
later exchanged for Class B Shares of another Delaware Group fund and, in the
event of an exchange of the shares, the "net asset value of such shares at the
time of redemption" will be the net asset value of the shares into which the
shares have been exchanged. Accordingly, no CDSC will be imposed on increases in
net asset value above the initial purchase price. In addition, no CDSC will be
assessed on redemption of shares received upon reinvestment of dividends or
capital gains distributions.
The following table sets forth the rates of the CDSC for the Class B
Shares of the Series:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
YEAR AFTER DOLLAR AMOUNT
PURCHASE MADE SUBJECT TO CHARGE)
------------- -------------------
<S> <C>
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
</TABLE>
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares of the Series, the Class B Shares will
continue to be subject to annual 12b-1 Plan expenses of 1% of average daily net
assets representing those shares. See Automatic Conversion of Class B Shares
above. Investors are reminded that the Class A Shares into which the Class B
Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to
a maximum of .30% of average daily net assets representing such shares.
18
<PAGE> 22
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in a manner that results in the lowest possible
rate being charged. Therefore, with respect to the Class B Shares, it will be
assumed that the redemption is first for shares held over six years or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the six-year period. The charge will not be applied
to dollar amounts representing an increase in the net asset value since the time
of purchase. All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on the last day of
that month and each subsequent month.
The CDSC is waived on redemptions of Class B Shares in connection with
the following redemptions: (i) redemptions effected pursuant to the Fund's right
to liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the then-effective minimum account size;
(ii) tax-free returns of excess contributions to an IRA or 403(b)(7) Deferred
Compensation Plan; (iii) required minimum distributions from an IRA, 403(b)(7)
Deferred Compensation Plan or 457 Deferred Compensation Plan; and (iv)
distributions from an IRA, 403(b)(7) Deferred Compensation Plan or 457 Deferred
Compensation Plan due to death or disability.
12b-1 DISTRIBUTION PLANS--CLASS A AND CLASS B SHARES
Pursuant to the distribution plans adopted by the Fund pursuant to Rule
12b-1 under the 1940 Act, the Series is permitted to pay the Distributor annual
distribution fees payable monthly of .30% of the average daily net assets of the
Class A Shares and 1% of the average daily net assets of the Class B Shares in
order to compensate the Distributor for providing distribution and related
services and bearing certain expenses of each Class. The Class B Shares' 12b-1
Plan is designed to permit an investor to purchase Class B Shares through
dealers or brokers without the assessment of a front-end sales charge and at the
same time permit the Distributor to compensate dealers and brokers in connection
with the sale of the Class B Shares. In this regard, the purpose and function of
the 12b-1 Plan and the CDSC with respect to the Class B Shares are the same as
those of the front-end sales charge and 12b-1 Plan with respect to the Class A
Shares in that the fees and charges provide for the financing of the
distribution of the respective Classes. For more detailed discussion of the
12b-1 Plans relating to the Class A and Class B Shares, see Distribution (12b-1)
and Service.
OTHER PAYMENTS TO DEALERS--CLASS A AND CLASS B SHARES
In addition, from time to time at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of the Classes exceed certain
limits as set by the Distributor, may receive from the Distributor an additional
payment of up to .25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
In connection with the promotion of Delaware Group fund shares, the
Distributor may, from time to time, pay to participate in dealer-sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which may
include non-cash concessions, as part of preapproved sales contests. In
addition, as noted above, the Distributor may pay dealers a commission in
connection with net asset value purchases.
CLASS B FUNDS
The following funds currently offer Class B Shares: DMC Tax-Free Income
Trust-Pennsylvania, Delaware Group Delchester High-Yield Bond Fund, Inc.,
Treasury Reserves Intermediate Series of Delaware Group Treasury Reserves, Inc.,
Delaware Group Cash Reserve, Inc., Tax-Free USA Fund, Tax-Free Insured Fund and
Tax-Free USA Intermediate Fund of Delaware Group Tax-Free Fund, Inc., Delaware
Group DelCap Fund, Inc., Delaware Fund and Dividend Growth Fund of Delaware
Group Delaware Fund, Inc., Delaware Group Trend Fund, Inc. Delaware Group Value
Fund, Inc., Decatur Income Fund and Decatur Total Return Fund of Delaware Group
Decatur Fund, Inc., International Equity Series of Delaware Group Global &
International Funds, Inc. and the Series.
19
<PAGE> 23
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
In addition to offering the Class A and Class B Shares, the Series also
offers the U.S. Government Fund Institutional Class of shares which is described
in a separate prospectus relating to that class of shares. That class may be
purchased only by: (a) defined contribution retirement plans with 1,000 or more
eligible employees; (b) tax-exempt employee benefit plans of the Manager or its
affiliates and securities dealer firms with a selling agreement with the
Distributor; (c) advisory accounts of the Manager or its affiliates and those
having client relationships with Delaware Investment Advisers, a division of the
Manager, or its affiliates and their corporate sponsors, as well as subsidiaries
and related employee benefit plans; and (d) registered investment advisers
investing on behalf of clients that consist solely of institutions and high
net-worth individuals having at least $1,000,000 entrusted to the adviser for
investment purposes, but only if the adviser is not affiliated or associated
with a broker or dealer and derives compensation for its services exclusively
from its clients for such advisory services. Such U.S. Government Fund
Institutional Class shares generally are distributed directly by the Distributor
and do not have a front-end or contingent deferred sales charge or a 12b-1 fee.
Sales or service compensation available in respect of such class, therefore,
differs from that available in respect of the Class A Shares and Class B Shares.
All three classes of shares have a proportionate interest in the underlying
portfolio of securities of the Series. Total Operating Expenses for the U.S.
Government Fund Institutional Class as a percentage of average daily net assets
for the fiscal year ended July 31, 1994 were 0.94%. To obtain a prospectus which
describes the U.S. Government Fund Institutional Class, contact the Distributor.
DIVIDEND ORDERS
SOME SHAREHOLDERS WANT THE DIVIDENDS EARNED IN ONE FUND AUTOMATICALLY
INVESTED IN ANOTHER DELAWARE GROUP FUND WITH A DIFFERENT INVESTMENT OBJECTIVE.
For more information on the requirements of the other funds, see
Dividend Reinvestment Plan under The Delaware Difference or call the
Shareholder Service Center.
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer.
INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of shares of the Classes through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.
INVESTING BY MAIL
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to U.S. Government Fund A Class or B Class, depending
upon which Class is being purchased, to 1818 Market Street, Philadelphia, PA
19103.
2. Subsequent Purchases--Additional purchases may be made at any time by
mailing a check payable to U.S. Government Fund A Class or B Class, depending
upon which Class is being purchased. Your check should be identified with your
name(s) and account number. An investment slip (similar to a deposit slip) is
provided at the bottom of transaction confirmations and dividend statements
that you will receive from the Fund, and should be used when you are making
additional purchases. You can expedite processing by including an investment
slip with your check when making additional purchases. Your investment may be
delayed if you send additional purchases by certified mail.
INVESTING BY WIRE
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 0114-2596 (include
your name(s) and your account number for the Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Shareholder
Service Center to get an account number. If you do not call first, it may delay
processing your investment. In addition, you must promptly send your Investment
Application to U.S. Government Fund A Class or B Class, depending upon which
Class is being purchased, 1818 Market Street, Phila-delphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Fund's Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a Retirement Plan Account, call the
Shareholder Service Center for special wiring instructions.
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INVESTING BY EXCHANGE
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of the Series. If you wish to open an account by exchange, call the
Shareholder Service Center for more information.
Exchanges will not be permitted between Class A and Class B Shares of
the Series or between the Class A Shares and Class B Shares of any other funds
in the Delaware Group. Class B Shares of any of the Class B Funds may be
exchanged for Class B Shares of the Series. Class B Shares of the Series
acquired by exchange will continue to carry the contingent deferred sales charge
and the automatic conversion schedules of the fund from which the exchange is
made. The holding period of the Class B Shares of the Series will be added to
that of the exchanged shares for purposes of determining the time of the
automatic conversion into Class A Shares of the Series.
Permissible exchanges into the Classes of the Series will be made
without a front-end sales charge imposed by the Series or, at the time of the
exchange, a contingent deferred sales charge by the fund from which the exchange
is being made, except for exchanges into Class A Shares from funds not subject
to a front-end sales charge (unless such shares were acquired in an exchange
from a fund subject to such a charge or such shares were acquired through the
reinvestment of dividends).
ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Direct Deposit
YOU MAY WISH YOUR EMPLOYER OR BANK TO MAKE REGULAR INVESTMENTS DIRECTLY
TO YOUR ACCOUNT FOR YOU (for example: payroll deduction, pay by phone, annuity
payments). The Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.
2. Automatic Investing Plan
THE AUTOMATIC INVESTING PLAN ENABLES YOU TO MAKE REGULAR MONTHLY
INVESTMENTS WITHOUT WRITING OR MAILING CHECKS. You may authorize the Fund to
transfer a designated amount monthly from your checking account to your Class
account. Many shareholders use this as an automatic savings plan for IRAs and
other purposes. Shareholders should allow a reasonable amount of time for
initial purchases and changes to these plans to become effective.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
* * *
Should investments by these two methods be reclaimed or returned for
some reason, the Fund has the right to liquidate your shares to reimburse the
government or transmitting bank. If there are insufficient funds in your Class
account, you are obligated to reimburse the Series.
PURCHASE PRICE AND EFFECTIVE DATE
The offering price and net asset value of the Class A and Class B Shares
are determined as of the close of regular trading on the New York Stock Exchange
(ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received, unless
it is received after the time the offering price of shares is determined, as
noted above. Those received after such time will be effective the next business
day.
THE CONDITIONS OF YOUR PURCHASE
The Fund reserves the right to reject any purchase or exchange. If a
purchase is cancelled because your check is returned unpaid, you are responsible
for any loss incurred. The Fund can redeem shares from your account(s) to
reimburse itself for any loss, and you may be restricted from making future
purchases in any of the funds in the Delaware Group. The Fund reserves the
right, upon 60 days' written notice, to redeem accounts that remain under $1,000
as a result of redemptions. An investor making the minimum initial investment
will be subject to involuntary redemption without the imposition of a CDSC or
Limited CDSC if he or she redeems any portion of his or her account.
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<PAGE> 25
REDEMPTION AND EXCHANGE
YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, bond funds, tax-advantaged
funds or money market funds. Exchanges are subject to the requirements of each
fund and all exchanges of shares from one fund or class to another pursuant to
this privilege constitute taxable events. See Taxes. You may want to call us for
more information or consult your financial adviser or investment dealer to
discuss which funds in the Delaware Group will best meet your changing
objectives and the consequence of any exchange transaction.
Your shares will be redeemed or exchanged based on the net asset value
next determined after we receive your request in good order subject, in the case
of a redemption, to any applicable CDSC or Limited CDSC. Redemption or exchange
requests received in good order after the time the offering price and net asset
value of shares are determined, as noted above, will be processed on the next
business day. See Purchase Price and Effective Date under Buying Shares. Except
as otherwise noted below, for a redemption request to be in "good order," you
must provide your Class account number, account registration, and the total
number of shares or dollar amount of the transaction. If a holder of Class B
Shares submits a redemption request for a specific dollar amount, the Fund will
redeem that number of shares necessary to deduct the applicable CDSC and tender
to the shareholder the requested amount to the extent enough shares are then
held in the shareholder account. With regard to exchanges, you must also provide
the name of the fund you want to receive the proceeds. Exchange instructions and
redemption requests must be signed by the record owner(s) exactly as the shares
are registered. You may request a redemption or an exchange by calling the Fund
at 800-523-1918 (in Philadelphia, 988-1241). The Fund reserves the right to
reject exchange requests at any time. The Fund may suspend or terminate, or
amend the terms of, the exchange privilege upon 60 days' written notice to
shareholders.
The Fund will honor written redemption requests of shareholders who
recently purchased shares by check, but will not mail the proceeds until it is
reasonably satisfied the purchase check has cleared, which may take up to 15
days from the purchase date. The Fund will not honor telephone redemptions for
Class shares recently purchased by check unless it is reasonably satisfied that
the purchase check has cleared. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. The Fund reserves the right to reject a
written or telephone redemption request or delay payment of redemption proceeds
if there has been a recent change to the shareholder's address of record.
Class A Shares may be exchanged for certain of the shares of the other
funds in the Delaware Group, including other Class A Shares, subject to the
eligibility and minimum purchase requirements set forth in each fund's
prospectus. All Delaware Group funds offer Class A Shares. Class A Shares may
not be exchanged for Class B Shares of the funds offering such shares. Class B
Shares of the Series may be exchanged only for the Class B Shares of any of the
Class B Funds. See Exchange Privilege under The Delaware Difference. In each
instance, permissible exchanges are subject to the minimum purchase and other
requirements set forth in each prospectus.
Permissible exchanges may be made at net asset value, provided: (1) the
investment satisfies the eligibility and minimum purchase requirements set forth
in the prospectus of the fund being acquired; and (2) the shares of the fund
being acquired are in a state where that fund is registered.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for transfers involving assets that were
previously invested in a fund with a front-end sales charge and/or transfers
involving the reinvestment of dividends.
Holders of the Class B Shares that exchange their shares ("outstanding
Class B Shares") for the Class B Shares of other Class B Funds ("new Class B
Shares"), will not be subject to a CDSC that might otherwise be due upon
redemption of the outstanding Class B Shares. However, such shareholders will
continue to be subject to the CDSC and automatic conversion schedules of the
outstanding Class B Shares described in this Prospectus and any CDSC assessed
upon redemption will be charged by the Series. The Series' CDSC schedule may be
higher than the CDSC schedule relating to the new Class B Shares acquired as a
result of the exchange. For purposes of computing the CDSC that may be payable
upon a disposition of the new Class B Shares, the holding period for the
outstanding Class B Shares is added to the holding period of the new Class B
Shares. The automatic conversion schedule of the outstanding Class B Shares may
be longer than that of the new Class B Shares. Consequently, an investment in
new Class B Shares by exchange may subject an investor to the higher 12b-1 fees
applicable to Class B Shares for a longer time than if the investment in new
Class B Shares was made directly.
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<PAGE> 26
Different redemption and exchange methods are outlined below. Except for
the CDSC with respect to the redemption of Class B Shares and the Limited CDSC
with respect to certain redemptions of Class A Shares purchased at net asset
value, there is no fee charged by the Series or the Distributor for redeeming or
exchanging your shares, but such fees could be charged in the future. You may
also have your investment dealer arrange to have your shares redeemed or
exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders with respect to an account,
including selection of any of the features described below, shall continue in
effect until revoked or modified in writing and until such time as such written
revocation or modification has been received by the Series or its agent.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses.
CHECKWRITING FEATURE
YOU CAN REQUEST SPECIAL CHECKS BY MARKING THE BOX ON THE INVESTMENT
APPLICATION.
The checks must be drawn for $500 or more and, unless otherwise
indicated on the Investment Application or your checkwriting authorization form,
must be signed by all owners of the account.
Because the value of shares fluctuates, you cannot use checks to close
your account. The Checkwriting Feature is not available with respect to the
Class B Shares and for Retirement Plans. See Part B for additional information.
WRITTEN REDEMPTION
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your Class A or Class B Shares. The request must be
signed by all owners of the account or your investment dealer of record. For
redemptions of more than $50,000, or when the proceeds are not sent to the
shareholder(s) at the address of record, the Fund requires a signature by all
owners of the account and a signature guarantee for each owner. Each signature
guarantee must be supplied by an eligible guarantor institution. The Fund
reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans, administrators,
trustees or guardians.
The redemption request is effective at the net asset value next
determined after it is received in good order. Class B Shares may be subject to
a CDSC and the Class A Shares may be subject to a Limited CDSC with respect to
certain shares purchased at net asset value. Payment is normally mailed the next
business day, but no later than seven days, after receipt of your request. If
your Class A Shares are in certificate form, the certificate must accompany your
request and also be in good order. The Fund only issues certificates for Class A
Shares if a shareholder submits a specific request. The Fund does not issue
certificates for Class B Shares.
WRITTEN EXCHANGE
You can also write to the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your Class A or Class B Shares
into another mutual fund in the Delaware Group, subject to the same conditions
and limitations as other exchanges noted above.
TELEPHONE REDEMPTION AND EXCHANGE
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you can only
redeem or exchange by written request and you must return your certificates.
The Telephone Redemption service enabling you to have redemption
proceeds mailed to your address of record and the Telephone Exchange service,
both of which are described below, are automatically provided unless the Fund
receives written notice from the shareholder to the contrary. The Fund reserves
the right to modify, terminate or suspend these procedures upon 60 days' written
notice to shareholders. It may be difficult to reach the Fund by telephone
during periods when market or economic conditions lead to an unusually large
volume of telephone requests.
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<PAGE> 27
Neither the Fund nor the Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Series shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, the shareholder is acknowledging prior receipt
of a prospectus for the fund into which shares are being exchanged.
TELEPHONE REDEMPTION--CHECK TO YOUR ADDRESS
OF RECORD
THE TELEPHONE REDEMPTION FEATURE IS A QUICK AND EASY METHOD TO REDEEM
SHARES. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day,
but no more than seven days, after receipt of the request. This service is only
available to individual, joint and individual fiduciary-type accounts.
TELEPHONE REDEMPTION--PROCEEDS TO YOUR BANK
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, the Fund requires an Authorization Form with your signature guaranteed.
For your protection, your authorization must be on file. If you request a wire,
your funds will normally be sent the next business day. CoreStates Bank, N.A.'s
fee (currently $7.50) will be deducted from your redemption. If you ask for a
check, it will normally be mailed the next business day, but no later than seven
days, after receipt of your request to your predesignated bank account. Except
for any CDSC which may be applicable to the Class B Shares and Limited CDSC
which may be applicable to purchases made at net asset value with respect to the
Class A Shares, there are no fees for this method, but the mail time may delay
getting funds into your bank account. Simply call the Fund's Shareholder Service
Center prior to the time the offering price and net asset value are determined,
as noted above.
If expedited payment could adversely affect the Series, the Fund may
take up to seven days to pay.
TELEPHONE EXCHANGE
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
Class A or Class B Shares into other funds in the Delaware Group under the same
registration, subject to the same conditions and limitations as other exchanges
noted above. As with the written exchange service, telephone exchanges are
subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.
SYSTEMATIC WITHDRAWAL PLAN FOR CLASS A SHARES
1. Regular Plans
This plan provides holders of Class A Shares with a consistent monthly
(or quarterly) payment. THIS IS PARTICULARLY USEFUL TO SHAREHOLDERS LIVING ON
FIXED INCOMES, SINCE IT CAN PROVIDE THEM WITH A STABLE SUPPLEMENTAL AMOUNT. With
accounts of at least $5,000, you may elect monthly withdrawals of $25 (quarterly
$75) or more. The Fund does not recommend any particular monthly amount, as each
shareholder's situation and needs vary. Payments are normally made by check. In
the alternative, you may elect to have your payments transferred from your
Series account to your predesignated bank account through the Delaware Group's
MoneyLine service. Your funds will normally be credited to your bank account
after two business days. Except with respect to the Limited CDSC which may be
applicable to Class A Shares as noted below, there are no fees for this method.
You can initiate this service by completing an Authorization Agreement. If the
name and address on your bank account are not identical to the name and address
on your Series account, you must have your signature guaranteed. Please call the
Shareholder Service Center for additional information.
2. Retirement Plans
For shareholders eligible under the applicable Retirement Plan to
receive benefits in periodic payments, the Fund's Systematic Withdrawal Plan
provides you with maximum flexibility. A number of formulas are available for
calculating your withdrawals, depending upon whether the distributions are
required or optional. Withdrawals must be for $25 or more; however, no minimum
account balance is required.
* * *
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Shareholders should not purchase Class A Shares while participating in a
Systematic Withdrawal Plan. Also, redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the original
purchase was made within the 12 months prior to the withdrawal at net asset
value and a dealer's commission has been paid on that purchase. See Contingent
Deferred Sales Charge for Certain Purchases of Class A Shares Made at Net Asset
Value. For more information on both of these plans, please call the Shareholder
Service Center.
The Systematic Withdrawal Plan is not available with respect to the
Class B Shares.
WEALTH BUILDER OPTION
Shareholders may elect to invest in other mutual funds in the Delaware
Group through our Wealth Builder Option. Under this automatic exchange program,
shareholders can authorize regular monthly amounts (minimum of $100 per fund) to
be liquidated from their Class account and invested automatically into one or
more Delaware Group funds. Investments under this option are exchanges and are
therefore subject to the same conditions and limitations as other exchanges of
Class A and Class B Shares noted above.
Shareholders can also use the Wealth Builder Option to invest in the
Series through regular liquidations of shares in their accounts in other funds
in the Delaware Group, subject to the same conditions and limitations as other
exchanges noted above. Shareholders can terminate their participation at any
time by written notice to the Fund. See Redemption and Exchange.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN
PURCHASES OF CLASS A SHARES MADE AT NET ASSET VALUE
For purchases of Class A Shares, a Limited CDSC will be imposed by the
Fund upon certain redemptions of Class A Shares (or shares into which such Class
A Shares are exchanged) made within 12 months of purchase, if such purchases
were made at net asset value and triggered the payment by the Distributor of the
dealer's commission described above. See Buying Shares.
The Limited CDSC will be paid to the Distributor and will be equal to
the lesser of 1% of (1) the net asset value at the time of purchase of the Class
A Shares being redeemed or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of the Class A Shares
even if those shares are later exchanged for shares of another Delaware Group
fund and, in the event of an exchange of Class A Shares, the "net asset value of
such shares at the time of redemption" will be the net asset value of the shares
into which Class A Shares have been exchanged.
Redemptions of such Class A Shares held for more than 12 months will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Fund assesses the Limited CDSC if such 12-month period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of the Series or the Class A Shares into which Class A Shares of
the Series have been exchanged.
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<PAGE> 29
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or upon amounts
representing share appreciation. All investments made during a calendar month,
regardless of when during the month the investment occurred, will age one month
on the last day of that month and each subsequent month.
The Limited CDSC will be waived in the following instances: (i)
redemptions effected pursuant to the Fund's right to liquidate a shareholder's
account if the aggregate net asset value of the shares held in the account is
less than the then-effective minimum account size; (ii) distributions to
participants from a retirement plan qualified under section 401(a) or 401(k) of
the Internal Revenue Code of 1986, as amended ("the Code"), or due to death of a
participant in such a plan; (iii) redemptions pursuant to the direction of a
participant or beneficiary of a retirement plan qualified under section 401(a)
or 401(k) of the Code with respect to that retirement plan; (iv) distributions
from a section 403(b)(7) Plan or an Individual Retirement Account ("IRA") due to
death, disability, or attainment of age 59 1/2; (v) tax-free returns of excess
contributions to an IRA; (vi) distributions by other employee benefit plans to
pay benefits; (vii) distributions described in (ii), (iv), and (vi) above
pursuant to a systematic withdrawal plan; and (viii) redemptions by the classes
of shareholders who are permitted to purchase shares at net asset value,
regardless of the size of the purchase (see Buying at Net Asset Value).
DIVIDENDS AND DISTRIBUTIONS
The Fund declares a dividend to all shareholders of record of the
Classes at the time the offering price of shares is determined. See Purchase
Price and Effective Date under Buying Shares. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.
The Series' dividends are declared daily and paid monthly on the first
business day following the end of each month. Payment by check of cash
dividends will ordinarily be mailed within three business days after the
payable date. Any net short-term capital gains after deducting any net
long-term capital losses (including carryforwards) and, pursuant to an
Exemptive Order under Section 19(b) of the Investment Company Act, any
long-term gains that would have been short-term gains except for 60/40
treatment under Section 1256(a) of the Internal Revenue Code may be distributed
quarterly, but in the discretion of the Fund's Board of Directors, might be
distributed less frequently. Any distribution from net long-term realized
securities profits will be made twice a year. The first payment normally would
be made during the first quarter of the next fiscal year. The second payment
would be made near the end of the calendar year to comply with certain
requirements of the Internal Revenue Code. During the fiscal year ended July
31, 1994, dividends were paid from net investment income in an aggregate amount
of $0.71 per share of the Class A Shares, and $0.15 per share of the Class B
Shares which commenced operations on May 2, 1994.
Purchases of the shares of each of the Classes by wire begin earning
dividends when converted into Federal Funds and available for investment,
normally the next business day after receipt. However, if the Fund is given
prior notice of Federal Funds wire and an acceptable written guarantee of timely
receipt from an investor satisfying the Fund's credit policies, the purchase
will start earning dividends on the date the wire is received. Purchases by
check earn dividends upon conversion to Federal Funds, normally one business day
after receipt.
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<PAGE> 30
Each of the Classes will share proportionately in the investment income
and expenses of the Series, except that: (i) the per share dividends and
distributions on the Class B Shares will be lower than the per share dividends
and distributions on the Class A Shares as a result of the higher expenses under
the 12b-1 Plan relating to the Class B Shares; and (ii) the per share dividends
and distributions on both the Class A Shares and the Class B Shares will be
lower than the per share dividends and distributions on the U.S. Government Fund
Institutional Class as such class will not incur any expenses under the Rule
12b-1 Plans. See Distribution (12b-1) and Service under Management of the Fund.
Both dividends and distributions are reinvested in your account at net
asset value unless you elect otherwise. Any check in payment of dividends or
other distributions which cannot be delivered by the Post Office or which
remains uncashed for a period of more than one year may be reinvested in the
shareholder's account at the then-current net asset value and the dividend
option may be changed from cash to reinvest. If you elect to take your dividends
and distributions in cash and such dividends and distributions are in an amount
of $25 or more, you may elect the Delaware Group's MoneyLine service to enable
such payments to be transferred from your Series account to your predesignated
bank account. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this method. See
Systematic Withdrawal Plan for Class A Shares under Redemption and Exchange for
information regarding authorization of this service. (See The Delaware
Difference for more information on reinvestment options.)
TAXES
The Series has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). As such, the Series will not be subject to federal income tax, or
to any excise tax, to the extent its earnings are distributed as provided in the
Code.
The Series intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to you as ordinary income, whether
received in cash or in additional shares. No portion of the Series'
distributions will be eligible for the dividends-received deduction for
corporations.
Distributions paid by the Series from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Series. The Series does not seek to
realize any particular amount of capital gains during a year; rather, realized
gains are a byproduct of Series management activities. Consequently, capital
gains distributions may be expected to vary considerably from year to year.
Also, for those investors subject to tax, if purchases of shares in the Series
are made shortly before the record date for a dividend or capital gains
distribution, a portion of the investment will be returned as a taxable
distribution.
Dividends which are declared in October, November or December but which,
for operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Series and received
by the shareholder on December 31 of the calendar year in which they are
declared.
The sale of shares of the Series is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may
be realized from an ordinary redemption of shares or an exchange of shares
between two mutual funds (or two series or portfolios of a mutual fund). Any
loss incurred on sale or exchange of the Series' shares which had been held for
six months or less will be treated as long-term capital loss to the extent of
capital gain dividends received with respect to such shares. All or a portion of
the sales charge incurred in purchasing the Series' shares will be excluded from
the federal tax basis of any of such shares sold or exchanged within the ninety
(90) days of their purchase (for purposes of determining gain or loss upon the
sale of such shares) if the sale proceeds are reinvested in the Series or in
another fund in the Delaware Group of funds and a sales charge that would
otherwise apply to the reinvestment is
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<PAGE> 31
reduced or eliminated. Any portion of such sales charge excluded from the tax
basis of the shares sold will be added to the tax basis of the shares acquired
in the reinvestment.
The automatic conversion of Class B Shares into Class A Shares at the
end of no longer than approximately eight years after purchase will constitute a
tax-free exchange for federal tax purposes. Shareholders should consult their
own tax advisers regarding specific questions as to federal, state, local or
foreign taxes. See Automatic Conversion of Class B Shares under Buying Shares.
In addition to federal taxes, shareholders may be subject to state and
local taxes on distributions. Distributions of interest income and capital gains
realized from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of the Series are exempt from Pennsylvania
county personal property taxes.
Each year, the Fund will mail you information on the tax status of the
Series' dividends and distributions. Shareholders will also receive each year
information as to the portion of dividend income that is derived from U.S.
government securities that are exempt from state income tax. Of course,
shareholders who are not subject to tax on their income would not be required to
pay tax on amounts distributed to them by the Series.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in the
Series.
See Accounting and Tax Issues and Taxes in Part B for additional
information on tax matters relating to the Series and its shareholders.
CALCULATION OF OFFERING
PRICE AND NET ASSET VALUE
PER SHARE
Class A Shares are purchased at the offering price and Class B Shares
are purchased at the net asset value ("NAV") per share. The offering price of
the Class A Shares consists of the NAV per share next determined after the order
is received, plus any applicable front-end sales charges. The offering price and
NAV are computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when such exchange is open.
The NAV per share is computed by adding the value of all securities and
other assets in the portfolio, deducting any liabilities (expenses and fees are
accrued daily) and dividing by the number of shares outstanding. U.S. government
securities are valued at the mean between the bid and asked prices. Options are
valued at the last reported sale price or, if no sales are reported, at the mean
between the last reported bid and asked prices. Any short-term investments
having a maturity of less than 60 days are valued at amortized cost, which
approximates market value. Non-Exchange-traded options are valued at fair value
using a mathematical model. All other securities are valued at their fair value
by an independent pricing service using methods approved by the Fund's Board of
Directors.
Each of the Series' three classes will bear, pro-rata, all of the common
expenses of the Series. The net asset values of all outstanding shares of each
class of the Series will be computed on a pro-rata basis for each outstanding
share based on the proportionate participation in the Series represented by the
value of shares of that class. All income earned and expenses incurred by the
Series will be borne on a pro-rata basis by each outstanding share of a class,
based on each class' percentage in the Series represented by the value of shares
of such classes, except that the U.S. Government Fund Institutional Class will
not incur any of the expenses under the Series' 12b-1 Plans and the Class A and
Class B Shares alone will bear the 12b-1 Plan expenses payable under their
respective Plans. Due to the specific distribution expenses and other costs that
will be allocable to each class, the dividends paid to each class of the Fund
may vary. However, the NAV per share of the Class A Shares, the Class B Shares
and the U.S. Government Fund Institutional Class is expected to be equivalent.
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<PAGE> 32
MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of the Fund are managed under the direction of
its Board of Directors. Part B contains additional information regarding the
directors and officers.
INVESTMENT MANAGER
The Manager furnishes investment management services to the Series.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1994, the Manager and its affiliate,
Delaware International Advisers Ltd., were supervising in the aggregate more
than $26 billion in assets in the various institutional (approximately
$16,728,470,000) and investment company (approximately $9,578,226,000) accounts.
The Manager is an indirect, wholly-owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). By reason of its percentage ownership of
DMH common stock and through a Voting Trust Agreement with certain other DMH
shareholders, Legend Capital Group, L.P. ("Legend") controls DMH and the
Manager. As General Partners of Legend, Leonard M. Harlan and John K. Castle
have the ability to direct the voting of more than a majority of the shares of
DMH common stock and thereby control the Manager.
The Manager manages the Series' portfolio and makes investment decisions
which are implemented by the Fund's Trading Department. The Manager also pays
the salaries of all the directors, officers and employees of the Fund who are
affiliated with the Manager. For these services, the annual compensation paid to
the Manager is equal to .60% of its average daily net assets, less a
proportionate share of all directors' fees paid to the unaffiliated directors by
the Series. Investment management fees paid by the Series for the fiscal year
ended July 31, 1994 were 0.59% of average daily net assets.
Roger A. Early has assumed primary responsibility for making day-to-day
investment decisions for the Fund as of July 18, 1994. Mr. Early has an
undergraduate degree in economics from the University of Pennsylvania's Wharton
School and an MBA in finance and accounting from the University of Pittsburgh.
He is also a CPA and a CFA. Prior to joining the Delaware Group, Mr. Early was a
portfolio manager for Federated Investment Counseling's fixed income group, with
over $1 billion in assets.
In making investment decisions for the Fund, Mr. Early consults
regularly with Paul E. Suckow, Dorothea M. Dutton and Gary A. Reed.
Mr. Suckow is the Manager's Chief Investment Officer for fixed income. A
Chartered Financial Analyst, he is a graduate of Bradley University with an MBA
from Western Illinois University. Mr. Suckow was a fixed income portfolio
manager at the Delaware Group from 1981 to 1985. He returned to the Delaware
Group in 1993 after eight years with Oppenheimer Management Corporation.
Ms. Dutton is a graduate of the University of Washington. Prior to
joining the Delaware Group in 1986 as a vice president for fixed income, she was
the Senior Investment Officer for fixed income for the California State
Teachers' Retirement System. A Chartered Financial Analyst, Ms. Dutton is a
member of the Financial Analysts of Philadelphia and the Fixed Income Analysts'
Society.
Mr. Reed holds an AB in Economics from the University of Chicago and an
MA in Economics from Columbia University. He began his career in 1978 with the
Equitable Life Assurance Company in New York City, where he specialized in
credit analysis. Prior to joining the Delaware Group in 1989, Mr. Reed was Vice
President and Manager of the fixed income department at Irving Trust Company in
New York.
PORTFOLIO TRADING PRACTICES
Portfolio trades are generally made on a net basis without brokerage
commissions. However, the price may include a mark-up or mark-down. Banks,
brokers or dealers are selected by the Manager to execute the Series' portfolio
transactions.
The Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, the Series may consider a
broker/dealer's sales of Series shares in placing portfolio orders and may place
orders with broker/dealers that have agreed to defray certain Series expenses
such as custodian fees.
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<PAGE> 33
PERFORMANCE INFORMATION
From time to time, the Series may quote yield or total return
performance of the Classes in advertising and other types of literature. The
current yield for each of the Classes will be calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period. Total return will be based on a hypothetical
$1,000 investment, reflecting the reinvestment of all distributions at net asset
value and (i) in the case of Class A Shares, the impact of the maximum front-end
sales charge at the beginning of each specified period and (ii) in the case of
Class B Shares, the deduction of any applicable CDSC at the end of the relevant
period. Each presentation will include the average annual total return for one-,
five- and ten-year periods, as relevant. The Series may also advertise aggregate
and average total return information concerning a Class over additional periods
of time. In addition, the Series may present total return information that does
not reflect the deduction of the maximum front-end sales charge or any
applicable CDSC.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not an indication of future results.
DISTRIBUTION (12b-1) AND SERVICE
The Distributor, Delaware Distributors, Inc., serves as the national
distributor for the Series under an Amended and Restated Distribution Agreement
dated as of May 2, 1994.
The Fund has adopted a distribution plan under Rule 12b-1 for the Class
A Shares and a separate distribution plan under Rule 12b-1 for the Class B
Shares (the "Plans") which permit the Series to pay the Distributor from the
assets of the respective Class a monthly fee for its services and expenses in
distributing and promoting sales of shares. These expenses include, among other
things, preparing and distributing advertisements, sales literature, and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, holding special promotions for specified periods of time,
and paying distribution and maintenance fees to brokers, dealers and others. In
connection with the promotion of Class A and Class B Shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, and reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising. The Distributor may pay or
allow additional promotional incentives to dealers as part of preapproved sales
contests and/or to dealers who provide extra training and information concerning
a Class and increase sales of the Class. In addition, the Fund may make payments
from the assets of the respective Class directly to others, such as banks, who
aid in the distribution of its shares or provide services in respect of the
shares, pursuant to service agreements with the Fund.
The 12b-1 Plan expenses relating to the Class B Shares are also used to
pay the Distributor for advancing the commission costs to dealers with respect
to the initial sale of such shares.
The aggregate fees paid by the Fund from the assets of the respective
Class to the Distributor and others under the Plans may not exceed (i) .30% of
the Class A Shares' average daily net assets in any year; and (ii) 1% (.25%
which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of the Class
B Shares' average daily net assets in any year. The Class A and Class B Shares
will not incur any distribution expenses beyond these limits, which may not be
increased without shareholder approval. The Distributor may, however, incur
additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes.
On July 21, 1988, the Board of Directors set the fee for the Class A
Shares, pursuant to the Plan relating to the Class A Shares, at .25% of average
daily net assets represented by the Class A Shares. This fee was effective until
May 31, 1992. Effective June 1, 1992, the Board of Directors has determined that
the annual fee payable on a monthly basis, under the Plan relating to the Class
A Shares, will be equal to the sum of: (i) the amount obtained by multiplying
.10% by the average daily net assets represented by the Class A Shares which
were originally purchased in the Government Income Series I class (which was
converted into the Class A Shares, then known as the Government Income Series II
class) on June 1, 1992 pursuant to a Plan of Recapitalization approved by
shareholders of the Government Income Series I class), and (ii) the amount
obtained by multiplying .30% by the average daily net assets represented by all
other Class A Shares. While this is the method to be used to calculate the 12b-1
expenses to be paid by the Class A Shares under its Plan, the fee is a Class A
Shares' expense so that all shareholders of the Class A Shares regardless of
whether they originally purchased or received shares in the Government Income
Series I class, the U.S. Government Fund class (formerly the Government Income
Series II class) or the Class A Shares will bear 12b-1 expenses at the same
rate. While this describes the current formula for calculating the fees which
will be payable under the Class A Shares' Plan, the Plan permits a full .30% on
all Class A Shares' assets to be paid at any time following appropriate Board
approval. See Shares.
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<PAGE> 34
The Series' Plans do not apply to the U.S. Government Fund Institutional
Class of shares. Those shares are not included in calculating the Plans' fees,
and the Plans are not used to assist in the distribution and marketing of U.S.
Government Fund Institutional Class shares.
While payments pursuant to the Plans may not exceed .30% annually with
respect to the Class A Shares and 1% annually with respect to the Class B
Shares, the Plans do not limit fees to amounts actually expended by the
Distributor. It is therefore possible that the Distributor may realize a profit
in any particular year. However, the Distributor currently expects that its
distribution expenses will likely equal or exceed payments to it under the
Plans. The monthly fees paid to the Distributor are subject to the review and
approval of the Fund's unaffiliated directors, who may reduce the fees or
terminate the Plans at any time.
The staff of the Securities and Exchange Commission ("SEC") has proposed
amendments to Rule 12b-1 and other related regulations that could impact Rule
12b-1 Distribution Plans. The Fund intends to amend the Plans, if necessary, to
comply with any new rules or regulations the SEC may adopt with respect to Rule
12b-1.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Series
under an Agreement dated June 29, 1988. The unaffiliated directors review
service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.
EXPENSES
The Series is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Amended and Restated Distribution Agreement. The
Class A Shares' ratio of expenses to average daily net assets was 1.23% for the
fiscal year ended July 31, 1994. The Class B Shares' ratio of expenses to
average daily net assets is expected to be 1.94%, based on the actual expenses
incurred by the Class A Shares during the fiscal year ended July 31, 1994. The
expense ratio of the Classes reflects the impact of the 12b-1 Plan described
above.
SHARES
The Fund is an open-end management investment company currently offering
one series of shares and the Series' portfolio of assets is diversified.
Commonly known as a mutual fund, the Fund was organized as a Maryland
corporation on April 23, 1985.
The Series' shares have a par value of $.01, equal voting rights, except
as noted below, and are equal in all other respects. All Fund shares have
noncumulative voting rights which means that the holders of more than 50% of the
Fund's shares voting for the election of directors can elect 100% of the
directors if they choose to do so. Under Maryland law, the Fund is not required,
and does not intend, to hold annual meetings of shareholders unless, under
certain circumstances, it is required to do so under the 1940 Act. Shareholders
of 10% or more of the Fund's shares may request that a special meeting be called
to consider the removal of a director.
The Series also offers the U.S. Government Fund Institutional Class of
shares as well as the Class A and Class B Shares. Shares of each class represent
proportionate interests in the assets of the Series and have the same voting and
other rights and preferences as the other class of shares of the Series, except
that shares of the U.S. Government Fund Institutional Class are not subject to,
and may not vote on matters affecting, the Distribution Plans under Rule 12b-1
relating to the Class A and Class B Shares. Similarly, the shareholders of the
Class A Shares may not vote on matters affecting the Fund's Plan under Rule
12b-1 relating to the Class B Shares, and the shareholders of the Class B Shares
may not vote on matters affecting the Fund's Plan under Rule 12b-1 relating to
the Class A Shares.
Until May 31, 1992, the Series offered shares of two retail classes of
shares, Government Income Series II class (now the U.S. Government Fund A
Class) and the Government Income Series I class. Shares of Government Income
Series I class were offered with a sales charge, but without the imposition of a
Rule 12b-1 fee. Effective June 1, 1992, following shareholder approval of a plan
of recapitalization on May 8, 1992, shareholders of the Government Income Series
I class had their shares converted into shares of the Government Income Series
II class and became subject to the latter class' Rule 12b-1 charges. Effective
at the same time, following approval by shareholders, the name of the Government
Income Series II class was changed to the U.S. Government Fund class. Prior to
May 2, 1994, the U.S. Government Fund Institutional Class was known as U.S.
Government Fund (Institutional) class and U.S. Government Fund A Class was known
as the U.S. Government Fund class. The U.S. Government Fund B Class was not
offered prior to May 2, 1994.
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<PAGE> 35
SHARES OF THIS SERIES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES
ARE NOT DEPOSITS, OBLIGATIONS OF, GUARANTEED OR ENDORSED BY ANY BANK.
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The Delaware Group includes 20 different funds with a wide range of
investment objectives. Stock funds, income funds, tax-free funds, money market
funds and closed-end equity funds give investors the ability to create a
portfolio that fits their personal financial goals. For more information contact
your financial adviser or call the Delaware Group at 800-523-4640, in
Philadelphia 215-988-1333.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
<TABLE>
<S> <C>
SHAREHOLDER SERVICING, [PHOTO OF GEORGE WASHINGTON CROSSING THE DELAWARE RIVER]
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
</TABLE>
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
P-023/P-061/9-94/RRD
Printed in the U.S.A.
U.S.
GOVERNMENT
FUND
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A CLASS
B CLASS
PROSPECTUS
SEPTEMBER 29, 1994
DELAWARE
GROUP
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