<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No.
2-97889
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
--------
Post-Effective Amendment No. 18 /X/
--------
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 18
------
<TABLE>
<S> <C>
DELAWARE GROUP GOVERNMENT FUND, INC.
- -----------------------------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- -----------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 751-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- -----------------------------------------------------------------------------------------------------
(Name and Address of Agent for Service)
</TABLE>
Approximate Date of Public Offering: September 30, 1996
------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---------
X on September 30, 1996 pursuant to paragraph (b)
---------
60 days after filing pursuant to paragraph (a)(1)
---------
on (date) pursuant to paragraph (a)(1)
---------
75 days after filing pursuant to paragraph (a)(2)
---------
on (date) pursuant to paragraph (a)(2) of Rule 485.
---------
Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year will be filed on or about September 30, 1996.
<PAGE> 2
--- C O N T E N T S ---
This Post-Effective Amendment No. 18 to Registration File No. 2-97889
includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
<PAGE> 3
CROSS-REFERENCE SHEET*
PART A
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>
1 Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Cover
2 Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses
3 Condensed Financial Information . . . . . . . . . . . . . . . . Financial Financial
Highlights Highlights
4 General Description of Registrant . . . . . . . . . . . . . . Investment Investment
Objectives; Objectives;
Investment Investment
Policies; Policies;
Shares; Other Shares; Other
Investment Investment
Policies and Policies and
Risk Risk Consi-
Considerations derations
5 Management of the Fund . . . . . . . . . . . . . . . . . . . . Management Management
of the Fund of the Fund
6 Capital Stock and Other Securities . . . . . . . . . . . . . . Delaware Dividends
Difference; and
Dividends and Distributions;
Distributions; Taxes;
Taxes; Shares
Shares
7 Purchase of Securities Being Offered . . . . . . . . . . . . . Cover; Cover;
How to Buy How to Buy
Shares; Shares;
Calculation Calculation
of Offering Price of Net Asset
and Net Asset Value Per
Value Per Share; Share;
Management of Management
the Fund of the Fund
8 Redemption or Repurchase . . . . . . . . . . . . . . . . . . . Redemption and Redemption
Exchange; and
How to Buy Exchange;
Shares How to
Buy Shares
</TABLE>
<PAGE> 4
CROSS-REFERENCE SHEET*
PART A
(CONTINUED)
<TABLE>
<CAPTION>
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
A Class/ Institutional
B Class/ Class
C Class
<S> <C> <C> <C>
9 Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . None None
</TABLE>
* This filing relates to Registrant's U.S. Government Fund A Class, U.S.
Government Fund B Class and U.S. Government Fund C Class which are combined
in one prospectus, and U.S. Government Fund Institutional Class, which has
its own prospectus. The four classes have a common Part B and Part C.
<PAGE> 5
CROSS-REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
<S> <C> <C>
10 Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
11 Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
12 General Information and History . . . . . . . . . . . . . . . . . General Information
13 Investment Objectives and Policies . . . . . . . . . . . . . . . Investment Policies
14 Management of the Registrant . . . . . . . . . . . . . . . . . . Officers and Directors
15 Control Persons and Principal Holders of Securities . . . . . . . Officers and Directors
16 Investment Advisory and Other Services . . . . . . . . . . . . . Plans Under Rule 12b-1 for
the Fund Classes (under
Purchasing Shares); Investment
Management Agreement; Officers
and Directors; General
Information; Financial
Statements
17 Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . Trading Practices
and Brokerage
18 Capital Stock and Other Securities . . . . . . . . . . . . . . . Capitalization and
Noncumulative Voting
(under General Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . . . . . . . Purchasing Shares; Determining
Offering Price and
Net Asset Value; Redemption
and Repurchase;
Exchange Privilege
20 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting and Tax Issues;
Taxes
21 Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . Purchasing Shares
22 Calculation of Performance Data . . . . . . . . . . . . . . . . . Performance Information
23 Financial Statements . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 6
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART C
------
Location in
Part C
------------
<S> <C> <C>
24 Financial Statements and Exhibits . . . . . . . . . . . . . . . . . Item 24
25 Persons Controlled by or under Common
Control with Registrant . . . . . . . . . . . . . . . . . . . . Item 25
26 Number of Holders of Securities . . . . . . . . . . . . . . . . . . Item 26
27 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . Item 27
28 Business and Other Connections of Investment Adviser . . . . . . . Item 28
29 Principal Underwriters . . . . . . . . . . . . . . . . . . . . . . Item 29
30 Location of Accounts and Records . . . . . . . . . . . . . . . . . Item 30
31 Management Services . . . . . . . . . . . . . . . . . . . . . . . . Item 31
32 Undertakings . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 32
</TABLE>
<PAGE> 7
- ------------------------
U.S. GOVERNMENT FUND
- ------------------------
A CLASS
B CLASS
C CLASS
- ------------------------
PROSPECTUS
- ------------------------
SEPTEMBER 30, 1996
[PHOTO OF WATER WELL]
DELAWARE
GROUP
--------
<PAGE> 8
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, tax-free funds, money market funds, global and
international 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 Delaware Group at
800-523-4640.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE> 9
U.S. GOVERNMENT FUND PROSPECTUS
A CLASS SHARES SEPTEMBER 30, 1996
B CLASS SHARES
C CLASS SHARES
--------------------------------------------------
1818 MARKET STREET, PHILADELPHIA, PA 19103
FOR PROSPECTUS AND PERFORMANCE:
NATIONWIDE 800-523-4640
INFORMATION ON EXISTING ACCOUNTS:
(SHAREHOLDERS ONLY)
NATIONWIDE 800-523-1918
DEALER SERVICES:
(BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
REPRESENTATIVES OF FINANCIAL INSTITUTIONS:
NATIONWIDE 800-659-2259
This Prospectus describes the Government Income Series (the "Fund") of
Delaware Group Government Fund, Inc. ("Government Fund, Inc."), a
professionally-managed mutual fund of the series type. The objective of the
Fund 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.
The Fund currently offers three retail classes of shares: U.S.
Government Fund A Class ("Class A Shares"), U.S. Government Fund B Class
("Class B Shares") and U.S. Government Fund C Class ("Class C Shares")
(individually, a "Class" and collectively, the "Classes"). These alternatives
permit an investor to choose the method of purchasing shares that is most
suitable for his or her needs.
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. Class A Shares are subject to a maximum front-end sales charge of
4.75% and annual 12b-1 Plan expenses of up to .30%.
Class B Shares may be purchased at a price equal to the next
determined net asset value per share. Class B Shares are subject to a
contingent deferred sales charge ("CDSC")
-1-
<PAGE> 10
which may be imposed on redemptions made within six years of purchase and
annual 12b-1 Plan expenses of 1%, which are assessed against the Class B Shares
for approximately eight years after purchase. See Automatic Conversion of
Class B Shares under Classes of Shares.
Class C Shares may be purchased at a price equal to the next
determined net asset value per share. Class C Shares are subject to a CDSC
which may be imposed on redemptions made within 12 months of purchase and
annual 12b-1 Plan expenses of 1%, which are assessed against the Class C Shares
for the life of the investment.
In choosing the most suitable Class, an investor should consider the
differences among the Classes, including the effect of sales charges and 12b-1
Plan expenses, given the amount of the purchase and the length of time the
investor expects to hold the shares, among other circumstances. See Summary of
Expenses and Classes of Shares.
This Prospectus sets forth information that you should read and
consider before you invest. Please retain it for future reference. Part B of
Government Fund Inc.'s registration statement, dated September 30, 1996, as it
may be amended from time to time, contains additional information about the
Fund 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, L.P. at the above address or by
calling the above numbers. The Fund's financial statements appear in its
Annual Report, which will accompany any response to requests for Part B.
The Fund also offers the U.S. Government Fund Institutional Class,
which is available for purchase only by certain investors. A prospectus for
the U.S. Government Fund Institutional Class can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling the above
number.
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<PAGE> 11
TABLE OF CONTENTS
COVER PAGE HOW TO BUY SHARES
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND DISTRIBUTIONS
FINANCIAL HIGHLIGHTS TAXES
INVESTMENT OBJECTIVES CALCULATION OF OFFERING
INVESTMENT POLICIES PRICE AND NET ASSET
SUITABILITY VALUE PER SHARE
INVESTMENT STRATEGY MANAGEMENT OF THE FUND
THE DELAWARE DIFFERENCE ADDITIONAL INFORMATION ON
PLANS AND SERVICES INVESTMENT POLICIES
RETIREMENT PLANNING AND RISK CONSIDERATIONS
CLASSES OF SHARES APPENDIX A - INVESTMENT
ILLUSTRATIONS
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.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL
FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE
FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY
CREDIT UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND
ARE NOT BANK OR CREDIT UNION DEPOSITS.
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<PAGE> 12
SYNOPSIS
INVESTMENT OBJECTIVE
The objective of the Fund 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. For
further details, see Investment Objectives.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund may invest up to 20% of its assets in corporate notes and
bonds, certificates of deposit and obligations of both U.S. and foreign banks,
commercial paper and asset-backed securities. See Investment Strategy under
Investment Objectives.
The Fund may also enter into options and futures transactions for
hedging purposes to counterbalance portfolio volatility. While the Fund does
not engage in options and futures for speculative purposes, there are risks
which result from use of these instruments by the Fund, and the investor should
review the descriptions of such in this Prospectus. Certain options and
futures transactions may be considered to be derivative securities. See
Options and Futures under Additional Information on Investment Policies and
Risk Considerations.
INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT
Delaware Management Company, Inc. (the "Manager") is the investment
manager for the Fund. The Manager furnishes investment management services to
the Fund, subject to the supervision and direction of Government Fund, Inc.'s
Board of Directors. Under the Investment Management Agreement, the annual
compensation paid to the Manager is equal to .60% of the Fund's average daily
net assets, less the Fund's proportionate share of all directors' fees paid to
the unaffiliated directors of the Fund.
The Manager also provides investment management services to certain of
the other funds in the Delaware Group. Delaware Distributors, L.P. (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, accounting
services and transfer agent for the Fund and for all of the other mutual funds
in the Delaware Group. See Management of the Fund.
-4-
<PAGE> 13
SALES CHARGES
The price of Class A Shares includes a maximum front-end sales charge
of 4.75% of the offering price, which, based on the net asset value per share
of the Class A Shares as of the end of Government Fund, Inc.'s most recent
fiscal year, is equivalent to 4.96% of the amount invested. The front-end
sales charge is reduced on certain transactions of at least $100,000 but under
$1,000,000. There is no front-end sales charge on purchases of $1,000,000 or
more. Class A Shares are subject to annual 12b-1 Plan expenses.
The price of 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 or
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 subject to annual 12b-1 Plan
expenses for approximately eight years after purchase. See Automatic
Conversion of Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses
for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Fund.
PURCHASE AMOUNTS
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative
purchases over a period of time. An investor should keep in mind, however,
that reduced front-end sales charges apply to investments of $100,000 or more
in Class A Shares, which are subject to lower annual 12b-1 Plan expenses than
Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See How to
Buy Shares.
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<PAGE> 14
REDEMPTION AND EXCHANGE
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund 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 CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative
- - Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares
that are offered. See Redemption and Exchange.
OPEN-END INVESTMENT COMPANY
Government Fund, Inc., which was organized as a Maryland corporation
in 1985, is an open-end management investment company. The Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). See Shares under Management of the Fund.
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<PAGE> 15
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price). . . . . . . . . 4.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price) . . . None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable). . . . . . . . . . . None* 4.00%* 1.00%*
Redemption Fees. . . . . . . . . . . . None** None** None**
<CAPTION>
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF CLASS A CLASS B CLASS C
AVERAGE DAILY NET ASSETS) SHARES SHARES SHARES
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees . . . . . . . . . . . 0.59% 0.59% 0.59%
12b-1 Plan Expenses
(including service fees) . . . . . 0.30%+/++ 1.00%+ 1.00%+
Other Operating Expenses. . . . . . . 0.31% 0.31% 0.31%+++
----- ----- -----
Total Operating Expenses . . . . 1.20%++ 1.90% 1.90%
===== ===== =====
</TABLE>
The purpose of the above tables is to assist the investor in understanding the
various costs and expenses that an investor in any of the Classes will bear
directly or indirectly.
*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited
CDSC"). 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 or fourth year following purchase; (iii) 2% if shares are redeemed
during the fifth year following purchase; (iv) 1% if shares
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<PAGE> 16
are redeemed during the sixth year following purchase; and (v) 0% thereafter.
Class C Shares are subject to a CDSC of 1% if the shares are redeemed within 12
months of purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange; Deferred Sales Charge Alternative - Class B Shares and Level Sales
Charge Alternative - Class C Shares under Classes of Shares.
**CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
+Class A Shares, Class B Shares and Class C 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 under Management of the Fund and Part B.
++The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of the Class A Shares, may vary because of the formula
adopted by the Board of Directors for use in calculating the 12b-1 Plan
expenses for this Class beginning June 1, 1992, but the 12b-1 Plan expenses
will not be more than .30% nor less than .10%. See Distribution (12b-1) and
Service under Management of the Fund.
+++"Other Operating Expenses" for Class C Shares are estimates based on the
actual expenses incurred by the Class B Shares for the fiscal year ended July
31, 1996.
For expense information about the U.S. Government Fund Institutional
Class, see the separate prospectus relating to that class.
-8-
<PAGE> 17
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, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable.
<TABLE>
<CAPTION>
ASSUMING REDEMPTION ASSUMING NO REDEMPTION
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>
CLASS A
SHARES $59(1) $84 $110 $186 $59 $84 $110 $186
CLASS B
SHARES $59 $90 $123 $222(2) $19 $60 $103 $222(2)
CLASS C
SHARES $29 $60 $103 $222 $19 $60 $103 $222
</TABLE>
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which
has not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at
Net Asset Value under Redemption and Exchange.
(2) At the end of 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 the eighth
year. 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. Information for the ninth and tenth years reflects expenses
of the Class A Shares. See Automatic Conversion of Class B Shares
under Classes of Shares for a description of the automatic conversion
feature.
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.
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<PAGE> 18
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Delaware Group Government Fund, Inc. - 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, all of which are incorporated by reference into Part B.
Further information about the Fund's performance is contained in its Annual
Report to shareholders. A copy of the Fund's Annual Report (including the
report of Ernst & Young LLP) may be obtained from Government Fund, Inc. upon
request at no charge.
- --------------------------------------------------------------------------------
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<PAGE> 19
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------
YEAR ENDED
7/31/96 7/31/95 7/31/94 7/31/93 7/31/92
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $7.860 $8.000 $9.010 $9.020 $8.700
INCOME FROM IN-
- ---------------
VESTMENT OPERATIONS
- -------------------
Net Investment
Income . . . . . . 0.588 0.656 0.714 0.763 0.769
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.270) (0.140) (1.010) (0.010) 0.320
------- ------- ------- ------- -----
Total From
Investment
Operations. . . 0.318 0.516 (0.296) 0.753 1.089
----- ----- ------- ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.588) (0.656) (0.714) (0.763) (0.769)
Distributions
from Capital
Gains. . . . . . . none none none none none
Returns of
Capital. . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . (0.588) (0.656) (0.714) (0.763) (0.769)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $7.590 $7.860 $8.000 $9.010 $9.020
====== ====== ====== ====== ======
- -------------------------------------------------------------
TOTAL RETURN(3). . 4.09% 6.82% (3.51%) 8.70% 12.98%
- ------------
- -------------------------------------------------------------
RATIOS/SUPPLEMENTAL
- -------------------
DATA
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $164,156 $206,083 $222,555 $223,416 $184,401
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.20% 1.24% 1.23% 1.26% 1.17%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 7.55% 8.40% 8.31% 8.45% 8.60%
Portfolio Turnover
Rate . . . . . . . 81% 70% 309% 285% 196%
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------
YEAR ENDED
7/31/91 7/31/90 7/31/89 7/31/88 7/31/87
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $8.590 $8.750 $8.650 $8.810 $9.320
INCOME FROM IN-
- ---------------
VESTMENT OPERATIONS
- -------------------
Net Investment
Income . . . . . . 0.753 0.749 0.772 0.817 0.901
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . 0.110 (0.160) 0.100 (0.160) (0.465)
----- ------- ----- ------- -------
Total From
Investment
Operations. . . 0.863 0.589 0.872 0.657 0.436
----- ----- ----- ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.753) (0.749) (0.772) (0.817) (0.901)
Distributions
from Capital
Gains. . . . . . . none none none none (0.045)
Returns of
Capital. . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . (0.753) (0.749) (0.772) (0.817) (0.946)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $8.700 $8.590 $8.750 $8.650 $8.810
====== ====== ====== ====== ======
- -------------------------------------------------------------
TOTAL RETURN(4). . 10.48% 7.14% 10.65% 7.79% 4.80%
- ------------
- -------------------------------------------------------------
RATIOS/SUPPLEMENTAL
- -------------------
DATA
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $150,491 $140,772 $138,904 $158,167 $154,735
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.13% 1.14% 1.22% 1.02%(1) 0.97%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 8.74% 8.75% 9.01% 9.29%(2) 9.62%(2)
Portfolio Turnover
Rate . . . . . . . 149% 127% 172% 210% 210%
</TABLE>
-12-
<PAGE> 21
- ------------------------------
(1) Ratios of expenses to average daily net assets prior to expense
limitation were 1.09% for 1988 and 1.30% for 1987.
(2) Ratios of net investment income to average daily net assets prior to
expense limitation were 9.21% for 1988 and 9.29% for
1987.
(3) Does not reflect maximum front-end sales charge of 4.75% nor the 1%
Limited CDSC that would apply in the event of certain
redemptions within 12 months of purchase. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at
Net Asset Value under Redemption and Exchange. Total return for 1987
and 1988 reflects the expense limitations referenced in notes 1 and 2.
-13-
<PAGE> 22
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------- ---------------------
PERIOD PERIOD
5/2/94(1) 11/29/95(1)
YEAR ENDED THROUGH THROUGH
7/31/96 7/31/95 7/31/94 7/31/96
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $7.860 $8.000 $8.190 $7.950
INCOME FROM IN-
- ---------------
VESTMENT OPERATIONS
- -------------------
Net Investment
Income . . . . . . 0.533 0.601 0.151 0.348
Net Gains (Losses)
on Securities (both
realized and
unrealized). . . . (0.270) (0.140) (0.190) (0.360)
------- ------- ------- -------
Total From
Investment
Operations. . . 0.263 0.461 (0.039) (0.012)
----- ----- ------- -------
LESS DISTRIBUTIONS
- ------------------
Dividends from
Net Investment
Income . . . . . . (0.533) (0.601) (0.151) (0.348)
Distributions
from Capital
Gains. . . . . . . none none none none
Returns of
Capital. . . . . . none none none none
---- ---- ---- ----
Total Distri-
butions . . . . (0.533) (0.601) (0.151) (0.348)
------- ------- ------- -------
Net Asset Value,
End of Period. . . $7.590 $7.860 $8.000 $7.590
====== ====== ====== ======
- -------------------------------------------------------------
TOTAL RETURN(2). . 3.36% 6.08% (0.46%)(1) (0.17%)(1)
- ------------
- -------------------------------------------------------------
RATIOS/SUPPLEMENTAL
- -------------------
DATA
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $9,754 $7,394 $2,215 $1,029
Ratio of Expenses
to Average Daily
Net Assets . . . . 1.90% 1.94% 1.94%(1) 1.90%(1)
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 6.85% 7.66% 7.60%(1) 6.85%(1)
Portfolio Turnover
Rate . . . . . . . 81% 70% 309% 81%
</TABLE>
-14-
<PAGE> 23
- ------------------------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized. Total return for
this short of a time period may not be representative of longer term
results.
(2) Total return does not reflect any applicable CDSC. See Contingent
Deferred Sales Charge - Class B Shares and Class C
Shares under Classes of Shares.
-15-
<PAGE> 24
INVESTMENT OBJECTIVES
SUITABILITY
The Fund may be suitable for individuals who want a stable and high
income flow, the security associated with investments focused principally on
U.S. government-backed instruments and the convenience and liquidity of mutual
funds. However, investors should consider asset value fluctuation as well as
income potential in making an investment decision.
Because the Fund invests in longer term securities, the value of
shares will fluctuate. When interest rates rise, the share value will tend to
fall, and when interest rates fall, the share value will tend to rise.
Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchase of the types of
securities in which the Fund invests.
INVESTMENT STRATEGY
The investment objective of the Fund described below is a matter of
fundamental policy and may not be changed without shareholder approval.
The objective of the Fund 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. These
include 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 non-government entities but
collateralized by securities of the U.S. government, its agencies and
instrumentalities. The weighted average maturity will be approximately 10
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.
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 Fund may invest include securities of the
Federal Housing Administration, the Government National Mortgage
-16-
<PAGE> 25
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.
The Fund 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 Ratings Group ("S&P"); and (4)
asset-backed securities rated Aaa by Moody's or AAA by S&P.
INVESTMENT TECHNIQUES
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. The Fund may also invest in securities issued by certain private,
non-government 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).
The Fund may invest in securities which are backed by assets such as
receivables on home equity and credit loans, receivables regarding automobile,
mobile home and recreational vehicle loans, wholesale dealer floor plans and
leases or other loans or financial receivables currently available or which may
be developed in the future. All such securities must be rated in the highest
rating category by a reputable credit rating agency (e.g., AAA by S&P or Aaa by
Moody's).
The Fund may use repurchase agreements which are at least 100%
collateralized by securities in which the Fund can invest directly. Repurchase
agreements help the Fund to invest cash on a temporary basis.
The Fund may purchase put options, write secured put options, write
covered call options, purchase call options and enter into closing
transactions. The Fund may invest in futures contracts and options on such
futures contracts subject to certain limitations.
-17-
<PAGE> 26
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many
privately placed and legally restricted securities to be freely traded among
certain institutional buyers such as the Fund. The Fund may invest no more
than 10% of the value of its net assets in illiquid securities.
The Fund 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.
For a further discussion of the investment techniques described above,
see Additional Information on Investment Policies and Risk Considerations.
OTHER RESTRICTIONS
The Fund may borrow from banks. No investment securities will be
purchased while the Fund has an outstanding borrowing. Part B sets forth other
risk factors and more specific investment restrictions, some of which limit the
percentage of assets of the Fund which may be invested in certain types of
securities.
PORTFOLIO TURNOVER
The Fund 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 Fund 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 Fund's shareholders. The turnover rate may
also be affected by cash requirements from redemptions and repurchases of the
Fund's shares. The degree of portfolio activity may affect brokerage costs of
the Fund and taxes payable by shareholders.
For the fiscal years ended July 31, 1995 and 1996, the portfolio
turnover rates for the Fund were 70% and 81%, respectively.
-18-
<PAGE> 27
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
FUND INFORMATION, LITERATURE, PRICE, YIELD AND
PERFORMANCE FIGURES
SHAREHOLDER SERVICE CENTER
800-523-1918
INFORMATION ON EXISTING REGULAR INVESTMENT ACCOUNTS AND
RETIREMENT PLAN ACCOUNTS, WIRE INVESTMENTS, WIRE LIQUIDATIONS,
TELEPHONE LIQUIDATIONS AND TELEPHONE EXCHANGES
DELAPHONE
800-362-FUND
(800-362-3863)
PERFORMANCE INFORMATION
You can call the Investor Information Center at any time for 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.
SHAREHOLDER SERVICES
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your
account, the Fund, various service features and other funds in the Delaware
Group.
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. Delaphone also provides
current performance information on the Fund, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
-19-
<PAGE> 28
DIVIDEND PAYMENTS
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations. For more information, see Additional
Methods of Adding to Your Investment - Dividend Reinvestment Plan under How to
Buy Shares or call the Shareholder Service Center.
MONEYLINE DIRECT DEPOSIT SERVICE
If you elect to have your dividends and distributions paid in cash and
such dividends and distributions are in an amount of $25 or more, you may
choose the MoneyLine Direct Deposit Service and have such payments transferred
from your Fund account to your predesignated bank account. See Dividends and
Distributions. In addition, you may elect to have your Systematic Withdrawal
Plan payments transferred from your Fund account to your predesignated bank
account through this service. See Systematic Withdrawal Plans under Redemption
and Exchange. Your funds will normally be credited to your bank account two
business days after the payment date. There are no fees for this service. You
can initiate the MoneyLine Direct Deposit Service by completing an
Authorization Agreement. If your name and address are not identical to the
name and address on your Fund account, you must have your signature guaranteed.
This service is not available for retirement plans.
STATEMENTS AND CONFIRMATIONS
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent
following all transactions other than those involving a reinvestment of
dividends. You should examine statements and confirmations immediately and
promptly report any discrepancy by calling the Shareholder Service Center.
DUPLICATE CONFIRMATIONS
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.
-20-
<PAGE> 29
RIGHT OF ACCUMULATION
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of the Fund with the dollar amount of new
purchases of Class A Shares of the Fund to qualify for a reduced front-end
sales charge on such purchases of Class A Shares. Under the COMBINED PURCHASES
PRIVILEGE, you may also include certain shares that you own in other funds in
the Delaware Group. See Classes of Shares.
LETTER OF INTENTION
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See
Classes of Shares and Part B.
12-MONTH REINVESTMENT PRIVILEGE
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.
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
certain exceptions and limitations. For additional information on exchanges,
see Investing by Exchange under How to Buy Shares and Redemption and Exchange.
WEALTH BUILDER OPTION
You may elect to invest in the Fund through regular liquidations of
shares in your accounts 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, Class B and Class C
Shares. See Additional Methods of Adding to Your Investment - Wealth Builder
Option and Investing by Exchange under How to Buy Shares, and Redemption and
Exchange.
-21-
<PAGE> 30
DELAWARE GROUP ASSET PLANNER
Delaware Group Asset Planner is an asset allocation service that gives
investors, working with a professional financial adviser, the ability to more
easily design and maintain investments in a diversified selection of Delaware
Group mutual funds. The Asset Planner service offers a choice of four
predesigned allocation strategies (each with a different risk/reward profile)
made up of separate investments in predetermined percentages of Delaware Group
funds. With the guidance of a financial adviser, investors may also tailor an
allocation strategy that meets their personal needs and goals. See How to Buy
Shares.
FINANCIAL INFORMATION ABOUT THE FUND
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Government Fund, Inc.'s fiscal year
ends on July 31.
-22-
<PAGE> 31
RETIREMENT PLANNING
An investment in the Fund may 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.
Retirement plans may be subject to plan establishment fees, annual
maintenance fees and/or other administrative or trustee fees. Fees are based
upon the number of participants in the plan as well as the services selected.
Additional information about fees is included in retirement plan materials.
Fees are quoted upon request. 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.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making 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.
-23-
<PAGE> 32
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 or Class C 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 for investment in Class A or Class C Shares. Class B
Shares are not available for purchase by such plans.
ALLIED PLANS
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware Group funds
("eligible non-Delaware Group fund shares"). Class B Shares and Class C Shares
are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Group and eligible non-Delaware Group fund shares
held by the Allied Plan may be combined with the dollar amount of new purchases
by that Allied Plan to obtain a reduced front-end sales charge on additional
purchases of eligible Delaware Group fund shares. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
-24-
<PAGE> 33
Participants in Allied Plans may exchange all or part of their
eligible Delaware Group fund shares for other eligible Delaware Group fund
shares or for eligible non-Delaware Group fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible
fund shares, both Delaware Group and non-Delaware Group, which were not subject
to a front-end sales charge, will be subject to the applicable sales charge if
exchanged for eligible Delaware Group fund shares to which a sales charge
applies. No sales charge will apply if the eligible fund shares were
previously acquired through the exchange of eligible shares on which a sales
charge was already paid or through the reinvestment of dividends. See
Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Group fund shares under an Allied Plan. In determining a financial adviser's
eligibility for a dealer's commission on net asset value purchases of eligible
Delaware Group fund shares in connection with Allied Plans, all participant
holdings in the Allied Plan will be aggregated. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares, apply to redemptions by participants in
Allied Plans except in the case of exchanges between eligible Delaware Group
and non-Delaware Group fund shares. When eligible Delaware Group fund shares
are exchanged into eligible non-Delaware Group fund shares, the Limited CDSC
will be imposed at the time of the exchange, unless the joint venture agreement
specifies that the amount of the Limited CDSC will be paid by the financial
adviser or selling dealer. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange.
-25-
<PAGE> 34
CLASSES OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of the purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of .30% of average daily net assets of such shares. Certain purchases
of Class A Shares qualify for reduced front-end sales charges. See Front-End
Sales Charge Alternative - Class A Shares. See also Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value
and Distribution (12b-1) and Service.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales
charge when they are purchased, but are subject to a contingent deferred sales
charge if they are redeemed within six years of purchase. Class B Shares are
subject to annual 12b-1 Plan expenses of up to a maximum of 1% (.25% of which
are service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of such shares for 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 Class A Shares. At the end of approximately eight years after purchase,
the Class B Shares will automatically be converted into Class A Shares. See
Automatic Conversion of Class B Shares, below.
-26-
<PAGE> 35
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales
charge when they are purchased, but are subject to a contingent deferred sales
charge if they are redeemed within 12 months of purchase. Class C Shares are
subject to annual 12b-1 Plan expenses of up to a maximum of 1% (.25% of which
are service fees to be paid to the Distributor, dealers or others for providing
personal service and/or maintaining shareholder accounts) of average daily net
assets of such shares for the life of the investment. The higher 12b-1 Plan
expenses paid by Class C Shares will cause such shares to have a higher expense
ratio and to pay lower dividends than Class A Shares. Unlike Class B Shares,
Class C Shares do not convert to another class.
The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the
amount of their purchase, the length of time they expect to hold their shares
and other relevant circumstances. Investors should determine whether, given
their particular circumstances, it is more advantageous to purchase Class A
Shares and incur a front-end sales charge, purchase Class B Shares and have the
entire initial purchase amount invested in the Fund with their investment being
subject to a CDSC if they redeem shares within six years of purchase, or
purchase Class C Shares and have the entire initial purchase amount invested in
the Fund with their investment being subject to a CDSC if they redeem shares
within 12 months of purchase. In addition, investors should consider the level
of annual 12b-1 Plan expenses applicable to each Class. In comparing Class B
Shares to Class C Shares, investors should also consider the desirability of an
automatic conversion feature, which is available only for 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 choose the front-end sales charge alternative because similar sales
charge reductions are not available for purchases under either the deferred
sales charge alternative or the level 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 Class B Shares acquired under
the deferred sales charge alternative are subject to annual
-27-
<PAGE> 36
12b-1 Plan expenses of up to 1% for approximately eight years after purchase
(see Automatic Conversion of Class B Shares) and Class C Shares acquired under
the level sales charge alternative are subject to annual 12b-1 Plan expenses of
up to 1% for the life of the investment. However, because front-end sales
charges are deducted from the purchase amount at the time of purchase,
investors who buy Class A Shares would not have their full purchase amount
invested in the Fund.
Other investors might determine it to be more advantageous to purchase
Class B Shares and have all their money invested initially, even though they
would be subject to a CDSC for up to six years after purchase and annual 12b-1
Plan expenses of up to 1% until the shares are automatically converted into
Class A Shares. Still other investors might determine it to be more
advantageous to purchase Class C Shares and have all of their money invested
initially, recognizing that they would be subject to a CDSC for just 12 months
after purchase, but that Class C Shares do not offer a conversion feature, so
their shares would be subject to annual 12b-1 Plan expenses of up to 1% for the
life of the investment. The higher 12b-1 Plan expenses on Class B Shares and
Class C Shares will be offset to the extent a return is realized on the
additional money initially invested upon the purchase of such shares. However,
there can be no assurance as to the return, if any, that will be realized on
such additional money.
Prospective investors should refer to Appendix A--Investment
Illustrations to this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.
For the distribution and related services provided to, and the
expenses borne on behalf of, the Fund, 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 and the Class
C Shares, from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC
incurred upon redemption. Financial advisers may receive different
compensation for selling Class A, Class B and Class C Shares. Investors should
understand that the purpose and function of the respective 12b-1 Plans and the
CDSCs applicable to Class B
-28-
<PAGE> 37
Shares and Class C Shares are the same as those of the 12b-1 Plan and the
front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
12b-1 Distribution Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C 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 Class B Shares and Class C
Shares will be borne exclusively by such shares. See Calculation of Offering
Price and Net Asset Value Per Share.
The NASD has adopted certain rules relating to investment company
sales charges. Government Fund, Inc. and the Distributor intend to operate in
compliance with these rules.
FRONT-END SALES CHARGE ALTERNATIVE - CLASS A SHARES
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.
Purchases of $100,000 or more carry a reduced front-end sales charge
as shown in the following table.
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<PAGE> 38
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND A CLASS
- -----------------------------------------------------------------------------------------------------------------------------
Dealer's
Commission***
Front-End Sales Charge as % of as % of
Amount of Purchase Offering Amount Offering
Price Invested** Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.96% 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 Class A Shares of
$1 million or more but, under certain limited circumstances, a 1%
Limited CDSC may apply upon redemption of such shares.
** Based upon the net asset value per share of the Class A Shares as of
the end of Government Fund, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
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 or
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 to dealers up to the full amount of
the 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 commission 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.
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<PAGE> 39
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers
through whom such purchases are made in accordance with the following schedule:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
-------------------
(as a percentage of
AMOUNT OF PURCHASE 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 Fund. 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. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The
schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at 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 Redemptions of Class A Shares Purchased at
Net Asset Value under Redemption and Exchange.
COMBINED PURCHASES PRIVILEGE
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other funds
in the Delaware Group, except those noted below, you can reduce the front-end
sales charges on any additional purchases of Class A Shares. Shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with
ownership of variable insurance products may be combined with other Delaware
Group fund holdings. Shares
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<PAGE> 40
of other funds that do not carry a front-end sales charge or CDSC may not be
included unless they were acquired through an exchange from a Delaware Group
fund that does carry 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. A Letter of Intention 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.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter
of Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.
BUYING CLASS A SHARES AT NET ASSET VALUE
Class A Shares of the Fund may be purchased at net asset value under
the Delaware Group Dividend Reinvestment Plan and, under certain circumstances,
the Exchange Privilege and the 12-Month Reinvestment 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 current
and former officers, directors and employees (and members of their 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, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales
-32-
<PAGE> 41
charge has been assessed. Purchases of Class A Shares may also be made at net
asset value by bank employees who provide services in connection with
agreements between the bank and unaffiliated brokers or dealers concerning
sales of shares of Delaware Group funds. Officers, directors and key employees
of institutional clients of the Manager or any of its affiliates may purchase
Class A Shares at net asset value. 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.
Investors who held shares in any class of any Delaware Group fund as
of December 1, 1995, may currently purchase Class A Shares at net asset value
through the Delaware Group Asset Planner service if such shares are being
purchased with proceeds from the redemption of shares of a fund (other than a
money market fund) outside of the Delaware Group of funds. The Delaware Group
Asset Planner Account Registration Form and check for such a transaction should
note that the investment is being made under the "NAV/Asset Planner
Accommodation Program." Prior notice will be given should this program be
discontinued. Class A Shares may also be purchased at net asset value in an
IRA through the Delaware Group Asset Planner service if the assets being
invested are being transferred from an existing IRA held outside of the
Delaware Group or are part of a distribution received from an
employer-sponsored or other retirement plan. See Delaware Group Asset Planner
under How To Buy Shares.
The Fund must be notified in advance that an investment qualifies for
purchase 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 benefit from the
reduced front-end sales charges available on the Class A Shares set forth in
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<PAGE> 42
the table on page _____, based on total plan assets. In addition, 403(b)(7)
and 457 Retirement Plan Accounts may 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 will be aggregated to determine the applicable front-end sales charge
reduction on each purchase, both initial and subsequent, if, at the time of
each such purchase, the company notifies the Fund that it qualifies for the
reduction. Employees participating in such Group Investment Plans may also
combine the investments held in their plan account to determine the front-end
sales charge applicable to purchases in non-retirement Delaware Group
investment accounts if, at the time of each such purchase, they notify the Fund
that they are eligible to combine purchase amounts held in their plan account.
For additional information on retirement 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 a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the
dollar amount purchased. In addition, 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 pay additional compensation
to dealers or brokers for selling Class B Shares at the time of purchase. As
discussed below, however, Class B Shares are subject to annual 12b-1 Plan
expenses and, if redeemed within six years of purchase, a CDSC.
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<PAGE> 43
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class
B Shares. Payments to the Distributor and others under the Class B 12b-1 Plan
may be in an amount equal to no more than 1% annually. The combination of the
CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Fund to
sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the Class
B Shares described in this Prospectus, even after the exchange. Such CDSC
schedule may be higher than the CDSC schedule for the Class B Shares acquired
as a result of the exchange. See Redemption and Exchange.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur 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 three additional months after the
eighth anniversary of purchase before the shares will automatically convert
into Class A Shares.
Class B Shares of a fund acquired through a 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.
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<PAGE> 44
LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the Fund will invest the full amount of the
investor's purchase payment. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the
dollar amount purchased. As discussed below, however, Class C Shares are
subject to annual 12b-1 Plan expenses and, if redeemed within 12 months of
purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class
C Shares. Payments to the Distributor and others under the Class C 12b-1 Plan
may be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the Class
C Shares as described in this Prospectus. See Redemption and Exchange.
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12
months of purchase may be subject to a CDSC of 1%. CDSCs are charged as a
percentage of the dollar amount subject to the CDSC. 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 those shares at
the time of redemption. No CDSC will be imposed on increases in net asset
value above the initial purchase price, nor will a CDSC be assessed on
redemptions of shares acquired through reinvestments of dividends or capital
gains distributions. 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
or the Class C Shares of the Fund, even if those shares are later exchanged for
shares of another Delaware Group fund. 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 that were acquired in the exchange.
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<PAGE> 45
The following table sets forth the rates of the CDSC for the Class B
Shares of the Fund:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER 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, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of 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 of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are
redeemed first, followed by shares acquired through the reinvestment of
dividends or distributions, and finally by shares held longest during the
six-year period. With respect to Class C Shares, it will be assumed that
shares held for more than 12 months are redeemed first followed by shares
acquired through the reinvestment of dividends or distributions, and finally by
shares held for 12 months or less.
All investments made during a calendar month, regardless of what day
of 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 certain redemptions of Class B Shares and Class
C Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.
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<PAGE> 46
12b-1 DISTRIBUTION PLANS - CLASS A, CLASS B AND CLASS C SHARES
Under the distribution plans adopted by Government Fund, Inc. in
accordance with Rule 12b-1 under the 1940 Act, Government Fund, Inc. is
permitted to pay the Distributor annual distribution fees of up to .30% of the
average daily net assets of the Class A Shares, and 1% of the average daily net
assets of each of the Class B Shares and the Class C Shares. These fees, which
are payable monthly, compensate the Distributor for providing distribution and
related services and bearing certain expenses of each Class. The 12b-1 Plans
applicable to Class B Shares and Class C Shares are designed to permit an
investor to purchase these shares through dealers or brokers without paying a
front-end sales charge while enabling the Distributor to compensate dealers and
brokers for the sale of such shares. For a more detailed discussion of the
12b-1 Plans relating to the Class A, Class B and Class C Shares, see
Distribution (12b-1) and Service under Management of the Fund.
OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES
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.
Subject to pending amendments to the NASD's Rules of Fair Practice, 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 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. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Rules of Fair Practice will be amended such that
the ability of the Distributor to pay non-cash compensation as described above
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<PAGE> 47
will be restricted in some fashion. The Distributor intends to comply with the
NASD's Rules of Fair Practice as they may be amended.
CLASSES OFFERED
The following funds currently offer Class A, Class B and Class C
Shares: Enterprise Fund, U.S. Growth Fund, World Growth Fund, New Pacific
Fund, Federal Bond Fund and Corporate Income Fund of Delaware Group Adviser
Funds, Inc., Delaware Group Cash Reserve, Inc., Decatur Income Fund and Decatur
Total Return Fund of Delaware Group Decatur Fund, Inc., Delaware Fund and Devon
Fund of Delaware Group Delaware Fund, Inc., Delaware Group DelCap Fund, Inc.,
International Equity Series, Global Bond Series, Global Assets Series and
Emerging Markets Series of Delaware Group Global & International Funds, Inc.,
Delchester Fund and Strategic Income Fund of Delaware Group Income Funds, Inc.,
Limited-Term Government Fund of Delaware Group Limited-Term Government Funds,
Inc., Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA Intermediate
Fund of Delaware Group Tax-Free Fund, Inc., Delaware Group Trend Fund, Inc.,
Delaware Group Value Fund, Inc., DMC Tax-Free Income Trust-Pennsylvania, and
the Fund. In addition, Delaware Group Cash Reserve, Inc. offers Consultant
Class shares.
U.S. Government Money Series of Delaware Group Limited-Term Government
Funds, Inc. and Delaware Group Tax-Free Money Fund, Inc. offer only Class A and
Consultant Class shares.
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
In addition to offering the Class A, Class B and Class C Shares, the
Fund also offers the U.S. Government Fund Institutional Class, which is
described in a separate prospectus and is available for purchase only by
certain investors. U.S. Government Fund Institutional Class shares generally
are distributed directly by the Distributor and do not have a front-end sales
charge, a CDSC or a Limited CDSC, and are not subject to 12b-1 Plan
distribution expenses. To obtain the prospectus that describes the U.S.
Government Fund Institutional Class, contact the Distributor by writing to the
address or by calling the telephone number listed on the cover of this
Prospectus.
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<PAGE> 48
HOW TO BUY SHARES
PURCHASE AMOUNTS
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under a Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase
of $25. Minimum purchase requirements do not apply to retirement plans other
than IRAs for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase
limitations by making cumulative purchases over a period of time. In doing so,
an investor should keep in mind that reduced front-end sales charges are
available on investments of $100,000 or more in Class A Shares, and that Class
A Shares (i) are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and (ii) generally are not subject to a CDSC. For
retirement plans, the maximum purchase limitations apply only to the initial
purchase of Class B Shares or Class C Shares by the plan.
INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of shares of the Fund 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 or, in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to U.S. Government Fund A
Class, U.S. Government Fund B Class or U.S. Government Fund C Class, to 1818
Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by
mailing a check payable to the specific Class selected. 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
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<PAGE> 49
from Government Fund, Inc. Use of this investment slip can help expedite
processing of 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 1412893401
(include your name(s) and your account number for the Class in which you are
investing).
1. Initial Purchases--Before you invest, telephone the Shareholder
Service Center to get an account number. If you do not call first, processing
of your investment may be delayed. In addition, you must promptly send your
Investment Application or, in the case of a retirement account, an appropriate
retirement plan application, to the specific Class selected, to 1818 Market
Street, Philadelphia, 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 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.
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 Fund. If you wish to open an account by
exchange, call the Shareholder Service Center for more information. All
exchanges are subject to the eligibility and minimum purchase requirements set
forth in each fund's prospectus.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware
Group funds. Class B Shares of
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<PAGE> 50
the Fund and Class C Shares of the Fund acquired by exchange will continue to
carry the CDSC and, in the case of Class B Shares, the automatic conversion
schedule of the fund from which the exchange is made. The holding period of
the Class B Shares of the Fund acquired by exchange will be added to that of
the shares that were exchanged for purposes of determining the time of the
automatic conversion into Class A Shares of the Fund.
Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were
acquired through the reinvestment of dividends). Permissible exchanges into
Class B Shares or Class C Shares of the Fund will be made without the
imposition of a CDSC by the fund from which the exchange is being made at the
time of the exchange.
See Allied Plans under Retirement Planning for information on
exchanges by participants in an Allied Plan.
ADDITIONAL METHODS OF ADDING TO YOUR INVESTMENT
Call the Shareholder Service Center for more information if you wish
to use the following services:
1. Automatic Investing Plan
THE AUTOMATIC INVESTING PLAN ENABLES YOU TO MAKE REGULAR MONTHLY
INVESTMENTS WITHOUT WRITING OR MAILING CHECKS. You may authorize Government
Fund, Inc. to transfer a designated amount monthly from your checking account
to your Fund account. Many shareholders use this as an automatic savings plan.
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.
2. Direct Deposit
YOU MAY HAVE YOUR EMPLOYER OR BANK MAKE REGULAR INVESTMENTS DIRECTLY
TO YOUR FUND 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
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<PAGE> 51
security, federal salaries, Railroad Retirement benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Government Fund, Inc. has the
right to liquidate your shares to reimburse the government or transmitting
bank. If there are insufficient funds in your account, you are obligated to
reimburse the Fund.
3. Wealth Builder Option
You can use our Wealth Builder Option to invest in the Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Group. You may also elect to invest in other mutual funds in the Delaware
Group through the Wealth Builder Option through regular liquidations of shares
in your Fund account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account
in one or more funds in the Delaware Group and invested automatically into any
other Delaware Group account that you may specify. If in connection with the
election of the Wealth Builder Option, you wish to open a new account to
receive the automatic investment, such new account must meet the minimum
initial purchase requirements described in the prospectus of the fund that you
select. All investments under this option are exchanges and are therefore
subject to the same conditions and limitations as other exchanges noted above.
You can terminate your participation at any time by written notice to the fund
from which the exchanges are made. 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.
4. 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 Fund account. Or,
you may 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.
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Reinvestments of distributions into Class A Shares of the Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of the Fund or of other
Delaware Group funds or into Class C Shares of the Fund or of other Delaware
Group funds are also made without any sales charge and will not be subject to a
CDSC if later redeemed. See Automatic Conversion of Class B Shares under
Classes of Shares for information concerning the automatic conversion of Class
B Shares acquired by reinvesting dividends.
Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group. Holders of Class B Shares of the Fund may reinvest their distributions
only into Class B Shares of the funds in the Delaware Group which offer that
class of shares (the "Class B Funds"). Similarly, holders of Class C Shares of
the Fund may reinvest their distributions only into Class C Shares of the funds
in the Delaware Group which offer that class of shares (the "Class C Funds").
See Classes Offered under Classes of Shares for a list of the funds offering
those classes of shares. For more information about reinvestments, call the
Shareholder Service Center.
DELAWARE GROUP ASSET PLANNER
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group
Asset Planner service offers a choice of four predesigned asset allocation
strategies (each with a different risk/reward profile) in predetermined
percentages in Delaware Group funds. Or, with the help of a financial adviser,
you may design a customized asset allocation strategy. See Classes Offered
under Classes of Shares for the Delaware Group funds that offer consultant
class shares.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing
Delaware Group accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange, above.
Also see Buying Class A Shares at Net Asset Value under Classes of Shares. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Class A, Class B and Class C Shares are
available
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through the Asset Planner service. Generally, only shares within the same
class may be used within the same Strategy. However, Class A Shares of the
Fund and of other funds in the Delaware Group may be used in the same Strategy
with consultant class shares that are offered by certain other Delaware Group
funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30th of each subsequent year.
However, for all IRA accounts established with the same Social Security number
under the Asset Planner service, the annual maintenance fee will be limited to
$35 irrespective of the number of Strategies selected. For example, if you
transfer regular IRA assets and rollover assets from a qualified plan into an
IRA through the Delaware Group Asset Planner service and, to avoid commingling,
maintain more than one Strategy registered under the same Social Security
number, only one $35 annual fee needs to be paid. The fee, payable to Delaware
Service Company, Inc. to defray extra costs associated with administering the
Asset Planner service, will be deducted automatically from one of the funds
within your Asset Planner account if not paid by September 30th. See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will be sent
following all transactions other than those involving a reinvestment of
distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
PURCHASE PRICE AND EFFECTIVE DATE
The offering price and net asset value of the Class A, Class B and
Class C 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 the
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
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it is received after the time the offering price or net asset value of shares
is determined, as noted above. Purchase orders 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 order. If a
purchase is canceled 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 to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
The Fund also reserves the right, following shareholder notification,
to charge a service fee on non-retirement accounts that have remained below the
minimum stated account balance for a period of three or more consecutive
months. Holders of such accounts may be notified of their insufficient account
balance and advised that they have until the end of the current calendar
quarter to raise their balance to the stated minimum. If the account has not
reached the minimum balance requirement by that time, the Fund will charge a $9
fee for that quarter and each subsequent calendar quarter until the account is
brought up to the minimum balance. The service fee will be deducted from the
account during the first week of each calendar quarter for the previous
quarter, and will be used to help defray the cost of maintaining low-balance
accounts. No fees will be charged without proper notice, and no CDSC will
apply to such assessments.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may 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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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 bond funds, equity funds, tax-advantaged
funds or money market funds. Exchanges are subject to the requirements of each
fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer
to discuss which funds in the Delaware Group will best meet your changing
objectives, and the consequences of any exchange transaction. You may also
call the Delaware Group directly for fund information.
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.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives 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 How to Buy Shares. A shareholder submitting a redemption request
may indicate that he or she wishes to receive redemption proceeds of a specific
dollar amount. In the case of such a request, and in the case of certain
redemptions from retirement plan accounts, the Fund will redeem the number of
shares necessary to deduct the applicable CDSC in the case of Class B and Class
C Shares, and, if applicable, the Limited CDSC in the case of Class A Shares
and tender to the shareholder the requested amount, assuming the shareholder
holds enough shares in his or her account for the redemption to be processed in
this manner. Otherwise, the amount tendered to the shareholder upon redemption
will be reduced by the amount of the applicable CDSC or Limited CDSC.
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Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total
number of shares or dollar amount of the transaction. For exchange requests,
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 Shareholder Service Center at 800-523-1918. The
Fund may suspend, terminate, or amend the terms of the exchange privilege upon
60 days' written notice to shareholders.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. 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.
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 exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for Class B shares of other Class B Funds or Class C shares
of other Class C Funds, as applicable (in each case, "New Shares"), will not be
subject to a CDSC that might otherwise be due upon redemption of the Original
Shares. However, such shareholders will continue to be subject to the CDSC
and, in the case of Class B Shares, the automatic conversion schedule of the
Original Shares as described in this Prospectus and any CDSC assessed upon
redemption will be charged by the Fund from which the Original Shares were
exchanged. In an exchange of Class B Shares from the Fund, the Fund's CDSC
schedule may be higher than the CDSC schedule relating to the New Shares
acquired as a result of the exchange. For purposes of computing the CDSC that
may be payable upon a
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disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the period of time that an investor held the New
Shares. With respect to Class B Shares, the automatic conversion schedule of
the Original Shares may be longer than that of the New Shares. Consequently,
an investment in New Shares by exchange may subject an investor to the higher
12b-1 fees applicable to Class B Shares of the Fund for a longer period of time
than if the investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except
for the CDSC applicable to certain redemptions of Class B and Class C Shares
and the Limited CDSC applicable to certain redemptions of Class A Shares
purchased at net asset value, there is no fee charged by the Fund or the
Distributor for redeeming or exchanging your shares, but such fees could be
charged in the future. You may 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, including selection of any
of the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.
CHECKWRITING FEATURE
YOU CAN REQUEST SPECIAL CHECKS BY MARKING THE BOX ON THE INVESTMENT
APPLICATION.
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 for Class B Shares or
Class C Shares, or for retirement plan accounts regardless of class. 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 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
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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.
Payment is normally mailed the next business day, but no later than
seven days, after receipt of your redemption request. If your Class A Shares
are in certificate form, the certificate must accompany your request and also
be in good order. Certificates are issued for Class A Shares only if a
shareholder submits a specific request. Certificates are not issued for Class
B Shares or Class C Shares.
WRITTEN EXCHANGE
You may also write to the Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your 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 may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in writing that you do not
wish to have such services available with respect to your account. 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.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund 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
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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, you are acknowledging prior receipt of a
prospectus for the fund into which your 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 address of record. Checks will be
payable to the shareholder(s) of record. Payment is normally mailed the next
business day, but no later 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, you must complete an Authorization Form and have 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 Class B and Class C Shares and the Limited CDSC which may be applicable to
certain Class A Shares, there are no fees for this redemption method, but the
mail time may delay getting funds into your bank account. Simply call the
Shareholder Service Center prior to the time the offering price and net asset
value are determined, as noted above.
If expedited payment by check or wire could adversely affect the Fund,
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
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
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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 PLANS
1. Regular Plans
This plan provides shareholders 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 Fund account to your predesignated bank account through
the MoneyLine Direct Deposit Service. Your funds will normally be credited to
your bank account two business days after the payment date. Except for the
Limited CDSC which may be applicable to Class A Shares and the CDSC which may
be applicable to Class B Shares and Class C Shares as noted below, there are no
fees for this redemption method. See MoneyLine Direct Deposit Service under
The Delaware Difference for more information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the 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. The MoneyLine Direct Deposit Service described
above is not available for retirement plans.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
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The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or
were acquired through the reinvestment of distributions. The 12% annual limit
will be reset on the date that any Systematic Withdrawal Plan is modified (for
example, a change in the amount selected to be withdrawn or the frequency or
date of withdrawals), based on the balance in the account on that date. See
Waiver of Contingent Deferred Sales Charge - Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES
PURCHASED AT NET ASSET VALUE
A Limited CDSC will be imposed on 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 previously
described. See Classes of 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 acquired in the exchange.
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
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towards satisfying the 12-month holding period. The Limited CDSC is assessed
if such 12-month period is not satisfied irrespective of whether the redemption
triggering its payment is of Class A Shares of the Fund or Class A Shares
acquired in the exchange.
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 capital gains
distributions, or upon amounts representing share appreciation. All
investments made during a calendar month, regardless of what day of the month
the investment occurred, will age one month on the last day of that month and
each subsequent month.
WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that
result from 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 IRA due to death, disability, or attainment of age
59 1/2; (v) 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 Class A
Shares at Net Asset Value under Classes of Shares).
WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B AND CLASS C SHARES
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from
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
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minimum account size; (ii) 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 account if the redemption results from the death
of all registered owners of the account (in the case of accounts established
under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a
total and permanent disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from 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) returns
of excess contributions to an IRA, 403(b)(7) Deferred Compensation Plan, Profit
Sharing Plan, Money Purchase Pension Plan or 401(k) Defined Contribution Plan;
(iii) required minimum distributions from an IRA, 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money
Purchase Pension Plan or 401(k) Defined Contribution Plan; (iv) distributions
from a 403(b)(7) Deferred Compensation Plan, 457 Deferred Compensation Plan,
Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, Money
Purchase Pension Plan or a 401(k) Defined Contribution Plan upon attainment of
normal retirement age under the plan or upon separation from service; (vi)
distributions from an IRA on or after attainment of age 59 1/2; and (vii)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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DIVIDENDS AND DISTRIBUTIONS
Government Fund, Inc. declares a dividend to all shareholders of
record at the time the offering price of shares is determined. See Purchase
Price and Effective Date under How to Buy Shares. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.
The Fund's dividends are declared daily and paid monthly. 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 Code may be distributed quarterly, but
in the discretion of the Fund's Board of Directors, may 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 Code.
Purchases by wire of the shares 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.
Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the per share dividends from net
investment income on the Class A Shares, the Class B Shares and the Class C
Shares will vary due to the expenses under the 12b-1 Plan applicable to each
Class. Generally, the dividends per share on Class B Shares and Class C Shares
can be expected to be lower than the dividends per share on Class A Shares
because the expenses under the 12b-1 Plans relating to Class B and Class C
Shares will be higher than the expenses under the 12b-1 Plan relating to Class
A Shares. See Distribution (12b-1) and Service under Management of the Fund.
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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 United States Post Office
or which remains uncashed for a period of more than one year may be reinvested
in your 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 choose the MoneyLine Direct Deposit Service and have such
payments transferred from your Fund account to your predesignated bank account.
This service is not available for retirement plans. See MoneyLine Direct
Deposit Service under The Delaware Difference for more information about this
service.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, the Fund
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 Fund 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 investors who are subject to
income taxes as ordinary income, whether received in cash or in additional
shares. No portion of the Fund's distributions will be eligible for the
dividends-received deduction for corporations.
Distributions paid by the Fund 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 Fund. The Fund does not
seek to realize any particular amount of capital gains during a year; rather,
realized gains are a byproduct of Fund 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
Fund 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 to
shareholders of record on a specified date in one of those months, 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 Fund and received
by the shareholder on December 31 of the calendar year in which they are
declared.
The sale of shares of the Fund 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 the Fund and any other fund in the Delaware Group.
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Any loss incurred on a sale or exchange of Fund shares that had been held for
six months or less will be treated as a 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 acquiring Fund shares will be excluded from the
federal tax basis of any of such shares sold or exchanged within 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 Fund or in another fund in
the Delaware Group of funds and a sales charge that would otherwise apply to
the reinvestment is 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 approximately eight years after purchase will be tax-free for federal
tax purposes. See Automatic Conversion of Class B Shares under Classes of
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 Fund are exempt from
Pennsylvania county personal property taxes.
Each year, Government Fund, Inc. will mail to you information on the
tax status of the Fund's 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 Fund.
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 Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Taxes in Part B for additional
information on tax matters relating to the Fund and its shareholders.
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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("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 Government Fund, Inc.'s Board of Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed 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 the Exchange is open.
The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that class. All income earned and expenses incurred by the Fund will be
borne on a pro-rata basis by each outstanding share of a class, based on each
class' percentage in the Fund 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 Fund's 12b-1 Plans and the Class A, Class B
and Class C 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 each class is expected to be
equivalent.
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MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of Government Fund, Inc. 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 Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1996, the Manager and its affiliates
within the Delaware Group including, Delaware International Advisers Ltd., were
supervising in the aggregate more than $28 billion in assets in the various
institutional or separately managed (approximately $17,646,238,000) and
investment company (approximately $10,764,119,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and
a wholly owned subsidiary of Lincoln National Corporation ("Lincoln National")
was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, 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. In connection with
the merger, a new Investment Management Agreement between Government Fund, Inc.
on behalf of the Fund and the Manager was executed following shareholder
approval.
The Manager manages the Fund's portfolio and makes investment
decisions which are implemented by Government Fund, Inc.'s Trading Department.
The Manager also administers Government Fund, Inc.'s affairs and pays the
salaries of all the directors, officers and employees of Government Fund, Inc.
who are affiliated with the Manager. For these services, the annual
compensation paid to the Manager is equal to .60% of the Fund's average daily
net assets, less a proportionate share of all directors' fees paid to the
unaffiliated directors by the Fund. Investment management fees paid by the
Fund for the fiscal year ended July 31, 1996 were 0.59% of its average daily
net assets.
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Roger A. Early 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 and Gary A. Reed. Mr. Suckow is Executive Vice
President/Chief Investment Officer, Fixed Income of the Fund. 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 where he served
as Executive Vice President and Director of Fixed Income. 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 Fund's 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 Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain
Fund expenses such as custodian fees.
PERFORMANCE INFORMATION
From time to time, the Fund may quote yield or total return
performance of the Classes in advertising and other types of literature.
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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 and Class C 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 Fund may also
advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC. In this case, such total return
information would be more favorable than total return information that includes
deductions 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 a guarantee of future results.
DISTRIBUTION (12b-1) AND SERVICE
The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund under a Distribution Agreement dated April 3, 1995, as
amended on November 29, 1995.
Government Fund, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares
(the "Plans"). The Plans permit the Fund to pay the Distributor from the
assets of the respective Classes a monthly fee for the Distributor's 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
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others. In connection with the promotion of Class A, Class B and Class C
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 who 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 Government Fund, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and the
Class C 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
Classes to the Distributor and others under the Plans may not exceed .30% of
the Class A Shares' average daily net assets in any year, and 1% (.25% of which
are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and the Class C Shares' average daily net assets in any
year. The actual 12b-1 expenses assessed against the Class A Shares may be
less than .30%, but may not be less than .10%, because of the formula for
calculating the fee adopted by the Fund's Board of Directors. See Part B. The
Class A, Class B and Class C Shares will not incur any distribution expenses
beyond these limits, which may not be increased without shareholder approval.
While payments pursuant to the Plans may not exceed .30% annually with
respect to the Class A Shares, and 1% annually with respect to each of the
Class B Shares and the Class C 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 Distributor may incur such
additional expenses and make additional payments to dealers from its own
resources to promote the distribution of shares of the Classes. The monthly
fees paid to the Distributor are subject to the review and approval of
Government Fund, Inc.'s
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unaffiliated directors, who may reduce the fees or terminate the Plans at any
time.
Government Fund, Inc.'s 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.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
under an Agreement dated June 29, 1988. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a separate agreement.
The directors annually review service fees paid to the Transfer Agent.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
EXPENSES
The Fund 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 Distribution Agreement. For the fiscal year ended
July 31, 1996, the ratios of expenses to average daily net assets for the Class
A Shares and the Class B Shares were 1.20% and 1.90%, respectively. The Fund
anticipates that the expense ratio for Class C Shares will be approximately
equal to the expense ratio for Class B Shares. The expense ratio of each Class
reflects the impact of its Plan.
SHARES
Government Fund, Inc. is an open-end management investment company
currently offering one series of shares. The Fund's portfolio of assets is
diversified as defined by the 1940 Act. Commonly known as a mutual fund,
Government Fund, Inc. was organized as a Maryland corporation on April 23,
1985.
Fund shares have a par value of $.01, equal voting rights, except as
noted below, and are equal in all other respects. All shares have
noncumulative voting rights which means that the holders of more than 50% of
Government Fund, Inc.'s shares voting for the election of directors can elect
100% of the directors if they choose to do so. Under Maryland law, Government
Fund, Inc. is not required, and does not intend, to hold annual meetings of
shareholders unless,
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under certain circumstances, it is required to do so under the 1940 Act.
Shareholders of 10% or more of Government Fund, Inc.'s outstanding shares may
request that a special meeting be called to consider the removal of a director.
In addition to Class A Shares, Class B Shares and Class C Shares, the
Fund also offers the U.S. Government Fund Institutional Class shares. Shares
of each class represent proportionate interests in the assets of the Fund and
have the same voting and other rights and preferences as the other class of
shares of the Fund, 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, Class B and
Class C Shares. Similarly, as a general matter, shareholders of Class A
Shares, Class B Shares and Class C Shares may vote only on matters affecting
the 12b-1 Plan that relates to the class of shares that they hold. However,
the Class B Shares may vote on any proposal to increase materially the fees to
be paid by the Fund under the Rule 12b-1 Plan relating to the Class A Shares.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS
GNMA SECURITIES
The Fund 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 Fund 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
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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.
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
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).
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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 Fund 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 Fund 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 in Investment
Strategy, the Fund may invest in securities which are backed by assets such as
receivables on home equity and credit loans, receivables regarding automobile,
mobile home and recreational vehicle loans, wholesale dealer floor plans and
leases or other loans or financial receivables currently available or which may
be developed in the future.
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 rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors
such as changes in interest rates or the concentration of collateral in a
particular geographic area. Therefore, the yield may be difficult to predict
and actual yield to maturity may be more or less than the anticipated yield to
maturity. Due to the shorter maturity of the collateral backing such
securities, there tends to be less of a risk of substantial prepayment than
with mortgage-backed securities but the risk of such a
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prepayment does exist. 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, and other risks which may be peculiar to particular classes of
collateral. For example, 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.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund 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 Fund) 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
Fund's 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 Fund, if any, would
be the difference between the repurchase price and the market value of the
security. The Fund 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 Fund must have collateral of at least 100% of the repurchase
price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis. Such collateral is held by
Bankers Trust Company ("Custodian") in book entry form. Such agreements may be
considered loans under the 1940 Act, but the Fund considers repurchase
agreements contracts for the purchase
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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 Fund 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 Fund may write put and call options on a covered basis only, and
will not engage in option writing strategies for speculative purposes. The
Fund 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 Fund's investment objective. The Fund may
also purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's 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 Fund, 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 Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Fund 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.
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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
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund 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 Fund 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 Fund 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.
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 Fund 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 Fund would be required to continue to hold a security which it might
otherwise wish to sell. Options written by the Fund 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.
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B. PURCHASING CALL OPTIONS--The Fund may purchase call options to
the extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund 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 Fund 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 Fund upon exercise of the option.
The Fund 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
Fund 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 Fund 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 Fund 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 Fund 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 Fund may expire without any value
to the Fund.
C. SECURED PUT WRITING--A put option gives the purchaser of the
option the right to sell, and the writer, in this case the Fund, 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
-73-
<PAGE> 82
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 Fund
may not exceed 2% of its total assets.
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund may have to purchase
securities at higher prices than the current market price if the put is
exercised.
Put options will be written only on a secured basis, which means that
the Fund 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 Fund. Secured put options will generally be
written in circumstances where the Manager wishes to purchase the underlying
security for the Fund's portfolio at a price lower than the current market
price of the security. In such event, the Fund 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 Fund may purchase put options to
the extent that premiums paid for such options do not exceed 2% of the Fund's
total assets. The Fund will, at all times during which it holds a put option,
own the security covered by such option.
The Fund 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 Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security.
In addition, the Fund will continue to receive interest income on the security.
If the security does not drop in value, the Fund will lose the value of the
premium paid. The Fund may sell a put option
-74-
<PAGE> 83
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 Fund 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 Fund 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 Fund 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 Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by
the futures commission merchant in an account at the Fund's Custodian bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund 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 Fund 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 Fund,
which consists of a substantial number of government securities, is to protect
the Fund 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.
-75-
<PAGE> 84
With respect to options on futures contracts, when the Fund 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 Fund 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 Fund 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 Fund
intends to purchase.
If a put or call option the Fund has written is exercised, the Fund
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
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize a loss. For example, if the Fund 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 Fund 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 Fund 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 Fund may be required to
sell securities at a time when it may be disadvantageous to do so.
-76-
<PAGE> 85
To the extent that the Fund 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 Fund 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 existence of a liquid
secondary market, which cannot be assured.
The Fund will not enter into futures contracts to the extent that more
than 5% of the Fund's 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 Fund's assets.
RESTRICTED SECURITIES
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of the Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security;
(ii) whether at least three dealers are willing to purchase or sell the
security and the number of potential purchasers; (iii) whether at least two
dealers are making a market in the security; (iv) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 10% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.
PORTFOLIO LOAN TRANSACTIONS
The major risk to which the Fund 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.
-77-
<PAGE> 86
Therefore, the Fund 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.
-78-
<PAGE> 87
APPENDIX A - INVESTMENT ILLUSTRATIONS
ILLUSTRATIONS OF THE POTENTIAL IMPACT ON INVESTMENT BASED ON PURCHASE OPTION
$10,000 PURCHASE
<TABLE>
<CAPTION>
Scenario 1 Scenario 2 Scenario 3
No Redemption Redeem 1st Year Redeem 3rd Year
--------------------------------- ----------------------------- -----------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000 9,525 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+ 10,192 10,630 10,630
2 10,905 11,300 11,300 10,905 11,300 11,300
3 11,669 12,012 12,012 11,669 11,712 12,012+
4 12,485 12,768 12,768
5 13,359 13,573 13,573
6 14,294 14,428 14,428
7 15,295 15,337 15,337
8 16,366+ 16,303 16,303
9 17,511 17,444* 17,330
10 18,737 18,665* 18,422
</TABLE>
<TABLE>
<CAPTION>
Scenario 4
Redeem 5th Year
---------------------------------------
Year Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
0 9,525 10,000 10,000
1 10,192 10,630 10,630
2 10,905 11,300 11,300
3 11,669 12,012 12,012
4 12,485 12,768 12,768
5 13,359 13,373 13,573+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares at
the end the eighth year.
250,000 PURCHASE
<TABLE>
Scenario 1 Scenario 2 Scenario 3
No Redemption Redeem 1st Year Redeem 3rd Year
---------------------------------- ------------------------------- -----------------------------
Year Class A Class B Class C Class A Class B Class C Class A Class B Class C
---- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+ 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 300,289 300,289 298,604 292,789 300,289
4 319,507+ 319,207 319,207
5 341,872 339,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546
</TABLE>
<TABLE>
Scenario 4
Redeem 5th Year
------------------------------
Year Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
0 243,750 250,000 250,000
1 260,813 265,750 265,750
2 279,069 282,492 282,492
3 298,604 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 334,318 339,318
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares at
the end of the eighth year.
Assumes a hypothetical return for Class A of 7% per year, a hypothetical return
for Class B of 6.3% for years 1-8 and 7% for years 9-10, and a hypothetical
return for Class C of 6.3% per year. Hypothetical returns vary due to the
different expense structure for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (4.75% @
$10,000; 3.75% @ $100,000; 2.50% @ $250,000).
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1%
in years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which class offers the greater return potential
based on investment amount, the holding period and the expense structure of
each Class.
<PAGE> 88
- -------------------------------
U.S. GOVERNMENT FUND
- -------------------------------
INSTITUTIONAL
- -------------------------------
- -------------------------------
P R O S P E C T U S
- -------------------------------
SEPTEMBER 30, 1996
[PHOTO OF VARIOUS
PHILADELPHIA SITES]
DELAWARE
GROUP
--------
<PAGE> 89
For more information, contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE> 90
U.S. GOVERNMENT FUND INSTITUTIONAL PROSPECTUS
SEPTEMBER 30, 1996
--------------------------------------------------
1818 MARKET STREET, PHILADELPHIA, PA 19103
FOR MORE INFORMATION ABOUT
THE U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
CALL DELAWARE GROUP AT 800-828-5052.
This Prospectus describes the Government Income Series (the "Fund")
of Delaware Group Government Fund, Inc. ("Government Fund, Inc."), a
professionally-managed mutual fund of the series type. The objective of the
Fund 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.
The Fund offers the U.S. Government Fund Institutional Class (the
"Class") of shares. Shares of this Class are available for purchase only by
certain enumerated institutions and are offered at net asset value without the
imposition of a front-end or contingent deferred sales charge and without a
12b-1 charge. See Classes of Shares.
This Prospectus relates only to the Class and sets forth information
that you should read and consider before you invest. Please retain it for
future reference. Part B of Government Fund Inc.'s registration statement,
dated September 30, 1996, as it may be amended from time to time, contains
additional information about the Fund 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, L.P. at the above address or by calling the above number. The
Fund's financial statements appear in its Annual Report, which will accompany
any response to requests for Part B.
The Fund also offers the U.S. Government Fund A Class, the U.S.
Government Fund B Class and the U.S. Government Fund C Class. Shares of these
classes are subject to sales charges and other expenses, which may affect their
performance. A prospectus for these classes can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling 800-523-4640.
-1-
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<S> <C>
COVER PAGE HOW TO BUY SHARES
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND
FINANCIAL HIGHLIGHTS DISTRIBUTIONS
INVESTMENT OBJECTIVES TAXES
INVESTMENT POLICIES CALCULATION OF NET ASSET
SUITABILITY VALUE PER SHARE
INVESTMENT STRATEGY MANAGEMENT OF THE FUND
CLASSES OF SHARES ADDITIONAL INFORMATION ON
INVESTMENT POLICIES
AND RISK CONSIDERATIONS
</TABLE>
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.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL
FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE
FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY
CREDIT UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND
ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<PAGE> 92
SYNOPSIS
INVESTMENT OBJECTIVE
The objective of the Fund 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. For
further details, see Investment Objectives.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Fund may invest up to 20% of its assets in corporate notes and
bonds, certificates of deposit and obligations of both U.S. and foreign banks,
commercial paper and asset-backed securities. See Investment Strategy under
Investment Objectives.
The Fund may also enter into options and futures transactions for
hedging purposes to counterbalance portfolio volatility. While the Fund does
not engage in options and futures for speculative purposes, there are risks
which result from use of these instruments by the Fund, and the investor should
review the descriptions of such in this Prospectus. Certain options and
futures transactions may be considered to be derivative securities. See
Additional Information on Investment Policies and Risk Considerations.
INVESTMENT MANAGER, DISTRIBUTOR AND SERVICE AGENT
Delaware Management Company, Inc. (the "Manager") is the investment
manager for the Fund. The Manager furnishes investment management services to
the Fund, subject to the supervision and direction of Government Fund, Inc.'s
Board of Directors. Under the Investment Management Agreement, the annual
compensation paid to the Manager is equal to .60% of the Fund's average daily
net assets, less a proportionate share of all directors' fees paid to the
unaffiliated directors by the Fund.
The Manager also provides investment management services to certain of
the other funds in the Delaware Group. Delaware Distributors, L.P. (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, accounting
services and transfer agent for the Fund and for all of the other mutual funds
in the Delaware Group. See Management of the Fund.
-3-
<PAGE> 93
PURCHASE PRICE
Shares of the Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge, and are
not subject to distribution fees under a Rule 12b-1 distribution plan. See
Classes of Shares.
REDEMPTION AND EXCHANGE
Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
OPEN-END INVESTMENT COMPANY
Government Fund, Inc., which was organized as a Maryland corporation
in 1985, is an open-end management investment company and the Fund's portfolio
of assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). See Shares under Management of the Fund.
-4-
<PAGE> 94
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price). . . . None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . None*
Exchange Fees . . . . . . . . . . . . . . . . . . . None**
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS)
- -------------------------------------------------------------
Management Fees . . . . . . . . . . . . . . . . . . 0.59%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . None
Other Operating Expenses. . . . . . . . . . . . . . 0.31%
------
Total Operating Expenses . . . . . . . . . . . 0.90%
======
</TABLE>
The purpose of these tables is to assist the investor in understanding
the various costs and expenses that an investor in the Class will bear directly
or indirectly.
*CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.
**Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
For expense information about Class A Shares, Class B Shares and Class
C Shares, see the separate prospectus relating to those classes.
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 Fund charges no redemption fees.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$9 $29 $50 $110
</TABLE>
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.
-5-
<PAGE> 95
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Delaware Group Government Fund, Inc. - 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, all of which are incorporated by reference into Part B.
Further information about the Fund's performance is contained in its Annual
Report to shareholders. A copy of the Fund's Annual Report (including the
report of Ernst & Young LLP) may be obtained from Government Fund, Inc. upon
request at no charge.
-6-
<PAGE> 96
<TABLE>
<CAPTION>
YEAR ENDED
7/31/96 7/31/95 7/31/94 7/31/93 7/31/92(2)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $7.860 $8.000 $9.010 $9.020 $8.700
INCOME FROM IN-
- ----------------
VESTMENT OPERATIONS
- -------------------
Net Investment
Income . . . . . . 0.611 0.679 0.739 0.791 0.792
Net Gains or Losses
on Securities (both
realized and
unrealized). . . . (0.270) (0.140) (1.010) (0.010) 0.320
------- ------- ------- ------- -----
Total From
Investment
Operations. . . 0.341 0.539 (0.271) 0.781 1.112
----- ----- ------- ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends (from
net investment
income). . . . . . (0.611) (0.679) (0.739) (0.791) (0.792)
Distributions
(from capital
gains) . . . . . . none none none none none
Returns of
Capital. . . . . . none none none none none
---- ---- ---- ---- ----
Total Distri-
butions . . . . (0.611) (0.679) (0.739) (0.791) (0.792)
------- ------- ------- ------- -------
Net Asset Value,
End of Period. . . $7.590 $7.860 $8.000 $9.010 $9.020
------ ------ ------ ------ ------
- ----------------------------------------------
TOTAL RETURN . . . 4.39% 7.14% (3.23%) 9.04% 13.27%
- ------------
- ----------------------------------------------
RATIOS/SUPPLEMENTAL
- -------------------
DATA
- ----
Net Assets, End
of Period (000's
omitted) . . . . . $10,780 $8,316 $14,016 $16,475 $19,421
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.90% 0.94% 0.94% 0.97% 0.91%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 7.85% 8.66% 8.60% 8.74% 8.85%
Portfolio Turnover
Rate . . . . . . . 81% 70% 309% 285% 196%
</TABLE>
-7-
<PAGE> 97
<TABLE>
<CAPTION>
YEAR ENDED
7/31/91(1) 7/31/90(1) 7/31/89(1)
<S> <C> <C> <C>
Net Asset Value,
Beginning of
Period . . . . . . $8.590 $8.750 $8.650
INCOME FROM
- ----------------
INVESTMENT OPERATIONS
- ---------------------
Net Investment
Income . . . . . . 0.774 0.771 0.793
Net Gains or Losses
on Securities (both
realized and
unrealized). . . . 0.110 (0.160) 0.100
----- ------- -----
Total From
Investment
Operations. . . 0.884 0.611 0.893
----- ----- -----
LESS DISTRIBUTIONS
- ------------------
Dividends (from
net investment
income). . . . . . (0.774) (0.771) (0.793)
Distributions
(from capital
gains) . . . . . . none none none
Returns of
Capital. . . . . . none none none
---- ---- ----
Total Distri-
butions . . . . (0.774) (0.771) (0.793)
------- ------- -------
Net Asset Value,
End of Period. . . $8.700 $8.590 $8.750
------ ------ ------
- ----------------------------------------------
TOTAL RETURN . . . 10.76% 7.40% 10.92%
- ------------
- ----------------------------------------------
RATIOS/SUPPLEMENTAL
- -------------------
DATA
- ----
Net Assets, End
of Period (000's
omitted) . . . . $13,427 $8,359 $3,506
Ratio of Expenses
to Average Daily
Net Assets . . . . 0.88% 0.89% 0.97%
Ratio of Net
Investment Income
to Average Daily
Net Assets . . . . 8.99% 9.00% 9.26%
Portfolio Turnover
Rate . . . . . . . 149% 127% 172%
</TABLE>
-8-
<PAGE> 98
(1) The data for the period 1989 through 1991 are derived from data of the
Government Income Series I class which, like the U.S. Government Fund
Institutional Class, (prior to May 2, 1994 was referred to as U.S.
Government Fund (Institutional) class), was not subject to Rule 12b-1
distribution expenses. Government Income Series I class was converted
into U.S. Government Fund class on June 1, 1992, pursuant to a Plan
of Recapitalization approved by shareholders of Government Income
Series I class. Prior to May 2, 1994, U.S. Government Fund A Class
was known as U.S. Government Fund class.
(2) The U.S. Government Fund Institutional Class was first offered for
sale on June 1, 1992. The data and ratios for Government Income
Series I class (see note 1) and the U.S. Government Fund
(Institutional) class have been combined for 1992. For the ten months
ended May 31, 1992, the Government Income Series I class' operating
expenses and net investment income per share were $0.068 and $0.657,
respectively. For the two months ended July 31, 1992, the U.S.
Government Fund Institutional Class' operating expenses and net
investment income per share were $0.014 and $0.135, respectively. All
net investment income was distributed to shareholders.
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INVESTMENT OBJECTIVES
SUITABILITY
The Fund may be suitable for individuals who want a stable and high
income flow, the security associated with investments focused principally on
U.S. government-backed instruments and the convenience and liquidity of mutual
funds. However, investors should consider asset value fluctuation as well as
income potential in making an investment decision.
Because the Fund invests in longer term securities, the value of
shares will fluctuate. When interest rates rise, the share value will tend to
fall, and when interest rates fall, the share value will tend to rise.
Ownership of Fund shares can reduce the bookkeeping and administrative
inconveniences that would be connected with direct purchase of the types of
securities in which the Fund invests.
INVESTMENT STRATEGY
The investment objective of the Fund described below is a matter of
fundamental policy and may not be changed without shareholder approval.
The objective of the Fund 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. These
include 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 non-government entities but
collateralized by securities of the U.S. government, its agencies and
instrumentalities. The weighted average maturity will be approximately 10
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.
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 Fund 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
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General Services Administration, the Maritime Administration and the Small
Business Administration. The maturities of such securities usually range from
three months to 30 years.
The Fund 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 Ratings Group ("S&P"); and (4)
asset-backed securities rated Aaa by Moody's or AAA by S&P.
INVESTMENT TECHNIQUES
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. The Fund may also invest in securities issued by certain private,
non-government 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).
The Fund may invest in securities which are backed by assets such as
receivables on home equity and credit loans, receivables regarding automobile,
mobile home and recreational vehicle loans, wholesale dealer floor plans and
leases or other loans or financial receivables currently available or which may
be developed in the future. All such securities must be rated in the highest
rating category by a reputable credit rating agency (e.g., AAA by S&P or Aaa by
Moody's).
The Fund may use repurchase agreements which are at least 100%
collateralized by securities in which the Fund can invest directly. Repurchase
agreements help the Fund to invest cash on a temporary basis.
The Fund may purchase put options, write secured put options, write
covered call options, purchase call options and enter into closing
transactions. The Fund may invest in futures contracts and options on such
futures contracts subject to certain limitations.
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many
privately placed and
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legally restricted securities to be freely traded among certain institutional
buyers such as the Fund. The Fund may invest no more than 10% of the value of
its net assets in illiquid securities.
The Fund 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.
For a further discussion of the investment techniques described above,
see Additional Information on Investment Policies and Risk Considerations.
OTHER RESTRICTIONS
The Fund may borrow from banks. No investment securities will be
purchased while the Fund has an outstanding borrowing. Part B sets forth other
risk factors and more specific investment restrictions, some of which limit the
percentage of assets of the Fund which may be invested in certain types of
securities.
PORTFOLIO TURNOVER
The Fund 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 Fund 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 Fund's shareholders. The turnover rate may
also be affected by cash requirements from redemptions and repurchases of the
Fund's shares. The degree of portfolio activity may affect brokerage costs of
the Fund and taxes payable by shareholders.
For the fiscal years ended July 31, 1995 and 1996, the portfolio
turnover rates for the Fund were 70% and 81%, respectively.
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CLASSES OF SHARES
The Distributor serves as the national distributor for the Fund.
Shares of the Class may be purchased directly by contacting the Fund or its
agent or through authorized investment dealers. All purchases of shares of the
Class are at net asset value. There is no front-end or contingent deferred
sales charge.
INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES CONSIDERING PURCHASING SHARES OF THE CLASS
AS PART OF THEIR RETIREMENT PROGRAM SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.
Shares of the Class are available for purchase only by: (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 plans from such plans; (b) tax-exempt employee benefit plans of the
Manager or its affiliates and securities dealer firms with a selling agreement
with the Distributor; (c) institutional 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
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.
U.S. GOVERNMENT FUND A CLASS, U.S. GOVERNMENT FUND B CLASS AND U.S. GOVERNMENT
FUND C CLASS
In addition to offering the U.S. Government Fund Institutional Class,
the Fund also offers the U.S. Government Fund A Class, the U.S. Government Fund
B Class and the U.S. Government Fund C Class, which are described in a separate
prospectus. Shares of the U.S. Government Fund A Class, U.S. Government Fund B
Class and U.S. Government Fund C Class may be purchased through authorized
investment dealers or
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directly by contacting the Fund or its agent. The U.S. Government Fund A Class
carries a front-end sales charge and has annual 12b-1 expenses equal to a
maximum of .30%. The maximum front-end sales charge as a percentage of the
offering price is 4.75% and is reduced on certain transactions of $100,000 or
more. The U.S. Government Fund B Class and the U.S. Government Fund C Class
have no front-end sales charge but are subject to annual 12b-1 expenses equal
to a maximum of 1%. Shares of U.S. Government Fund B Class and U.S. Government
Fund C Class and certain shares of U.S. Government Fund A Class may be subject
to a contingent deferred sales charge upon redemption. To obtain a prospectus
relating to such classes, contact the Distributor by writing to the address or
by calling the phone numbers listed on the cover of this Prospectus.
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HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.
INVESTING DIRECTLY BY MAIL
1. Initial Purchases--An Investment Application or, in the case of a
retirement account, an appropriate retirement plan application, must be
completed, signed and sent with a check payable to U.S. Government Fund
Institutional Class, 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 Institutional Class. Your
check should be identified with your name(s) and account number.
INVESTING DIRECTLY BY WIRE
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(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 Client
Services Department at 800-828-5052 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 or, in the case of a retirement
account, an appropriate retirement plan application, to U.S. Government Fund
Institutional Class, to 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by
wiring funds to CoreStates Bank, N.A., as described above. You must advise
your Client Services Representative by telephone at 800-828-5052 prior to
sending your wire.
INVESTING BY EXCHANGE
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Fund. However, shares of
the U.S. Government Fund B Class and the U.S. Government Fund C Class and the
Class B Shares and the Class C Shares of the other funds in the Delaware Group
offering such classes of shares may not be exchanged into the Class. If you
wish to open an account by exchange, call your Client Services Representative
at 800-828-5052 for more information.
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INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must promptly transmit orders to the
Fund. They may charge for this service.
PURCHASE PRICE AND EFFECTIVE DATE
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the 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 share price is determined, as noted above.
Purchase orders 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 order. If a
purchase is canceled 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 to reject purchase orders paid by third-party checks or checks that are
not drawn on a domestic branch of a United States financial institution. If a
check drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of
redemptions.
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REDEMPTION AND EXCHANGE
REDEMPTION AND EXCHANGE REQUESTS MADE ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES SHOULD THEREFORE CONTACT THEIR EMPLOYER FOR
DETAILS.
Your shares will be redeemed or exchanged based on the net asset value
next determined after we receive your request in good order. Redemption and
exchange requests received in good order after the time the net asset value of
shares is determined, as noted above, will be processed on the next business
day. See Purchase Price and Effective Date under How to Buy 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. 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 800-828-5052.
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.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared, which may take up
to 15 days from the purchase date. 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.
Shares of the Class may be exchanged into any other Delaware Group
mutual fund, provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the
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shares of the fund being acquired are in a state where that fund is registered.
If exchanges are made into other shares that are eligible for purchase only by
those permitted to purchase shares of the Class, such exchange will be
exchanged at net asset value. Shares of the Class may not be exchanged into
the Class B Shares or Class C Shares of the funds in the Delaware Group. The
Fund may suspend, terminate or amend the terms of the exchange privilege upon
60 days' written notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Fund or the Distributor for redeeming or exchanging your shares.
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, including selection of any of the features
described below, shall continue in effect until such time as a written
revocation or modification has been received by the Fund or its agent.
CHECKWRITING FEATURE
YOU CAN REQUEST SPECIAL CHECKS BY MARKING THE BOX ON THE INVESTMENT
APPLICATION.
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 for retirement plans.
See Part B for additional information.
WRITTEN REDEMPTION AND EXCHANGE
You can write to the Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares or to request an exchange of any or
all of your shares into another mutual fund in the Delaware Group, subject to
the same conditions and limitations as other exchanges noted above. 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 may require a signature guarantee.
Each signature guarantee must be supplied by an eligible guarantor
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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. Payment is normally mailed the
next business day, but no later than seven days, after receipt of your request.
Certificates are issued for shares only if you submit a specific request. If
your shares are in certificate form, the certificate must accompany your
request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
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 shares in certificate form, you may redeem or
exchange only by written request and you must return your certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in writing that you do not
wish to have such service available with respect to your account. 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.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund 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. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By
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exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
TELEPHONE REDEMPTION-CHECK TO YOUR ADDRESS OF RECORD
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 later than seven days, after receipt of the request.
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, you must submit a written authorization and you may need to have 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. There are no fees for this redemption method,
but the mail time may delay getting funds into your bank account. Simply call
your Client Services Representative prior to the time the net asset value is
determined, as noted above.
TELEPHONE EXCHANGE
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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DIVIDENDS AND DISTRIBUTIONS
Government Fund, Inc. declares a dividend to all shareholders of
record at the time the net asset value per share is determined. See Purchase
Price and Effective Date under How to Buy Shares. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.
Purchases of Class shares 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 a
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.
Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class will not incur any
distribution fees under the 12b-1 Plans which apply to the U.S. Government Fund
A Class, the U.S. Government Fund B Class and the U.S. Government Fund C
Class.
The Fund's dividends are declared daily and paid monthly. Dividends
and distributions, if any, will be automatically reinvested in a shareholder's
account at net asset value. 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 (the "Code") may
be distributed quarterly, but in the discretion of the Fund's Board of
Directors, may 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 Code.
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TAXES
The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such, the Fund
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 Fund 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 investors who are subject to
income taxes as ordinary income, even though received in additional shares. No
portion of the Fund's distributions will be eligible for the dividends-received
deduction for corporations.
Distributions paid by the Fund from long-term capital gains, received
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 Fund. The Fund does not seek to realize any particular
amount of capital gains during a year; rather, realized gains are a byproduct
of Fund 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 Fund 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 to
shareholders of record on a specified date in one of those months, 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 Fund and received
by the shareholder on December 31 of the calendar year in which they are
declared.
The sale of shares of the Fund 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 the Fund and any other fund in the Delaware Group. Any loss incurred
on a sale or exchange of Fund shares that had been held for six months or less
will be treated as a
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long-term capital loss to the extent of capital gain dividends received with
respect to such 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 Fund are exempt from
Pennsylvania county personal property taxes.
Each year, Government Fund, Inc. will mail to you information on the
tax status of the Fund's 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 Fund.
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 Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.
See Accounting and Tax Issues and Taxes in Part B for additional
information on tax matters relating to the Fund and its shareholders.
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CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of the Class is the net asset value
("NAV") per share of the Class next computed after the order is received. The
NAV is computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the 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 Government Fund, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that class. All income earned and expenses incurred by the Fund will be
borne on a pro-rata basis by each outstanding share of a class, based on each
class' percentage in the Fund represented by the value of shares of such
classes, except that the Class will not incur any of the expenses under the
Fund's 12b-1 Plans and U.S. Government Fund A, B and C Classes alone will bear
the 12b-1 Plan fees 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 each class is expected to be equivalent.
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MANAGEMENT OF THE FUND
DIRECTORS
The business and affairs of Government Fund, Inc. are managed under
the direction of its Board of Directors. Part B contains additional
information regarding the Fund's directors and officers.
INVESTMENT MANAGER
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $28 billion in assets in the various
institutional or separately managed (approximately $17,646,238,000) and
investment company (approximately $10,764,119,000) accounts.
The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and
a wholly owned subsidiary of Lincoln National Corporation ("Lincoln National")
was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, 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. In connection with
the merger, a new Investment Management Agreement between Government Fund, Inc.
on behalf of the Fund and the Manager was executed following shareholder
approval.
The Manager manages the Fund's portfolio and makes investment
decisions which are implemented by Government Fund, Inc.'s Trading Department.
The Manager also administers Government Fund, Inc.'s affairs and pays the
salaries of all the directors, officers and employees of Government Fund, Inc.
who are affiliated with the Manager. For these services, the Manager is paid an
annual fee equal to .60% of the Fund's average daily net assets, less a
proportionate share of all directors' fees paid to the unaffiliated directors
by the Fund. Investment management fees paid by the Fund for the fiscal year
ended July 31, 1996 were 0.59% of its average daily net assets.
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Roger A. Early 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 and Gary A. Reed. Mr. Suckow is Executive Vice
President/Chief Investment Officer, Fixed Income of the Fund. 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 where he served
as Executive Vice President and Director of Fixed Income. 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 Fund's 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 Fund
may consider a broker/dealer's sales of Fund shares in placing portfolio orders
and may place orders with broker/dealers that have agreed to defray certain
Fund expenses such as custodian fees.
PERFORMANCE INFORMATION
From time to time, the Fund may quote yield or total return
performance of the Class in advertising and other types of literature.
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The current yield for the Class will be calculated by dividing the
annualized net investment income earned by the Class during a recent 30-day
period by the net asset value 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. Each presentation will
include the average annual total return for one-, five- and ten-year periods.
The Fund may also advertise aggregate and average total return information
concerning the Class over additional periods of time.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not a guarantee of future results.
STATEMENTS AND CONFIRMATIONS
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent
following all transactions other than those involving a reinvestment of
dividends. You should examine statements and confirmations immediately and
promptly report any discrepancy by calling your Client Services Representative.
FINANCIAL INFORMATION ABOUT THE FUND
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Government Fund, Inc.'s fiscal year
ends on July 31.
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund under a Distribution Agreement dated April 3, 1995, as
amended on November 29, 1995. The Distributor bears all of the costs of
promotion and distribution.
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The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
under an Agreement dated June 29, 1988. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a separate agreement.
The directors annually review service fees paid to the Transfer Agent. Certain
recordkeeping and other shareholder services that otherwise would be performed
by the Transfer Agent may be performed by certain other entities and the
Transfer Agent may elect to enter into an agreement to pay such other entities
for those services. In addition, participant account maintenance fees may be
assessed for certain recordkeeping provided as part of retirement plan and
administration service packages. These fees are based on the number of
participants in the plan and the various services selected. Fees will be
quoted upon request and are subject to change.
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
EXPENSES
Government Fund, Inc. 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 Distribution Agreement. The ratio of
operating expenses to average daily net assets for the Class was 0.90% for the
fiscal year ended July 31, 1996.
SHARES
The Fund is an open-end management investment company, currently
offering one series of shares. The Fund's portfolio of assets is diversified
as defined by the 1940 Act. Commonly known as a mutual fund, Government Fund,
Inc. was organized as a Maryland corporation on April 23, 1985.
Fund shares have a par value of $.01, equal voting rights, except as
noted below, and are equal in all other respects. All shares have
noncumulative voting rights which means that the holders of more than 50% of
Government Fund, Inc.'s shares voting for the election of directors can elect
100% of the directors if they choose to do so. Under Maryland law, Government
Fund, Inc. 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 Government Fund, Inc.'s
outstanding shares may request that a special meeting be called to consider the
removal of a director.
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In addition to the Class, the Fund also offers the U.S. Government
Fund A Class, the U.S. Government Fund B Class and the U.S. Government Fund C
Class. Shares of each class represent proportionate interests in the assets of
the Fund and have the same voting and other rights and preferences as the other
classes of the Fund, except that shares of the Class are not subject to, and
may not vote on matters affecting, the Fund's Distribution Plans under Rule
12b-1 relating to the U.S. Government Fund A Class, the U.S. Government Fund B
Class and the U.S. Government Fund C Class.
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ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS
GNMA SECURITIES
The Fund 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 Fund 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
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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.
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
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.
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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 Fund 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 Fund 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 in Investment
Strategy, the Fund may invest in securities which are backed by assets such as
receivables on home equity and credit loans, receivables regarding automobile,
mobile home and recreational vehicle loans, wholesale dealer floor plans and
leases or other loans or financial receivables currently available or which may
be developed in the future.
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 rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors
such as changes in interest rates or the concentration of collateral in a
particular geographic area. Therefore, the yield may be difficult to predict
and actual yield to maturity may be more or less than the anticipated yield to
maturity. Due to the shorter maturity of the collateral backing such
securities, there tends to be less of a risk of substantial prepayment than
with mortgage-backed securities but the risk of such a prepayment does exist.
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, and other risks which
may be peculiar to particular classes of collateral. For example, 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
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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.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund 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 Fund) 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
Fund's 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 Fund, if any, would
be the difference between the repurchase price and the market value of the
security. The Fund 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 Fund must have collateral of at least 100% of the repurchase
price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis. Such collateral is held by
Bankers Trust Company ("Custodian") in book entry form. Such agreements may be
considered loans under the 1940 Act, but the Fund 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 Fund may invest cash
balances in a joint repurchase agreement in accordance with
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the terms of the Order and subject generally to the conditions described above.
OPTIONS
The Fund may write put and call options on a covered basis only, and
will not engage in option writing strategies for speculative purposes. The
Fund 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 Fund's investment objective. The Fund may
also purchase (i) call options to the extent that premiums paid for such
options do not exceed 2% of the Fund's total assets and (ii) put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's 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 Fund, 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 Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Fund 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
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund 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
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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 Fund 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 Fund 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.
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 Fund 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 Fund would be required to continue to hold a security which it might
otherwise wish to sell. Options written by the Fund 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 Fund may purchase call options to
the extent that premiums paid by the Fund do not aggregate more than 2% of the
Fund's total assets. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund 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 Fund 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
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will reduce the benefit, if any, realized by the Fund upon exercise of the
option.
The Fund 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
Fund 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 Fund 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 Fund 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 Fund 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 Fund may expire without any value
to the Fund.
C. SECURED PUT WRITING--A put option gives the purchaser of the
option the right to sell, and the writer, in this case the Fund, 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 Fund may not exceed 2% of
its total assets.
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund may have to purchase
securities at higher prices than the current market price if the put is
exercised.
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Put options will be written only on a secured basis, which means that
the Fund 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 Fund. Secured put options will generally be
written in circumstances where the Manager wishes to purchase the underlying
security for the Fund's portfolio at a price lower than the current market
price of the security. In such event, the Fund 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 Fund may purchase put options to
the extent that premiums paid for such options do not exceed 2% of the Fund's
total assets. The Fund will, at all times during which it holds a put option,
own the security covered by such option.
The Fund 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 Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security.
In addition, the Fund will continue to receive interest income on the security.
If the security does not drop in value, the Fund will lose the value of the
premium paid. The Fund 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 Fund 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 Fund 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 Fund of the
securities called for by the contract at a specified price during a specified
future month.
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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 Fund enters into a futures
transaction, it must deliver to the futures commission merchant selected by the
Fund an amount referred to as "initial margin." This amount is maintained by
the futures commission merchant in an account at the Fund's Custodian bank.
Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the
Fund 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 Fund 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 Fund,
which consists of a substantial number of government securities, is to protect
the Fund 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 Fund 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 Fund 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 Fund 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 Fund
intends to purchase.
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If a put or call option the Fund has written is exercised, the Fund
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
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates.
To the extent that interest rates move in an unexpected direction, the
Fund may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize a loss. For example, if the Fund 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 Fund 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 Fund 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 Fund may be required to
sell securities at a time when it may be disadvantageous to do so.
To the extent that the Fund 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 Fund 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 existence of a liquid
secondary market, which cannot be assured.
The Fund will not enter into futures contracts to the extent that more
than 5% of the Fund's 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 Fund's assets.
RESTRICTED SECURITIES
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities
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are liquid for purposes of the Fund's 10% limitation on investments in illiquid
assets. The Board has instructed the Manager to consider the following factors
in determining the liquidity of a Rule 144A Security: (i) the frequency of
trades and trading volume for the security; (ii) whether at least three dealers
are willing to purchase or sell the security and the number of potential
purchasers; (iii) whether at least two dealers are making a market in the
security; (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 10% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.
PORTFOLIO LOAN TRANSACTIONS
The major risk to which the Fund 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 Fund 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.
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U.S. GOVERNMENT FUND
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A CLASS
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B CLASS
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C CLASS
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INSTITUTIONAL CLASS
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CLASSES OF DELAWARE GROUP
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GOVERNMENT FUND, INC.
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PART B
STATEMENT OF
ADDITIONAL INFORMATION
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SEPTEMBER 30, 1996
DELAWARE
GROUP
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The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
global and international funds and closed-end equity funds give investors the
ability to create a portfolio that fits their personal financial goals. For
more information, shareholders of the Fund Classes should contact their
financial adviser or call Delaware Group at 800-523-4640, and shareholders of
the Institutional Class should contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
<PAGE> 132
PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1996
DELAWARE GROUP
GOVERNMENT FUND, INC.
1818 MARKET STREET
PHILADELPHIA, PA 19103
FOR MORE INFORMATION ABOUT THE U.S. GOVERNMENT FUND INSTITUTIONAL CLASS:
800-828-5052
FOR PROSPECTUS AND PERFORMANCE OF THE U.S. GOVERNMENT FUND A CLASS, THE U.S.
GOVERNMENT FUND B CLASS AND THE U.S. GOVERNMENT FUND C CLASS: NATIONWIDE
800-523-4640
INFORMATION ON EXISTING ACCOUNTS OF THE U.S. GOVERNMENT FUND A CLASS, THE U.S.
GOVERNMENT FUND B CLASS AND THE U.S. GOVERNMENT FUND C CLASS: (SHAREHOLDERS
ONLY)
NATIONWIDE 800-523-1918
DEALER SERVICES: (BROKER/DEALERS ONLY)
NATIONWIDE 800-362-7500
TABLE OF CONTENTS
COVER PAGE
INVESTMENT POLICIES
ACCOUNTING AND TAX ISSUES
PERFORMANCE INFORMATION
TRADING PRACTICES AND BROKERAGE
PURCHASING SHARES
INVESTMENT PLANS
DETERMINING OFFERING PRICE AND
NET ASSET VALUE
REDEMPTION AND REPURCHASE
DIVIDENDS AND REALIZED SECURITIES
<PAGE> 133
PROFITS DISTRIBUTIONS
TAXES
INVESTMENT MANAGEMENT AGREEMENT
OFFICERS AND DIRECTORS
EXCHANGE PRIVILEGE
GENERAL INFORMATION
APPENDIX A--IRA INFORMATION
FINANCIAL STATEMENTS
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Delaware Group Government Fund, Inc. (the "Government Fund, Inc.") is
a professionally-managed mutual fund of the series type, which currently offers
one series, the Government Income Series (the "Fund"). The Fund offers four
classes of shares -- U.S. Government Fund A Class (the "Class A Shares"), U.S.
Government Fund B Class (the "Class B Shares") and U.S. Government Fund C Class
(the "Class C Shares") (together, the "Fund Classes") and U.S. Government Fund
Institutional Class (the "Institutional Class") (individually, a "Class" and
collectively, the "Classes").
Class B Shares, Class C Shares and Institutional Class shares may be
purchased at a price equal to the next determined net asset value per share.
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.
Class A Shares are subject to a maximum front-end sales charge of 4.75% and
annual 12b-1 Plan expenses of up to .30%. 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 of up to 1%, which
are assessed against Class B Shares for approximately eight years after
purchase. See Automatic Conversion of Class B Shares under Classes of Shares
in the Fund Classes' Prospectus. Class C Shares are subject to a CDSC which
may be imposed on redemptions made within 12 months of purchase and annual
12b-1 Plan expenses of up to 1%, which are assessed against the Class C Shares
for the life of the investment. All references to "shares" in this Statement
of Additional Information ("Part B" of the registration statement) refer to all
Classes of shares of the Fund, except where noted.
This Part B supplements the information contained in the current
Prospectus for the Fund Classes dated September 30, 1996 and the current
Prospectus for the Institutional Class dated September 30, 1996, as they may be
amended from time to time. It should be read in conjunction with the
respective class' Prospectus. Part B is not itself a prospectus but is, in its
entirety, incorporated by reference into each Class' Prospectus. Each Class'
Prospectus may be obtained by writing or calling your investment dealer or by
contacting Government Fund Inc.'s national distributor, Delaware Distributors,
L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA 19103.
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<PAGE> 135
INVESTMENT POLICIES
INVESTMENT RESTRICTIONS--Government Fund, Inc. has adopted the
following restrictions for the Fund which, along with its investment
objectives, cannot be changed without approval by the holders of a "majority"
of the Fund's outstanding shares, which is a vote by the holders of the lesser
of a) 67% or more of the voting securities present in person or by proxy at a
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy; or b) more than 50% of the outstanding
voting securities. The percentage limitations contained in the restrictions
and policies set forth herein apply at the time of purchase of securities.
The Fund shall not:
1. Invest more than 5% of the market or other fair value of its
assets in the securities of any one issuer (other than obligations of, or
guaranteed by, the U.S. government, its agencies or instrumentalities).
2. Invest in securities of other investment companies except as
part of a merger, consolidation or other acquisition, and except to the extent
that an issuer of mortgage-backed securities may be deemed to be an investment
company, provided that any such investment in securities of an issuer of a
mortgage-backed security which is deemed to be an investment company will be
subject to the limits set forth in Section 12(d)(1)(A) of the Investment
Company Act of 1940, as amended (the "1940 Act").
Government Fund, Inc. has been advised by the staff of the Securities
and Exchange Commission (the "Commission") that it is the staff's position
that, under the 1940 Act, the Fund may invest (a) no more than 10% of its
assets in the aggregate in certain CMOs and REMICs which are deemed to be
investment companies under the 1940 Act and issue their securities pursuant to
an exemptive order from the Commission, and (b) no more than 5% of its assets
in any single issue of such CMOs or REMICs.
3. Make loans, except to the extent the purchases of debt
obligations (including repurchase agreements) in accordance with the Fund's
investment objective and policies are considered loans and except that the Fund
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.
4. Purchase or sell real estate but this shall not prevent the
Fund from investing in securities secured by real estate or interests therein.
5. Purchase more than 10% of the voting securities of any issuer,
or invest in companies for the purpose of exercising control or management.
6. Engage in the underwriting of securities of other issuers,
except that in connection with the disposition of a security, the Fund may be
deemed to be an "underwriter" as that term is defined in the Securities Act of
1933.
7. Make any investment which would cause more than 25% of the
market or other fair value of its total assets to be invested in the securities
of issuers all of which conduct their principal business activities in the same
industry. This restriction does not apply to obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
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<PAGE> 136
8. Write, purchase or sell options, puts, calls or combinations
thereof, except that the Fund may: (a) write covered call options with respect
to any part or all of its portfolio securities; (b) purchase call options to
the extent that the premiums paid on all outstanding call options do not exceed
2% of the Fund's total assets; (c) write secured put options; (d) purchase put
options to the extent that the premiums paid on all outstanding put options do
not exceed 2% of the Fund's total assets and only if the Fund owns the security
covered by the put option at the time of purchase. The Fund may sell put
options or call options previously purchased or enter into closing transactions
with respect to such options.
9. Enter into futures contracts or options thereon, except that
the Fund may enter into futures contracts to the extent that not more than 5%
of the Fund's assets are required as futures contract margin deposits and only
to the extent that obligations under such contracts or transactions represent
not more than 20% of the Fund's assets.
10. Purchase securities on margin, make short sales of securities
or maintain a net short position.
11. Invest in warrants or rights except where acquired in units or
attached to other securities.
12. Purchase or retain the securities of any issuer any of whose
officers, directors or security holders is a director or officer of Government
Fund, Inc. or of its investment manager if or so long as the directors and
officers of Government Fund, Inc. and of its investment manager together own
beneficially more than 5% of any class of securities of such issuer.
13. Invest in interests in oil, gas or other mineral exploration
or development programs.
14. Invest more than 10% of the Fund's net assets in repurchase
agreements maturing in more than seven days or in other illiquid assets.
15. Borrow money in excess of one-third of the value of its net
assets and then only as a temporary measure for extraordinary purposes or to
facilitate redemptions. The Fund has no intention of increasing its net income
through borrowing. Any borrowing will be done from a bank and to the extent
that such borrowing exceeds 5% of the value of the Fund's net assets, asset
coverage of at least 300% is required. In the event that such asset coverage
shall at any time fall below 300%, the Fund shall, within three days thereafter
(not including Sunday or holidays) or such longer period as the Commission may
prescribe by rules and regulations, reduce the amount of its borrowings to such
an extent that the asset coverage of such borrowings shall be at least 300%.
The Fund will not pledge more than 10% of its net assets. The Fund will not
issue senior securities as defined in the 1940 Act, except for notes to banks.
No investment securities will be purchased while the Fund has an outstanding
borrowing.
Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships.
CORPORATE DEBT--The Fund may invest in corporate notes and bonds rated
A or above. Excerpts from Moody's Investors Service, Inc.'s ("Moody's")
description of those categories of bond ratings: AAA--judged to be the best
quality. They carry the smallest degree of investment risk; AA--judged to be
of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations.
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<PAGE> 137
Excerpts from Standard & Poor's Ratings Group's ("S&P") description of
those categories of bond ratings: AAA--highest grade obligations. They
possess the ultimate degree of protection as to principal and interest;
AA--also qualify as high grade obligations, and in the majority of instances
differ from AAA issues only in a small degree; A--strong ability to pay
interest and repay principal although more susceptible to changes in
circumstances.
COMMERCIAL PAPER--The Fund may invest in short-term promissory notes
issued by corporations which at the time of purchase are rated P-1 and/or A-1.
Commercial paper ratings P-1 by Moody's and A-1 by S&P are the highest
investment grade category.
BANK OBLIGATIONS--The Fund may invest in certificates of deposit,
bankers' acceptances and other short-term obligations of U.S. commercial banks
and their overseas branches and foreign banks of comparable quality, provided
each such bank combined with its branches has total assets of at least one
billion dollars. Any obligations of foreign banks shall be denominated in U.S.
dollars. Obligations of foreign banks and obligations of overseas branches of
U.S. banks are subject to somewhat different regulations and risks than those
of U.S. domestic banks. In particular, a foreign country could impose exchange
controls which might delay the release of proceeds from that country. Such
deposits are not covered by the Federal Deposit Insurance Corporation. Because
of conflicting laws and regulations, an issuing bank could maintain that
liability for an investment is solely that of the overseas branch which could
expose the Fund to a greater risk of loss. The Fund will only buy short-term
instruments in nations where risks are minimal. The Fund will consider these
factors along with other appropriate factors in making an investment decision
to acquire such obligations and will only acquire those which, in the opinion
of management, are of an investment quality comparable to other debt securities
bought by the Fund.
MORTGAGE-BACKED SECURITIES--In addition to mortgage-backed securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
the Fund may also invest its assets 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).
Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving some of the interest and most of the principal from
the mortgage assets, while the other class will receive most of the interest
and the remainder of the principal. In the most extreme case, one class will
receive all of the interest (the "interest-only" class), while the other class
will receive all of the principal (the "principal-only" class). The yield to
maturity on an interest-only class is extremely sensitive not only to changes
in prevailing interest rates but also to the rate of principal payments
(including
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<PAGE> 138
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Fund's yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the securities are rated in the
highest rating categories.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a
result, established trading markets have not yet been fully developed and,
accordingly, these securities are generally illiquid and to such extent,
together with any other illiquid investments, will not exceed 10% of the Fund's
net assets.
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 Fund 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 Fund 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--The Fund may invest a portion of its assets
in asset-backed securities. The rate of principal payment on asset-backed
securities generally depends on the rate of principal payments received on the
underlying assets. Such rate of payments may be affected by economic and
various other factors such as changes in interest rates or the concentration of
collateral in a particular geographic area. Therefore, the yield may be
difficult to predict and actual yield to maturity may be more or less than the
anticipated yield to maturity. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying
such securities, how well the entities issuing the securities are insulated
from the credit risk of the originator or affiliated entities, and the amount
of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
due on the underlying pool is timely. Protection against losses resulting from
ultimate default enhances the likelihood of payments of the obligations on at
least some of the assets in the pool. Such protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the
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<PAGE> 139
holders of the subordinated class), creation of "reserve funds" (where cash or
investments, sometimes funded from a portion of the payments on the underlying
assets, are held in reserve against future losses) and "over collateralization"
(where the scheduled payments on, or the principal amount of, the underlying
assets exceeds that required to make payments of the securities and pay any
servicing or other fees). The degree of credit support provided for each issue
is generally based on historical information respecting the level of credit
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue.
PORTFOLIO LOAN TRANSACTIONS
The Fund 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.
It is the understanding of Delaware Management Company, Inc. (the
"Manager") that the staff of the Commission permits portfolio lending by
registered investment companies if certain conditions are met. These
conditions are as follows: 1) each transaction must have 100% collateral in
the form of cash, short-term U.S. government securities, or irrevocable letters
of credit payable by banks acceptable to the Fund from the borrower; 2) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; 3) the Fund must be able to terminate the loan after notice, at any time;
4) the Fund must receive reasonable interest on any loan, and any dividends,
interest or other distributions on the lent securities, and any increase in the
market value of such securities; 5) the Fund may pay reasonable custodian fees
in connection with the loan; 6) the voting rights on the lent securities may
pass to the borrower; however, if the directors of the Fund know that a
material event will occur affecting an investment loan, they must either
terminate the loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the directors to vote the proxy.
The major risk to which the Fund 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 Fund will only enter into loan
arrangements after a review of all pertinent facts by the Manager, under the
supervision of 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.
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ACCOUNTING AND TAX ISSUES
The following supplements the information supplied in the Classes'
Prospectuses under Taxes.
When the Fund writes a call or a put option, an amount equal to the
premium received by it is included in the Fund's Statement of Assets and
Liabilities as an asset and as an equivalent liability. The amount of the
liability is subsequently "marked to market" to reflect the current market
value of the option written. If an option which the Fund has written either
expires on its stipulated expiration date, or if the Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. Any such gain or loss is
a short-term capital gain or loss for federal income tax purposes. If a call
option which the Fund has written is exercised, the Fund realizes a capital
gain or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received. If a put
option which the Fund has written is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchases upon exercise of the option.
The premium paid by the Fund for the purchase of a put option is
included in the section of the Fund's Statement of Assets and Liabilities as an
investment and subsequently adjusted daily to the current market value of the
option. For example, if the current market value of the option exceeds the
premium paid, the excess would be unrealized appreciation and, conversely, if
the premium exceeds the current market value, such excess would be unrealized
depreciation. If a put option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a short-term or long-term
(depending on the holding period of the underlying security) capital loss for
federal income tax purposes in the amount of the cost of the option. If the
Fund sells the put option, it realizes a short-term or long-term (depending on
the holding period of the underlying security) capital gain or loss, depending
on whether the proceeds from the sale are greater or less than the cost of the
option. If the Fund exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and proceeds from such sale
will be decreased by the premium originally paid. However, since the purchase
of a put option is treated as a short sale for federal income tax purposes, the
holding period of the underlying security will be affected by such a purchase.
The Internal Revenue Code (the "Code") includes special rules
applicable to regulated futures contracts and non-equity related listed options
which the Fund may write, and listed options which the Fund may write, purchase
or sell. Such regulated futures contracts and options are classified as
Section 1256 contracts under the Code. The character of gain or loss under a
Section 1256 contract is generally treated as 60% long-term gain or loss and
40% short-term gain or loss. When held by the Fund at the end of a fiscal
year, these options are required to be treated as sold at market value on the
last day of the fiscal year for federal income tax purposes ("marked to
market").
Over-the-counter options are not classified as Section 1256 contracts
and are not subject to the 60/40 gain or loss treatment or the marked to market
rule. Any gains or losses recognized by the Fund from over-the-counter option
transactions generally constitute short-term capital gains or losses.
The initial margin deposits made when entering into futures contracts
are recognized as assets due from the broker. During the period the futures
contract is open, changes in the value of the contract will be reflected at the
end of each day.
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<PAGE> 141
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. The Fund must meet several requirements to maintain its
status as a regulated investment company. Among these requirements are that at
least 90% of its investment company taxable income be derived from dividends,
interest, payment with respect to securities loans and gains from the sale or
disposition of securities; that at the close of each quarter of its taxable
year at least 50% of the value of its assets consist of cash and cash items,
government securities, securities of other regulated investment companies and,
subject to certain diversification requirements, other securities; and that
less than 30% of its gross income be derived from sales of securities held for
less than three months.
The Internal Revenue Service has ruled publicly that an
Exchange-traded call option is a security for purposes of the 50% of assets
tests and that its issuer is the issuer of the underlying security, not the
writer of the option, for purposes of the diversification requirements.
The requirement that not more than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Fund in its ability to write covered
call options on securities which it has held less than three months, to write
options which expire in less than three months, to sell securities which have
been held less than three months, and to effect closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions. Consequently, in order to avoid realizing a gain within the
three-month period, the Fund may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so. The
Fund may also be restricted in the sale of purchased put options and the
purchase of put options for the purpose of hedging underlying securities
because of the application of the short sale holding period rules with respect
to such underlying securities.
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<PAGE> 142
PERFORMANCE INFORMATION
From time to time, the Fund may state each Class' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over the most recent one-,
five- and ten-year (or life of fund, if applicable) periods, as relevant. The
Fund may also advertise aggregate and average total return information of each
Class over additional periods of time.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial purchase order of $1,000
from which, in the case of only Class A Shares,
the maximum front-end sales charge, if any, is
deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000 purchase
at the end of the period after the deduction of the
applicable CDSC, if any, with respect to Class B
Shares and Class C Shares.
</TABLE>
In presenting performance information for Class A Shares, the Limited
CDSC, applicable to only certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the
Fund Classes for a description of the Limited CDSC and the instances in which
it applies. All references to a CDSC in this Performance Information section
will apply to Class B Shares or Class C Shares.
Aggregate or cumulative total return is calculated in a similar
manner, except that the results are not annualized. Each calculation assumes
the maximum front-end sales charge, if any, is deducted from the initial $1,000
investment at the time it is made with respect to Class A Shares, and that all
distributions are reinvested at net asset value, and, with respect to Class B
Shares and Class C Shares, reflects the deduction of the CDSC that would be
applicable upon complete redemption of such shares. In addition, the Fund may
present total return information that does not reflect the deduction of the
maximum front-end sales charge or any applicable CDSC.
The performance of Class A Shares and the Institutional Class, as
shown below, is the average annual total return quotations through July 31,
1996, computed as described above. The average annual total return for Class A
Shares at offer reflects the maximum front-end sales charge of 4.75% paid on
the purchase of shares. The average annual total return for Class A Shares at
net asset value (NAV) does not reflect any front-end sales charge. Securities
prices fluctuated during the periods covered and past
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<PAGE> 143
results should not be considered as representative of future performance.
Pursuant to applicable regulation, total return shown for the Institutional
Class for the periods prior to the commencement of operations of such Class is
calculated by taking the performance of Class A Shares and adjusting it to
reflect the elimination of all sales charges. However, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments, and
performance may have been affected had such an adjustment been made.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
CLASS A CLASS A
SHARES SHARES INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS(1)
<S> <C> <C> <C>
1 year ended
7/31/96 (0.84%) 4.09% 4.39%
3 years ended
7/31/96 0.72% 2.37% 2.67%
5 years ended
7/31/96 4.66% 5.67% 5.98%
10 years ended
7/31/96 6.39% 6.90% 7.14%
Period 8/16/85(2)
through 7/31/96 6.75% 7.23% 7.44%
</TABLE>
(1) Date of initial public offering of the Institutional Class was June 1,
1992.
(2) Date of initial public offering of Class A Shares.
The performance of the Class B Shares, as shown below, is the average
annual total return quotation through July 31, 1996 and for the life of this
Class. The average annual total return for Class B Shares including deferred
sales charge reflects the deduction of the applicable CDSC that would be paid
if the shares were redeemed at July 31, 1996. The average annual total return
for Class B Shares excluding deferred sales charge assumes the shares were not
redeemed at July 31, 1996 and therefore does not reflect the deduction of a
CDSC.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)
<S> <C> <C>
1 year ended
7/31/96 (0.50%) 3.36%
Period 5/2/94(1)
through 7/31/96 2.78% 3.96%
</TABLE>
(1) Date of initial public offering of Class B Shares.
-11-
<PAGE> 144
The performance of Class C Shares, as shown below, is the aggregate
total return quotation through July 31, 1996. The aggregate total return for
Class C Shares including deferred sales charge reflects the deduction of the
applicable CDSC that would be paid if the shares were redeemed at July 31,
1996. The aggregate total return for Class C Shares excluding deferred sales
charge assumes the shares were not redeemed at July 31, 1996 and therefore does
not reflect the deduction of a CDSC.
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED
SALES CHARGE) SALES CHARGE)
<S> <C> <C>
Period 11/29/95
through 7/31/96(1) (1.12%) (0.17%)
</TABLE>
(1) Date of initial public offering of Class C Shares; total return for
this short of a time period may not be representative of longer-term
results.
As stated in the Classes' Prospectuses, the Fund may also quote each
Class' current yield in advertisements and investor communications.
The yield computation is determined by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period and annualizing the resulting figure,
according to the following formula:
a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends;
d = the maximum offering price per share on the last day
of the period.
</TABLE>
The above formula will be used in calculating quotations of yield for
each Class, based on specific 30-day periods identified in advertising by the
Fund. The yields of the Class A Shares, Class B Shares, Class C Shares and the
Institutional Class as of July 31, 1996 using this formula were 6.00%, 5.62%,
5.62% and 6.62%, respectively. Yield calculation assumes the maximum front-end
sales charge, if any, and does not reflect the deduction of any contingent
deferred sales charge. Actual yield on Class A Shares may be affected by
variations in sales charges on investments.
-12-
<PAGE> 145
Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any class of the Fund in the future.
Investors should note that the income earned and dividends paid by the
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of the Fund may change. Unlike money market
funds, the Fund invests in longer-term securities that fluctuate in value and
do so in a manner inversely correlated with changing interest rates. The
Fund's net asset value will tend to rise when interest rates fall. Conversely,
the Fund's net asset value will tend to fall as interest rates rise. Normally,
fluctuations in interest rates have a greater effect on the prices of
longer-term bonds. The value of the securities held in the Fund will vary from
day to day and investors should consider the volatility of the Fund's net asset
value as well as its yield before making a decision to invest.
The Fund's average weighted portfolio maturity at July 31, 1996 was 18
years for the Class A Shares, Class B Shares, Class C Shares and the
Institutional Class of the Fund.
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual
fund performance to comparable activity and performance of the Fund and in
illustrating general financial planning principles. From time to time, certain
mutual fund performance ranking information, calculated and provided by these
organizations, may also be used in the promotion of sales of the Fund. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe
of independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With their permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.
Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators,
such as historical and current price/earning information, individual
equity and fixed-income price and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that
provide financial, statistical and market information covering more
than 7,000 industrial and non-industrial companies.
-13-
<PAGE> 146
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market,
corporate and government-issued securities of various maturities.
This information, as well as unmanaged indices compiled and maintained
by these firms, will be used in preparing comparative illustrations.
In addition, the performance of multiple indices compiled and
maintained by these firms may be combined to create a blended
performance result for comparative purposes. Generally, the indices
selected will be representative of the types of the securities in
which the Fund may invest and the assumptions that were used in
calculating the blended performance will be described.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. In addition, current rate information on
municipal debt obligations of various durations, as reported daily by The Bond
Buyer, may also be used. The Bond Buyer is published daily and is an
industry-accepted source for current municipal bond market information.
From time to time, the Fund may also quote actual yield and/or total
return performance for each Class in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors. For example, the performance comparisons may include
the average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts as monitored by Bank
Rate Monitor, and those of generally-accepted corporate bond and government
security price indices of various durations prepared by Lehman Brothers and
Salomon Brothers, Inc. These indices are not managed for any investment goal.
Comparative information on the Consumer Price Index may also be included. The
Consumer Price Index, as prepared by the U.S. Bureau of Labor Statistics, is
the most commonly used measure of inflation. It indicates the cost
fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
The total return performance for each Class of the Fund will reflect
the appreciation or depreciation of principal, reinvestment of income and any
capital gains distributions paid during any indicated period and the impact of
the maximum front-end or contingent deferred sales charge, if any, paid on the
illustrated investment amount, annualized. Performance of Class A Shares may
also be shown without reflecting the impact of any front-end sales charge and
performance of Class B Shares and Class C Shares may also be calculated without
reflecting the impact of any applicable CDSC. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset value of the Fund
fluctuates so shares, when redeemed, may be worth more or less than the
original investment, and past performance should not be considered a guarantee
of future results.
-14-
<PAGE> 147
The following tables are an example, for purposes of illustration
only, of cumulative total return performance for each Class through July 31,
1996.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
CLASS A CONSUMER
SHARES INSTITUTIONAL PRICE
(AT OFFER) CLASS(1) INDEX(2)
<S> <C> <C> <C>
3 months ended
7/31/96 (3.78%) 1.08% 0.45%
6 months ended
7/31/96 (6.63%) (1.83%) 1.68%
9 months ended
7/31/96 (3.72%) 1.36% 2.15%
1 year ended
7/31/96 (0.84%) 4.39% 2.95%
3 years ended
7/31/96 2.18% 8.24% 8.73%
5 years ended
7/31/96 25.55% 33.68% 15.27%
10 years ended
7/31/96 85.76% 99.24% 43.39%
Period 8/16/85(3)
through 7/31/96 104.53% 119.58% 45.38%
</TABLE>
(1) Date of initial public offering was June 1, 1992. Pursuant to
applicable regulation, total return shown for the Institutional Class
for the periods prior to the commencement of operations of such Class
is calculated by taking the performance of Class A Shares and
adjusting it to reflect the elimination of all sales charges.
However, for those periods, no adjustment has been made to eliminate
the impact of 12b-1 payments, and performance may have been affected
had such an adjustment been made.
(2) Source--U.S. Department of Labor.
(3) Date of initial public offering of Class A Shares.
-15-
<PAGE> 148
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE) CONSUMER PRICE INDEX (1)
<S> <C> <C> <C>
3 months ended
7/31/96 (3.14%) 0.83% 0.45%
6 months ended
7/31/96 (6.10%) (2.32%) 1.68%
9 months ended
7/31/96 (3.22%) 0.61% 2.15%
1 year ended
7/31/96 (0.50%) 3.36% 2.95%
Period 5/2/94
through 7/31/96(2) 6.36% 9.14% 6.51%
</TABLE>
(1) Source--U.S. Department of Labor.
(2) Date of initial public offering of Class B Shares.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE) CONSUMER PRICE INDEX (1)
<S> <C> <C> <C>
3 months ended
7/31/96 (0.17%) 0.83% 0.45%
6 months ended
7/31/96 (3.26%) (2.32%) 1.68%
Period 11/29/95(2)
through 7/31/96 (1.12%) (0.17%) 2.21%
</TABLE>
(1) Source--U.S. Department of Labor.
(2) Date of initial public offering of Class C Shares; total return for
this short of a time period may not be representative of longer-term
results.
-16-
<PAGE> 149
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
DOLLAR-COST AVERAGING
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick
the highs and the lows. By using a strategy known as dollar-cost averaging,
you schedule your investments ahead of time. If you invest a set amount on a
regular basis, that money will always buy more shares when the price is low and
fewer when the price is high. You can choose to invest at any regular
interval--for example, monthly or quarterly--as long as you stick to your
regular schedule. Dollar-cost averaging looks simple and it is, but there are
important things to remember.
Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of low fund share prices. Delaware
Group offers three services -- Automatic Investing Program, Direct Deposit
Program and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer -
Direct Deposit Purchase Plan and Automatic Investing Plan under Investment
Plans and Wealth Builder Option under Investment Plans for a complete
description of these services, including restrictions or limitations.
-17-
<PAGE> 150
The example below illustrates how dollar-cost averaging can work. In
a fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
<TABLE>
<CAPTION>
NUMBER
INVESTMENT PRICE PER OF SHARES
AMOUNT SHARE PURCHASED
<S> <C> <C> <C>
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10
-------------------------------------------------------------
$400 $37.50 48
</TABLE>
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to
represent the actual performance of the Fund.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding and the following chart illustrates just how powerful
it can be.
COMPOUNDED RETURNS
Results of various assumed fixed rates of return on a $10,000
investment compounded monthly for 10 years:
<TABLE>
<CAPTION>
7% Rate 8% Rate 9% Rate
of Return of Return of Return
--------- --------- ---------
<S> <C> <C> <C>
1 year $10,723 $10,830 $10,938
2 years $11,498 $11,729 $11,964
3 years $12,330 $12,702 $13,086
4 years $13,221 $13,757 $14,314
5 years $14,177 $14,898 $15,657
6 years $15,201 $16,135 $17,126
7 years $16,300 $17,474 $18,732
8 years $17,479 $18,924 $20,489
9 years $18,743 $20,495 $22,411
10 years $20,098 $22,196 $24,514
</TABLE>
These figures are calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures,
which do not reflect payment of applicable taxes or sales charges, are not
intended to be a projection of investment results and do not reflect the actual
performance results of any of the Classes.
-18-
<PAGE> 151
TRADING PRACTICES AND BROKERAGE
Government Fund, Inc. selects brokers or dealers to execute
transactions for the purchase or sale of portfolio securities on the basis of
its judgment of their professional capability to provide the service. The
primary consideration is to have brokers or dealers execute transactions at
best price and execution. Best price and execution refers to many factors,
including the price paid or received for a security, the commission charged,
the promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. Trades are generally made on a net basis where
the Fund either buys the securities directly from the dealer or sells them to
the dealer. In these instances, there is no direct commission charged but
there is a spread (the difference between the buy and sell price) which is the
equivalent of a commission. When a commission is paid, the Fund pays
reasonably competitive brokerage commission rates based upon the professional
knowledge of its trading department as to rates paid and charged for similar
transactions throughout the securities industry.
During the fiscal years ended July 31, 1994, 1995 and 1996, no
brokerage commissions were paid by the Fund.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends; assisting
in determining portfolio strategy; providing computer software and hardware
used in security analyses; and providing portfolio performance evaluation and
technical market analyses. Such services are used by the Manager in connection
with its investment decision-making process with respect to one or more funds
and accounts managed by it, and may not be used, or used exclusively, with
respect to the fund or account generating the brokerage.
During the fiscal year ended July 31, 1996, there were no portfolio
transactions of the Fund resulting in brokerage commissions directed to brokers
for brokerage and research services.
As provided in the Securities Exchange Act of 1934 and the Fund's
Investment Management Agreement, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services
and that such commissions are reasonable in relation to the value of the
brokerage and research services provided. In some instances, services may be
provided to the Manager which constitute in some part brokerage and research
services used by the Manager in connection with its investment decision-making
process and constitute in some part services used by the Manager in connection
with administrative or other functions not related to its investment
decision-making process. In such cases, the Manager will make a good faith
allocation of brokerage and research services and will pay out of its own
resources for services used by the Manager in connection with administrative or
other functions not related to its investment decision-making process. In
addition, so long as no fund is disadvantaged, portfolio transactions
-19-
<PAGE> 152
which generate commissions or their equivalent are allocated to broker/dealers
who provide daily portfolio pricing services to the Fund and to other funds in
the Delaware Group. Subject to best price and execution, commissions allocated
to brokers providing such pricing services may or may not be generated by the
funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are
allocated in a manner deemed equitable to each account or fund. When a
combined order is executed in a series of transactions at different prices,
each account participating in the order may be allocated an average price
obtained from the executing broker. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the
joint execution of orders could adversely affect the price or volume of the
security that a particular account or fund may obtain, it is the opinion of the
Manager and Government Fund, Inc.'s Board of Directors that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Fund may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the Fund as a factor
in the selection of brokers and dealers to execute Fund portfolio transactions.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any
time, subject to complying with the Internal Revenue Code and the 1940 Act,
when changes in circumstances or conditions make such a move desirable in light
of the investment objective. The Fund will not attempt to achieve or be
limited to a predetermined rate of portfolio turnover for the Fund, such a
turnover always being incidental to transactions undertaken with a view to
achieving the Fund's investment objective.
The Fund 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 Fund writes a large number of call options which are
subsequently exercised. To the extent the Fund realizes gains on securities
held for less than six months, such gains are taxable to the shareholder or to
the Fund at ordinary income tax rates. This would result in higher than normal
brokerage commissions. The portfolio turnover rate of the Fund is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular fiscal year by the monthly average of the value of the portfolio
securities owned by the Fund during the particular fiscal year, exclusive of
securities whose maturities at the time of acquisition are one year or less.
The turnover rate may also be affected by cash requirements from redemptions
and repurchases of Fund shares.
During the fiscal years ended July 31, 1995 and 1996, the portfolio
turnover rates for the Fund were 70% and 81%, respectively.
-20-
<PAGE> 153
PURCHASING SHARES
The Distributor serves as the national distributor for the Fund's four
classes of shares -- Class A Shares, Class B Shares, Class C Shares and the
Institutional Class, and has agreed to use its best efforts to sell shares of
the Fund. See the Prospectuses for additional information on how to invest.
Shares of the Fund are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting Government
Fund, Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases generally must be at
least $100. The initial and subsequent investment minimums for Class A Shares
will be waived for purchases by officers, directors and employees of any
Delaware Group fund, the Manager or any of the Manager's affiliates if the
purchases are made pursuant to a payroll deduction program. Shares purchased
pursuant to the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act
and shares purchased in connection with an Automatic Investing Plan are subject
to a minimum initial purchase of $250 and a minimum subsequent purchase of $25.
Accounts opened under the Delaware Group Asset Planner service are subject to a
minimum initial investment of $2,000 per Asset Planner Strategy selected.
There are no minimum purchase requirements for the Institutional Class, but
certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Government Fund, Inc. will reject any purchase
order for more than $250,000 of Class B Shares and $1,000,000 or more of Class
C Shares. An investor may exceed these limitations by making cumulative
purchases over a period of time. An investor should keep in mind, however,
that reduced front-end sales charges apply to investments of $100,000 or more
in Class A Shares and that Class A Shares are subject to lower annual 12b-1
Plan expenses than Class B Shares and Class C Shares and generally are not
subject to a CDSC.
Selling dealers have the responsibility of transmitting orders
promptly. Government Fund, Inc. reserves the right to reject any order for the
purchase of its shares if in the opinion of management such rejection is in the
Fund's best interest.
The NASD has adopted amendments to its Rules of Fair Practice relating
to investment company sales charges. Government Fund, Inc. and the Distributor
intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also
subject to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and 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 or 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 which are higher than
those to which Class A Shares are subject and are assessed against the Class B
Shares for approximately eight years after purchase. See Automatic Conversion
of Class B Shares under Classes of Shares in the Fund Classes' Prospectus.
-21-
<PAGE> 154
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in the Fund's assets and will receive
a proportionate interest in the Fund's income, before application, as to the
Class A, Class B and Class C Shares, of any expenses under the Fund's 12b-1
Plans.
Certificates representing shares purchased are not ordinarily issued
unless a shareholder submits a specific request. Certificates are not issued
in the case of Class B Shares or Class C Shares. However, purchases not
involving the issuance of certificates are confirmed to the investor and
credited to the shareholder's account on the books maintained by Delaware
Service Company, Inc. (the "Transfer Agent"). The investor will have the same
rights of ownership with respect to such shares as if certificates had been
issued. An investor that is permitted to obtain a certificate may receive a
certificate representing shares purchased by sending a letter to the Transfer
Agent requesting the certificate. No charge is assessed by the Fund for any
certificate issued. Investors who hold certificates representing any of their
shares may only redeem those shares by written request. The investor's
certificate(s) must accompany such request.
ALTERNATIVE PURCHASE ARRANGEMENTS
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of .30% of the average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in the Fund with the
investment thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class
B Shares are subject to a CDSC if the shares are redeemed within six years of
purchase, and Class C Shares are subject to a CDSC if the shares are redeemed
within 12 months of purchase. Class B and Class C Shares are each subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
the respective Class. Class B Shares will automatically convert to Class A
Shares at the end of approximately eight years after purchase and, thereafter,
be subject to annual 12b-1 Plan expenses of up to a maximum of .30% of average
daily net assets of such shares. Unlike Class B Shares, Class C Shares do not
convert to another class.
CLASS A SHARES
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below, for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
-22-
<PAGE> 155
U.S. GOVERNMENT FUND A CLASS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering Amount as % of
Price Invested** Offering Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.96% 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
of Class A Shares but, under certain limited circumstances, a 1%
contingent deferred sales charge may apply upon redemption of such
shares. The contingent deferred sales charge ("Limited CDSC") that
may be applicable arises only in the case of certain shares that were
purchased at net asset value and triggered the payment of a dealer's
commission.
** Based on the net asset value per share of Class A Shares as of the end
of Government Fund, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
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 or
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 to dealers up to the full amount of
the front-end sales charge shown above. Dealers who receive 90% or
more of the sales charge may be deemed to be underwriters under the
Securities Act of 1933.
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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 commission of up to .15% of
the offering price in connection with sales of Class A Shares. Such dealers
must meet certain requirements in terms of organization and distribution
capabilities and their ability to increase sales. The Distributor should be
contacted for further information on these requirements as well as the basis
and circumstances upon which the additional commission will be paid.
Participating dealers may be deemed to have additional responsibilities under
the securities laws.
DEALER'S COMMISSION
For initial purchases of Class A Shares of $1,000,000 or more, 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
-------------------
(as a percentage of
AMOUNT OF PURCHASE 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 (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund Classes' Prospectus) may be aggregated with those of the
Class A Shares of the Fund. 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. Financial
advisers should contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The
schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES
Class B and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below, and Class C Shares redeemed within 12
months of purchase may be subject to a CDSC of 1%. CDSCs are charged as a
percentage of the dollar amount subject to the CDSC. 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 those shares at
the time of redemption. No CDSC will be imposed on increases in net asset
value above the initial purchase price, nor will a CDSC be assessed on
redemptions of shares acquired through reinvestment of dividends or capital
gains distributions. See Waiver of Contingent Deferred Sales Charge - Class B
and Class C Shares under Redemption and Exchange in the Prospectus for the Fund
Classes for a list of the instances in which the CDSC is waived.
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The following table sets forth the rates of the CDSC for Class B
Shares of the Fund:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER 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, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the Fund.
See Automatic Conversion of Class B Shares under Classes of Shares in the Fund
Classes' Prospectus. Such conversion will constitute a tax-free exchange for
federal income tax purposes. See Taxes in the Prospectus for the Fund Classes.
PLANS UNDER RULE 12B-1 FOR THE FUND CLASSES
Pursuant to Rule 12b-1 under the 1940 Act, Government Fund, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and
Class C Shares of Government Fund, Inc. (the "Plans"). Each Plan permits
Government Fund, Inc. to pay for certain distribution, promotional and related
expenses involved in the marketing of only the Class to which the Plan applies.
The Plans do not apply to the Institutional Class of shares. Such shares are
not included in calculating the Plans' fees, and the Plans are not used to
assist in the distribution and marketing of shares of the Institutional Class.
Shareholders of the Institutional Class may not vote on matters affecting the
Plans.
The Plans permit the Fund, pursuant to the Distribution Agreement, to
pay out of the assets of the Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. 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, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Fund may make payments out of the assets of the Class
A, Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares, or provide services to,
such classes.
The maximum aggregate fee payable by the Fund under the Plans, and
Government Fund, Inc.'s Distribution Agreement, is on an annual basis up to
.30% of the Class A Shares' average daily net assets for the year, and up to 1%
(.25% of which are service fees to be paid to the Distributor, dealers and
others for
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<PAGE> 158
providing personal service and/or maintaining shareholder accounts) of each of
the Class B Shares' and Class C Shares' average daily net assets for the year.
Government Fund, Inc.'s Board of Directors may reduce these amounts at any
time. The Distributor has agreed to waive these distribution fees to the
extent such fee for any day exceeds the net investment income realized by the
Class A, Class B and Class C Shares for such day.
On July 21, 1988, the Board of Directors set the fee for the Class A
Shares, pursuant to the Plan relating to that Class, at .25% of average daily
net assets. 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
prior to June 1, 1992 in the Government Income Series I class (which was
converted into what is now referred to as the Class A Shares) 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 fees 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, or in one
of the other classes that is now known as 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.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such Fund Classes. Subject to seeking best price and
execution, Government Fund, Inc. may, from time to time, buy or sell portfolio
securities from or to firms which receive payments under the Plans.
From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreement, as amended, have been
approved by the Board of Directors of Government Fund, Inc., including a
majority of the directors who are not "interested persons" (as defined in the
1940 Act) of Government Fund, Inc. and who have no direct or indirect
financial interest in the Plans by vote cast in person at a meeting duly called
for the purpose of voting on the Plans and such Agreements. Continuation of the
Plans and the Distribution Agreement, as amended, must be approved annually by
the Board of Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of the shareholders of, respectively, Class A
Shares, Class B Shares and Class C Shares and that there is a reasonable
likelihood of the Plan relating to a Fund Class providing a benefit to that
Class. The Plans and the Distribution Agreement, as amended, may be terminated
at any time without penalty by a majority of those directors who are not
"interested persons" or by a majority vote of the outstanding voting securities
of the relevant Fund Class. Any amendment materially increasing the maximum
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Fund Class' outstanding voting securities, as well as by a
majority vote of those directors who are not "interested persons." With
respect to the Class A Share Plan, any material increase in the maximum
percentage payable thereunder must be approved by a majority of the
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<PAGE> 159
outstanding voting Class B Shares. Also, any other material amendment to the
Plans must be approved by a majority vote of the directors including a majority
of the noninterested directors of Government Fund, Inc. having no interest in
the Plans. In addition, in order for the Plans to remain effective, the
selection and nomination of directors who are not "interested persons" of
Government Fund, Inc. must be effected by the directors who themselves are not
"interested persons" and who have no direct or indirect financial interest in
the Plans. Persons authorized to make payments under the Plans must provide
written reports at least quarterly to the Board of Directors for their review.
For the fiscal year ended July 31, 1996, payment from the Class A
Shares pursuant to its Plan amounted to $547,338 and such amount was used for
the following purposes: Annual/Semi-Annual Reports - $23,927; Broker Trails -
$426,518; Commissions to Wholesalers - $16,931; Dealer Service Expenses -
$12,221; Promotional-Broker Meetings - $8,413; Promotional-Other - $1,257;
Prospectus Printing - $27,268; Telephone - $3,211; and Wholesaler Expenses -
$27,592.
For the fiscal year ended July 31, 1996, payment from the Class B
Shares to its Plan amounted to $91,387 and such amount was used for the
following purposes: Broker Sales Charges - $28,066; Broker Trails - $22,851;
Commissions to Wholesalers - $3,910; Interest on Broker Sales Charges -
$35,905; Promotional-Broker Meetings - $460; Prospectus Printing - $113;
Telephone - $52; and Wholesaler Expenses - $30.
For the fiscal year ended July 31, 1996, payment from the Class C
Shares to its Plan amounted to $4,490 and such amount was used for the
following purposes: Broker Sales Charges - $4,128; Interest on Broker Sales
Charges - $300; and Other - $62.
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. Government Fund, Inc. 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.
OTHER PAYMENTS TO DEALERS -- CLASS A, CLASS B AND CLASS C SHARES
From time to time, at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of Fund 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.
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of fund shares may be in an amount up to
100% of the expenses incurred or awards made. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Group fund shares.
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<PAGE> 160
SPECIAL PURCHASE FEATURES -- CLASS A SHARES
BUYING CLASS A SHARES AT NET ASSET VALUE
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Government
Fund, Inc., any other fund in the Delaware Group, the Manager or any of the
Manager's affiliates that may in the future be created, legal counsel to the
funds and registered representatives and employees of broker/dealers who have
entered into Dealer's Agreements with the Distributor may purchase Class A
Shares and any such class of shares of any of the funds in the Delaware Group,
including any fund that may be created, at the net asset value per share.
Family members of such persons at their direction, and any employee benefit
plan established by any of the foregoing funds, corporations, counsel or
broker/dealers may also purchase shares at net asset value. Purchases of Class
A Shares may also be made by clients of registered representatives of an
authorized investment dealer at net asset value within 12 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, contingent deferred
sales charge or other sales charge has been assessed. Purchases of Class A
Shares may also be made at net asset value by bank employees who provide
services in connection with agreements between the bank and unaffiliated
brokers or dealers concerning sales of shares of Delaware Group funds.
Officers, directors and key employees of institutional clients of the Manager
or any of its affiliates may purchase Class A Shares at net asset value.
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. Such purchasers are required to sign a
letter stating that the purchase is for investment only and that the securities
may not be resold except to the issuer. Such purchasers may also be required
to sign or deliver such other documents as Government Fund, Inc. may
reasonably require to establish eligibility for purchase at net asset value.
Investors who held shares in any class of any Delaware Group fund as
of December 1, 1995, may purchase Class A Shares at net asset value through the
Delaware Group Asset Planner service if such shares are being purchased with
proceeds from the redemption of shares of a fund (other than a money market
fund) outside of the Delaware Group of funds. The Delaware Group Asset Planner
Account Registration Form and check for such a transaction should note that the
investment is being made under the "NAV/Asset Planner Accommodation Program."
Class A Shares may also be purchased at net asset value in an IRA through the
Delaware Group Asset Planner service if the assets being invested are being
transferred from an existing IRA held outside of the Delaware Group or are part
of a distribution received from an employer-sponsored or other retirement plan.
See Delaware Group Asset Planner under How To Buy Shares in the Prospectus for
the Fund Classes.
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.
Government Fund, Inc. must be notified in advance that the trade
qualifies for purchase at net asset value.
LETTER OF INTENTION
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention
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<PAGE> 161
provided by the Distributor and signed by the purchaser, and not legally
binding on the signer or Government Fund, Inc., which provides for the holding
in escrow by the Transfer Agent, of 5% of the total amount of the Class A
Shares intended to be purchased until such purchase is completed within the
13-month period. A Letter of Intention may be dated to include shares
purchased up to 90 days prior to the date the Letter is signed. The 13-month
period begins on the date of the earliest purchase. If the intended investment
is not completed, except as noted below, the purchaser will be asked to pay an
amount equal to the difference between the front-end sales charge on the Class
A Shares purchased at the reduced rate and the front-end sales charge otherwise
applicable to the total shares purchased. If such payment is not made within
20 days following the expiration of the 13-month period, the Transfer Agent
will surrender an appropriate number of the escrowed shares for redemption in
order to realize the difference. Such purchasers may include the value (at
offering price at the level designated in their Letter of Intention) of all
their shares of the Fund and of any class of any of the other mutual funds in
the Delaware Group (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC) previously purchased and still held as of the date of their Letter of
Intention toward the completion of such Letter.
Employers offering a Delaware Group retirement plan may also complete
a Letter of Intention to obtain a reduced front-end sales charge on investments
of Class A Shares made by the plan. The aggregate investment level of the
Letter of Intention will be determined and accepted by the Transfer Agent at
the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Group funds that are offered with a front-end sales
charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention)
and the employer will be billed for the difference in front-end sales charges
due, based on the plan's assets under management at that time. Employers may
also include the value (at offering price at the level designated in their
Letter of Intention) of all their shares intended for purchase that are offered
with a front-end sales charge, CDSC or Limited CDSC of any class. Class B
Shares and Class C Shares of the Fund and other Delaware Group funds which
offer corresponding classes of shares may also be aggregated for this purpose.
COMBINED PURCHASES PRIVILEGE
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class B Shares and/or Class C Shares of the
Fund, as well as shares of any other class of any of the other Delaware Group
funds (except
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<PAGE> 162
shares of any Delaware Group fund which do not carry a front-end sales charge,
CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a Delaware Group
fund which carried a front-end sales charge, CDSC or Limited CDSC).
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
RIGHT OF ACCUMULATION
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of the Fund as
well as shares of any other class of any of the other Delaware Group funds
which offer such classes (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge,
CDSC or Limited CDSC). If, for example, any such purchaser has previously
purchased and still holds Class A Shares and/or shares of any other of the
classes described in the previous sentence with a value of $40,000 and
subsequently purchases $60,000 at offering price of additional shares of Class
A Shares, the charge applicable to the $60,000 purchase would currently be
3.75%. For the purpose of this calculation, the shares presently held shall be
valued at the public offering price that would have been in effect were the
shares purchased simultaneously with the current purchase. Investors should
refer to the table of sales charges for Class A Shares to determine the
applicability of the Right of Accumulation to their particular circumstances.
12-MONTH REINVESTMENT PRIVILEGE
Holders of Class A Shares of the Fund (and of the Institutional Class
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Group offered with a front-end sales charge) who
redeem such shares have one year from the date of redemption to reinvest all or
part of their redemption proceeds in Class A Shares of the Fund or in Class A
Shares of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at
the net asset value next determined after receipt of remittance. A redemption
and reinvestment could have income tax consequences. It is recommended that a
tax adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge
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<PAGE> 163
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectus) in connection with the
features described above.
GROUP INVESTMENT PLANS
Group Investment Plans which are not eligible to purchase shares of
the Institutional Class may also benefit from the reduced front-end sales
charges for investments in Class A Shares set forth in the table on page 00,
based on total plan assets. 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 front-end sales charge reduction upon
each purchase, both initial and subsequent, upon notification to the Fund at
the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement Delaware Group investment accounts if they so notify the Fund in
connection with each purchase. For other retirement plans and special
services, see Retirement Plans for the Fund Classes under Investment Plans.
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
The Institutional Class is available for purchase only by: (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 the Manager or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional 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 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.
Shares of the Institutional Class are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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<PAGE> 164
INVESTMENT PLANS
REINVESTMENT PLAN/OPEN ACCOUNT
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the Fund Class
(based on the net asset value in effect on the reinvestment date) and credited
to the shareholder's account on that date. All dividends and distributions of
the Institutional Class are reinvested in the accounts of the holders of such
shares (based on the net asset value in effect on the reinvestment date). A
confirmation of each distribution from realized securities profits, if any,
will be mailed to shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase
and add full and fractional shares to their plan accounts at any time either
through their investment dealers or by sending a check or money order to the
Fund. Such purchases, which must meet the minimum subsequent purchase
requirements set forth in the Prospectus and this Part B, are made, for Class A
Shares at the public offering price, and for Class B Shares, Class C Shares and
the Institutional Class at the net asset value, at the end of the day of
receipt. A reinvestment plan may be terminated at any time. This plan does
not assure a profit nor protect against depreciation in a declining market.
REINVESTMENT OF DIVIDENDS IN OTHER DELAWARE GROUP FUNDS
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Group, including Government Fund, Inc.,
in states where their shares may be sold. Such investments will be at net
asset value at the close of business on the reinvestment date without any
front-end sales charge or service fee. The shareholder must notify the
Transfer Agent in writing and must have established an account in the fund into
which the dividends and/or distributions are to be invested. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses. See also Additional Methods of Adding to Your Investment -
Dividend Reinvestment Plan under How to Buy Shares in the Prospectus for the
Fund Classes.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Fund,
provided an account has been established. Dividends from Class A Shares may
not be directed to Class B Shares or Class C Shares. Dividends from Class B
Shares may only be directed to other Class B Shares and dividends from Class C
Shares may only be directed to other Class C Shares. See Classes of Shares in
the Fund Classes' Prospectus for the funds in the Delaware Group that are
eligible for investment by holders of Fund shares.
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.
INVESTING BY ELECTRONIC FUND TRANSFER
Direct Deposit Purchase Plan -- Investors may arrange for the Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments.
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<PAGE> 165
This method of investment assures the timely credit to the shareholder's
account of payments such as social security, veterans' pension or compensation
benefits, federal salaries, Railroad Retirement benefits, private payroll
checks, dividends, and disability or pension fund benefits. It also eliminates
lost, stolen and delayed checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at
a specified date although no check is required to initiate the transaction.
(2) If the shareholder's bank is not a member of NACHA, deductions will be made
by preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
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.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be $250 or more and subsequent investments under
such Plans must be for $25 or more. An investor wishing to take advantage of
either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to the Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a
reclamation, the Fund may liquidate sufficient shares from a shareholder's
account to reimburse the government or the private source. In the event there
are insufficient shares in the shareholder's account, the shareholder is
expected to reimburse the Fund.
DIRECT DEPOSIT PURCHASES BY MAIL
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. The Fund will accept
these investments, such as bank-by-phone, annuity payments and payroll
allotments, by mail directly from the third party. Investors should contact
their employers or financial institutions who in turn should contact the Fund
for proper instructions.
WEALTH BUILDER OPTION
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other
mutual funds in the Delaware Group. Shareholders of the Fund Classes may also
elect to invest in one or more of the other mutual funds in the Delaware Group
through the Wealth Builder Option. See Wealth Builder Option and Redemption
and Exchange in the Prospectus for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the
Delaware Group, subject to the conditions and limitations set forth in the Fund
Classes' Prospectus.
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The investment will be made on the 20th day of each month (or, if the fund
selected is not open that day, the next business day) at the public offering
price or net asset value, as applicable, of the fund selected on the date of
investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation at any time by
written notice to the Fund.
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. This option also is not available to shareholders
of the Institutional Class.
RETIREMENT PLANS FOR THE FUND CLASSES
An investment in the Fund may 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. The CDSC may be waived on certain redemptions of Class B
Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge -
Class B and Class C Shares under Redemption and Exchange in the Prospectus for
the Fund Classes for a list of the instances in which the CDSC is waived.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000 for retirement plans. Each purchase of Class C Shares
must be in an amount that is less than $1,000,000 for such plans. The maximum
purchase limitations apply only to the initial purchase of shares by the
retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts
("IRAs"), for which there is a minimum initial purchase of $250 and a minimum
subsequent purchase of $25 regardless of which Class is selected. Retirement
plans may be subject to plan establishment fees, annual maintenance fees and/or
other administrative or trustee fees. Fees are based upon the number of
participants in the plan as well as the services selected. Additional
information about fees is included in retirement plan materials. Fees are
quoted upon request. Annual maintenance fees may be shared by Delaware
Management Trust Company, the Transfer Agent, other affiliates of the Manager
and others that provide services to such plans.
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 shares of the Institutional
Class. See U.S. Government Fund Institutional Class, above. For additional
information on any of the plans and Delaware's retirement services, call the
Shareholder Service Center telephone number.
IT IS ADVISABLE FOR AN INVESTOR CONSIDERING ANY ONE OF THE RETIREMENT
PLANS DESCRIBED BELOW TO CONSULT WITH AN ATTORNEY, ACCOUNTANT OR A QUALIFIED
RETIREMENT PLAN CONSULTANT. FOR FURTHER DETAILS, INCLUDING APPLICATIONS FOR
ANY OF THESE PLANS, CONTACT YOUR INVESTMENT DEALER OR THE DISTRIBUTOR.
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Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the Plans described below.
PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS
Prototype Plans are available for self-employed individuals,
partnerships and corporations which replace the former Keogh and corporate
retirement plans. These plans contain profit sharing or money purchase pension
plan provisions. Contributions may be invested only in Class A and Class C
Shares.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A document is available for an individual who wants to establish an
IRA by making contributions which may be tax-deductible, even if the individual
is already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year or elects to be treated
as having no compensation for the year. Investments in each of the Fund
Classes are permissible.
The Tax Reform Act of 1986 (the "Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the
full deduction for IRAs ($2,000 for each working spouse and $2,250 for
one-income couples) was retained for all taxpayers who are not covered by an
employer-sponsored retirement plan. Even if a taxpayer (or his or her spouse)
is covered by an employer-sponsored retirement plan, the full deduction is
still available if the taxpayer's adjusted gross income is below $25,000
($40,000 for taxpayers filing joint returns). A partial deduction is allowed
for married couples with incomes between $40,000 and $50,000, and for single
individuals with incomes between $25,000 and $35,000. The Act does not permit
deductions for contributions to IRAs by taxpayers whose adjusted gross income
before IRA deductions exceeds $50,000 ($35,000 for singles) and who are active
participants in an employer-sponsored retirement plan. Taxpayers who are not
allowed deductions on IRA contributions still can make nondeductible IRA
contributions of as much as $2,000 for each working spouse ($2,250 for
one-income couples), and defer taxes on interest or other earnings from the
IRAs. Special rules apply for determining the deductibility of contributions
made by married individuals filing separate returns.
A company or association may establish a Group IRA for employees or
members who want to purchase shares of the Fund. Purchases of $1 million or
more of Class A Shares qualify for purchase at net asset value but may, under
certain circumstances, be subject to a Limited CDSC. See Purchasing Shares for
information on reduced front-end sales charges applicable to Class A Shares.
Investments generally must be held in the IRA until age 59 1/2 in
order to avoid premature distribution penalties, but distributions generally
must commence no later than April 1 of the calendar year following the year in
which the participant reaches age 70 1/2. Individuals are entitled to revoke
the account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the
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IRA, except, if the IRA is established more than seven days after receipt of
the IRA Disclosure Statement, the account may not be revoked. Distributions
from the account (except for the pro-rata portion of any nondeductible
contributions) are fully taxable as ordinary income in the year received.
Excess contributions removed after the tax filing deadline, plus extensions,
for the year in which the excess contributions were made are subject to a 6%
excise tax on the amount of excess. Premature distributions (distributions
made before age 59 1/2, except for death, disability and certain other limited
circumstances) will be subject to a 10% excise tax on the amount prematurely
distributed, in addition to the income tax resulting from the distribution.
See Alternative Purchase Arrangements - Class B Shares and Class C Shares under
Classes of Shares, Contingent Deferred Sales Charge - Class B Shares and Class
C Shares under Classes of Shares; and Waiver of Contingent Deferred Sales
Charge - Class B and Class C Shares under Redemption and Exchange in the Fund
Classes' Prospectus concerning the applicability of a CDSC upon redemption.
See Appendix A--IRA Information for additional IRA information.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Fund Classes is available for investment by a
SEP/IRA.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")
Employers with 25 or fewer eligible employees can establish this plan
which permits employer contributions and salary deferral contributions in Class
A Shares and Class C Shares only.
PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Plan documents are available to
enable employers to establish a plan. An employer may also elect to make
profit sharing contributions and/or matching contributions with investments in
only Class A Shares and Class C Shares or certain other funds in the Delaware
Group. Purchases under the plan may be combined for purposes of computing the
reduced front-end sales charge applicable to Class A Shares as set forth in the
table on page 00.
DEFERRED COMPENSATION PLAN FOR PUBLIC SCHOOLS AND NON-PROFIT ORGANIZATIONS
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and
certain non-profit organizations to use mutual fund shares held in a custodial
account to fund deferred compensation arrangements for their employees. A
custodial account agreement is available for those employers who wish to
purchase any of the Fund Classes in conjunction with such an arrangement.
Applicable front-end sales charges with respect to Class A Shares for such
purchases are set forth in the table on page 00.
DEFERRED COMPENSATION PLAN FOR STATE AND LOCAL GOVERNMENT EMPLOYEES ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of any of the Fund Classes. Although investors
may use their own plan, there is available a Delaware Group 457 Deferred
Compensation Plan. Interested investors should contact the Distributor or
their investment dealers to obtain further information. Applicable front-end
sales charges for such purchases of Class A Shares are set forth in the table
on page 00.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated after receipt of the order by the Fund or its agent.
Orders for purchases of Class B Shares, Class C Shares and the Institutional
Class are effected at the net asset value per share next calculated after
receipt of the order by Government Fund, Inc. or its agent. Selling dealers
have the responsibility of transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable sales charges. Offering price and net asset
value are computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
Fund's financial statements which are incorporated by reference into this Part
B.
The Fund's net asset value per share is computed by adding the value
of all of the securities and other assets in the portfolio, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and
fees are accrued daily. In determining the Fund's total net assets, U.S.
government and other debt securities are valued at the mean between the last
reported bid and asked prices. Options are valued at the last reported sales
price or, if no sales are reported, at the mean between bid and asked prices.
Short-term investments having remaining maturities of 60 days or less are
valued at amortized cost. Non-Exchange-traded options are valued at fair value
using a mathematical model. All other securities and assets are valued at fair
value as determined in good faith and in a method approved by the Board of
Directors of the Fund.
Each Class of the Fund will bear, pro-rata, all of the common expenses
of the Fund. The net asset values of all outstanding shares of each Class of
the Fund will be computed on a pro-rata basis for each outstanding share based
on the proportionate participation in the Fund represented by the value of
shares of that Class. All income earned and expenses incurred by the Fund will
be borne on a pro-rata basis by each outstanding share of a Class, based on
each Class' percentage in the Fund represented by the value of shares of such
Classes, except that the Institutional Class will not incur any of the expenses
under the Fund's 12b-1 Plans and the Class A, Class B and Class C 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 net asset value per share of each Class is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require the Fund to redeem shares by sending a
WRITTEN REQUEST, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for
Class A Shares and Institutional Class shares only if a shareholder
specifically requests them. Certificates are not issued for Class B Shares or
Class C Shares. If stock certificates have been issued for shares being
redeemed, they must accompany the written request. For redemptions of $50,000
or less paid to the shareholder at the address of record, the request must be
signed by all owners of the shares or the investment dealer of record, but a
signature guarantee is not required. When the redemption is for more than
$50,000, or if payment is made to someone else or to another address,
signatures of all record owners are required and a signature guarantee may be
required. 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 request further documentation from corporations, retirement plans,
executors, administrators, trustees or guardians.
In addition to redemption of Fund shares, the Distributor, acting as
agent of the Fund, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be
more or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the Fund or its agent,
less any applicable CDSC or Limited CDSC. This is computed and effective at the
time the offering price and net asset value are determined. See Determining
Offering Price and Net Asset Value. The Fund and the Distributor end their
business days at 5 p.m., Eastern time. This offer is discretionary and may be
completely withdrawn without further notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then
settled as an ordinary transaction with the broker/dealer (who may make a
charge to the shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange in the Prospectus for the Fund Classes. 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 or 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 C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for the Fund Classes. Except for the applicable CDSC or Limited
CDSC, and with respect to the expedited payment by wire described below for
which there is currently a $7.50 bank wiring cost, neither the Fund nor the
Distributor charges a fee for redemptions or repurchases, but such fees could
be charged at any time in the future.
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<PAGE> 171
Payment for shares redeemed will ordinarily be mailed the next
business day, but in no case later than seven days, after receipt of a
redemption request in good order; provided, however, that each commitment to
mail or wire redemption proceeds by a certain time, as described below, is
modified by the qualifications described in the next paragraph.
The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared. This potential
delay can be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason,
the Fund will automatically redeem from the shareholder's account the shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the Securities and Exchange Commission has
provided for such suspension for the protection of shareholders, the Fund may
postpone payment or suspend the right of redemption or repurchase. In such
case, the shareholder may withdraw the request for redemption or leave it
standing as a request for redemption at the net asset value next determined
after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made in either cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid
or distributed in kind would be valued as described in Determining Offering
Price and Net Asset Value. Subsequent sale by an investor receiving a
distribution in kind could result in the payment of brokerage commissions.
However, Government Fund, Inc. has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder.
The value of the Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
SMALL ACCOUNTS
Before the Fund involuntarily redeems shares from an account that,
under the circumstances noted in the relevant Prospectus, has remained below
the minimum amounts required by the Fund's Prospectuses and sends the proceeds
to the shareholder, the shareholder will be notified in writing that the value
of the shares in the account is less than the minimum required and will be
allowed 60 days from the date of notice to make an additional investment to
meet the required minimum. See The Conditions of Your Purchase under How to
Buy Shares in the Prospectuses. Any redemption in an inactive account
established with a minimum investment may trigger mandatory redemption. No
CDSC or Limited CDSC will apply to the redemptions described in this paragraph.
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CHECKWRITING FEATURE
Shareholders of the Class A Shares and the Institutional Class holding
shares for which certificates have not been issued may request on the
investment application that they be provided with special forms of checks which
may be issued to redeem their shares by drawing on the Government Fund, Inc.
account with CoreStates Bank, N.A. Normally, it takes two weeks from the date
the shareholder's initial purchase check clears to receive the first order of
checks. The use of any form of check other than the Fund's check will not be
permitted unless approved by the Fund. The Checkwriting Feature is not
available for Retirement Plans, Class B Shares and Class C Shares.
(1) Redemption checks must be made payable in an amount of $500 OR
MORE.
(2) Checks must be signed by the shareholder(s) of record, or in
the case of an organization, by the authorized person(s). If registration is
in more than one name, unless otherwise indicated on the investment application
or your checkwriting authorization form, these checks must be signed by ALL
OWNERS before the Fund will honor them. Through this procedure the shareholder
will continue to be entitled to distributions paid on these shares up to the
time the check is presented for payment.
(3) If a shareholder who recently purchased shares by check seeks
to redeem all or a portion of those shares through the Checkwriting Feature,
the Fund will not honor the redemption request unless it is reasonably
satisfied of the collection of the investment check. The hold period against a
recent purchase may be up to but not in excess of 15 business days, depending
upon the origin of the investment check.
(4) If the amount of the check is greater than the value of the
shares held in the shareholder's account, the check will be returned and the
shareholder's bank may charge a fee.
(5) Checks may not be used to close accounts.
The Fund reserves the right to revoke the Checkwriting Feature of
shareholders who overdraw their accounts or, if in the opinion of management,
such revocation is in the Fund's best interest.
Shareholders will be subject to CoreStates Bank, N.A.'s rules and
regulations governing similar accounts. This service may be terminated or
suspended at any time by CoreStates Bank, N.A., the Fund or the Transfer Agent.
As the Fund must redeem shares at their net asset value next determined
(subject, in the case of Class A Shares, to any Limited CDSC), it will not be
able to redeem all shares held in a shareholder's account by means of a check
presented directly to the bank. The Fund and the Transfer Agent will not be
responsible for the inadvertent processing of post-dated checks or checks more
than six months old.
Stop-Payment Requests--Investors may request a stop payment on checks
by providing the Fund with a written authorization to do so. Oral requests
will be accepted provided that the Fund promptly receives a written
authorization. Such requests will remain in effect for six months unless
renewed or canceled. The Fund will use its best efforts to effect stop-payment
instructions, but does not promise or guarantee that such instructions will be
effective.
* * *
The Fund has made available certain redemption privileges, as
described below. The Fund reserves the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
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EXPEDITED TELEPHONE REDEMPTIONS
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which
certificates have not been issued may call the Shareholder Service Center at
800-523-1918 or, in the case of shareholders of the Institutional Class, their
Client Services Representative at 800-828-5052 prior to the time the offering
price and net asset value are determined, as noted above, and have the proceeds
mailed to them at the record address. Checks payable to the shareholder(s) of
record will normally be mailed the next business day, but no later than seven
days, after the receipt of the redemption request. This option is only
available to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the Fund before the request is received. Payment
will be made by wire or check to the bank account designated on the
authorization form as follows:
1. PAYMENT BY WIRE: Request that Federal Funds be wired to the
bank account designated on the authorization form. Redemption proceeds will
normally be wired on the next business day following receipt of the redemption
request. There is a $7.50 wiring fee (subject to change) charged by CoreStates
Bank, N.A. which will be deducted from the withdrawal proceeds each time the
shareholder requests a redemption. If the proceeds are wired to the
shareholder's account at a bank which is not a member of the Federal Reserve
System, there could be a delay in the crediting of the funds to the
shareholder's bank account.
2. PAYMENT BY CHECK: Request a check be mailed to the bank
account designated on the authorization form. Redemption proceeds will
normally be mailed the next business day, but no later than seven days, from
the date of the telephone request. This procedure will take longer than the
Payment by Wire option (1 above) because of the extra time necessary for the
mailing and clearing of the check after the bank receives it.
REDEMPTION REQUIREMENTS: In order to change the name of the bank and
the account number it will be necessary to send a written request to the Fund
and a signature guarantee may be required. 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.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.
If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.
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 Fund 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. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
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SYSTEMATIC WITHDRAWAL PLANS
Shareholders of Class A, Class B and Class C Shares who own or
purchase $5,000 or more of shares at the offering price, or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Fund does not recommend any specific
amount of withdrawal. This $5,000 minimum does not apply for the Fund's
prototype retirement plans. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend) and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not
recommended for all investors and should be started only after careful
consideration of its operation and effect upon the investor's savings and
investment program. To the extent that withdrawal payments from the plan
exceed any dividends and/or realized securities profits distributions paid on
shares held under the plan, the withdrawal payments will represent a return of
capital, and the share balance may in time be depleted, particularly in a
declining market.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of
Class A Shares through a periodic investment program in a fund managed by the
Manager must be terminated before a Systematic Withdrawal Plan with respect to
such shares can take effect, except if the shareholder is a participant in one
of our retirement plans or is investing in Delaware Group funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at
net asset value and a dealer's commission has been paid on that purchase.
Redemptions of Class B Shares or Class C Shares pursuant to a Systematic
Withdrawal Plan may be subject to a CDSC, unless the annual amount selected to
be withdrawn is less than 12% of the account balance on the date that the
Systematic Withdrawal Plan was established. See Waiver of Contingent Deferred
Sales Charge - Class B and Class C Shares and Waiver of Limited CDSC - Class A
Shares under Redemption and Exchange in the Prospectus for the Fund Classes.
Shareholders should consult their financial advisers to determine whether a
Systematic Withdrawal Plan would be suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must
complete an authorization form. If the recipient of Systematic Withdrawal Plan
payments is other than the registered shareholder, the shareholder's signature
on this authorization must be guaranteed. 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. This plan may be terminated by the shareholder or the
Transfer Agent at any time by giving written notice.
The Systematic Withdrawal Plan is not available for the Institutional
Class.
-42-
<PAGE> 175
DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS
In determining daily dividends, the amount of net investment income
for the Fund will be determined as of the close of regular trading on the New
York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the
Exchange is open, and shall include investment income accrued by the Fund, less
the estimated expenses of the Fund incurred since the last determination of net
asset value. Gross investment income consists principally of interest accrued
and, where applicable, net pro-rata amortization of premiums and discounts
since the last determination. The dividend declared, as noted above, will be
deducted immediately before the net asset value calculation is made. Net
investment income earned on days when the Fund is not open will be declared as
a dividend on the next business day.
Purchases of Fund shares 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. Investors desiring to
guarantee wire payments must have an acceptable financial condition and credit
history in the sole discretion of the Fund. The Fund reserves the right to
terminate this option at any time. Purchases by check earn dividends upon
conversion to Federal Funds, normally one business day after receipt.
Each Class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class A, Class B and Class C
Shares alone will incur distribution fees under their respective 12b-1 Plans.
Dividends and any realized securities profits distributions are
automatically reinvested in additional shares of the same Class at the net
asset value in effect on the first business day after month end which provides
the effect of compounding dividends, unless, in the case of shareholders in the
Fund Classes, the election to receive dividends in cash has been made.
Dividend payments of $1.00 or less will be automatically reinvested,
notwithstanding a shareholder's election to receive dividends in cash. If such
a shareholder's dividends increase to greater than $1.00, the shareholder would
have to file a new election in order to begin receiving dividends in cash
again. Payment by check of cash dividends will ordinarily be mailed within
three business days after the payable date. If a shareholder redeems an entire
account, all dividends accrued to the time of the withdrawal will be paid by
separate check at the end of that particular monthly dividend period,
consistent with the payment and mailing schedule described above. Any check in
payment of dividends or other distributions which cannot be delivered by the
United States 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. The
Fund may deduct from a shareholder's account the Fund's effort to locate a
shareholder if a shareholder's mail is returned by the United States Post
Office or the Fund is otherwise unable to locate the shareholder or verify the
shareholder's mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for their
location services.
Any distributions from net realized securities profits will be made
twice a year. The first payment 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.
Such distributions will be reinvested in shares at the net asset value in
effect on the first business day after month end, unless the shareholders of
the Fund Classes elect to receive them in cash. The Fund will mail a quarterly
statement showing the dividends paid and all the transactions made during the
previous period.
-43-
<PAGE> 176
TAXES
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As such, the Fund will not be subject to
federal income tax to the extent its earnings are distributed. The Fund
intends to meet the calendar year distribution requirements imposed by the Code
to avoid the imposition of a 4% excise tax.
Persons not subject to tax will not be required to pay taxes on
distributions.
Dividends paid by the Fund from its ordinary income and distributions
of net realized short-term capital gains are taxable to shareholders as
ordinary income for federal income tax purposes. Distributions made from the
Fund net realized long-term capital gains, if any, are taxable to shareholders
as long-term capital gains, regardless of the length of time an investor has
held such shares, and these gains are currently taxed at long-term capital gain
rates. The tax status of dividends and distributions paid to shareholders will
not be affected by whether they are paid in cash or in additional shares.
The Fund intends to offset the Fund's realized securities profits to
the extent of the Fund's capital losses carried forward. For the fiscal year
ended July 31, 1996, the Fund had a capital loss of $4,166,601. The Fund had
accumulated capital losses at July 31, 1996 of $36,739,017, which may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 1997 -- $2,596,096; 1998 -- $1,746,916; 2001
- -- $1,622,896; 2002 -- $17,400,711; 2003 -- $9,205,797; and 2004 -- $4,166,601.
Distributions may also be subject to state and local taxes;
shareholders are advised to consult with their tax advisers in this regard.
Shares of the Fund will be exempt from Pennsylvania county personal
property taxes. Shareholders will be notified annually as to the federal
income tax status of dividends and distributions paid by the Fund.
-44-
<PAGE> 177
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the
supervision and direction of Government Fund, Inc.'s Board of Directors.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On July 31, 1996, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
supervising in the aggregate more than $28 billion in assets in the various
institutional or separately managed (approximately $17,646,238,000) and
investment company ($10,764,119,000) accounts.
The Investment Management Agreement for the Fund is dated April 3,
1995 and was approved by shareholders on March 29, 1995. The Agreement has an
initial term of two years and may be renewed each year only so long as such
renewal and continuance are specifically approved at least annually by the
Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund, and only if the terms and the renewal thereof have been
approved by the vote of a majority of the directors of Government Fund, Inc.
who are not parties thereto or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement is terminable without penalty on 60 days' notice by the directors of
Government Fund, Inc. or by the Manager. The Agreement will terminate
automatically in the event of its assignment.
The Investment Management Agreement provides that the Fund shall pay
the Manager a management fee equal to (on an annual basis) .60% of its average
daily net assets, less all directors' fees paid to the unaffiliated directors
by the Fund. On July 31, 1996, the total net assets of the Fund were
$185,719,070. Under the general supervision of the Board of Directors, the
Manager makes all investment decisions which are implemented by the Fund. The
Manager pays the salaries of all directors, officers and employees who are
affiliated with both the Manager and Government Fund, Inc. The investment
management fees paid by the Fund for the fiscal years ended July 31, 1994, 1995
and 1996 were $1,476,723, $1,338,755 and $1,205,666, respectively.
Except for those expenses borne by the Manager under the Investment
Management Agreement and the Distributor under the Distribution Agreement, the
Fund is responsible for all of its own expenses. Among others, these include
the Fund's proportionate share of rent and certain other administrative
expenses, the investment management fees; transfer and dividend disbursing
agent fees and costs; custodian expenses; federal and state securities
registration fees; proxy costs; and the costs of preparing prospectuses and
reports sent to shareholders. The ratios of expenses to average daily net
assets for the fiscal year ended July 31, 1996 for Class A Shares, Class B
Shares and the Institutional Class were 1.20%, 1.90% and .90%, respectively.
The ratios for the Class A Shares and the Class B Shares reflect the impact of
their respective 12b-1 Plans. The Fund anticipates that the ratio of expenses
to average daily net assets of Class C Shares will be approximately equal to
that of the Class B Shares.
By California regulation, the Manager is required to waive certain
fees and reimburse the Fund for certain expenses to the extent that the Fund's
annual operating expenses, exclusive of taxes, interest, brokerage commissions
and extraordinary expenses, exceed 2 1/2% of its first $30 million of average
daily net assets, 2% of the next $70 million of average daily net assets and 1
1/2% of any additional average daily net assets. For the fiscal year ended
July 31, 1996, no such reimbursement was necessary or paid.
-45-
<PAGE> 178
DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of Fund shares under
a Distribution Agreement dated April 3, 1995, as amended on November 29, 1995.
The Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by the Fund on behalf of Class
A Shares, Class B Shares and Class C Shares under their respective 12b-1 Plans.
Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as the
national distributor of the Fund shares. On that date Delaware Distributors,
L.P., a newly formed limited partnership, succeeded to the business of DDI.
All officers and employees of DDI became officers and employees of Delaware
Distributors, L.P. DDI is the corporate general partner of Delaware
Distributors, L.P. and both DDI and Delaware Distributors, L.P. are indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to a Shareholders Services Agreement dated June 29, 1988. The
Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate agreement. The Transfer Agent is also an indirect, wholly
owned subsidiary of Delaware Management Holdings, Inc.
-46-
<PAGE> 179
OFFICERS AND DIRECTORS
The business and affairs of Government Fund, Inc. are managed under
the direction of its Board of Directors.
Certain officers and directors of Government Fund, Inc. hold identical
positions in each of the other funds in the Delaware Group. On August 31,
1996, Government Fund, Inc.'s officers and directors owned less then 1% of the
outstanding shares of the Class A Shares, Class B Shares, Class C Shares and
the Institutional Class.
As of August 31, 1996, management believes the following accounts held
5% or more of the outstanding shares of a Class:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Class A Shares Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
P.O. Box 41621
Jacksonville, FL 32203 1,234,011(1) 5.76%
Class B Shares Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Dr. East 3rd Fl
Jacksonville, FL 32246 208,643(1) 15.85%
Class C Shares A.G. Peters & Son Inc.
Profit Sharing Trust DTD 12/1/84
1025 North Black Horse Pike
Runnemede, NJ 08078 29,536 20.90%
Edgar U. Peters
14228 Teasdale Avenue
Hudson, FL 34667 17,444 12.35%
A.G. Peters & Son Inc.
Cash Management Account
1025 North Black Horse Pike
Runnemede, NJ 08078 16,216 11.48%
</TABLE>
(1) Government Fund, Inc. believes that these shares are held of record for
the benefit of others.
-47-
<PAGE> 180
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Class C Shares Merrill Lynch, Pierce, Fenner
& Smith Mutual Fund Operations
Attention Book Entry
4800 Deer Lake Dr. East 3rd Fl
Jacksonville, FL 32246 15,822(1) 11.20%
NFSC FEBO BRB-072664
Barbara Lue Saxon
Harold Gene Saxon
408 Hickory Hills Road
Minden, LA 71055 9,961 7.05%
Institutional Amalgamated Bank of New York
Cust TWU-NYC Private Bus Lines
Pension Fund
Amivest Corp. Discretionary
Investment Manager
P.O. Box 370 Cooper Station
New York, NY 10276 296,839 29.08%
Amalgamated Bank of New York
Cust NYC Htl Trds Cncl & Htl Assn
Pension Fund
Amivest Corp. Discretionary
Investment Manager
P.O. Box 370 Cooper Station
New York, NY 10276 169,538 16.61%
Amalgamated Bank of New York
Cust Elevator Division
Retirement Benefit Plan
Amivest Corp. Discretionary
Investment Manager
P.O. Box 370 Cooper Station
New York, NY 10276 111,176 10.89%
Amalgamated Bank of New York
Cust Local 917 Pension Fund
Amivest Corp. Discretionary
Fund Manager
11-15 Union Square
New York, NY 10003 99,668 9.76%
</TABLE>
(1) Government Fund, Inc. believes that these shares are held of record for
the benefit of others.
-48-
<PAGE> 181
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Institutional Amalgamated Bank of New York
Cust Local Union 154 Roofers
Waterproofers & Allied Workers
Pension Fund
Amivest Corp. Discretionary
Investment Manager
P.O. Box 370 Cooper Station
New York, NY 10276 75,519 7.40%
Delaware Management Company
Employee Profit Sharing Trust
1818 Market Street
Philadelphia, PA 19103 73,170(2) 7.17%
Amalgamated Bank of New York
Cust Marble Industry Trust Fund
Amivest Corp Account
P.O. Box 370 Cooper Station
New York, NY 10276 65,482 6.41%
Amalgamated Bank of New York
Cust Pension Fund of
Windowcleaners Local 2 SEIU
Amivest Corp.
Discretionary Advisory
P.O. Box 370 Cooper Station
New York, NY 10003 52,645 5.16%
</TABLE>
DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings Ltd., Founders
Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc. are direct
or indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly owned subsidiary
of Lincoln National Corporation ("Lincoln National") was completed. In
connection with the merger, a new Investment Management Agreement between
Government Fund, Inc. on behalf of the Fund and the Manager was executed
following shareholder approval. DMH and the Manager are now indirect, wholly
owned subsidiaries, and subject to the ultimate control, 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.
Directors and principal officers of Government Fund, Inc. are noted
below along with their ages and their business experience for the past five
years. Unless otherwise noted, the address of each officer and director is One
Commerce Square, Philadelphia, PA 19103.
(2) Shares held of record by Delaware Management Company Employee Profit
Sharing Trust are held for the benefit of others.
-49-
<PAGE> 182
*WAYNE A. STORK (59)
Chairman, President, Chief Executive Officer, Director and/or Trustee
of Government Fund, Inc., 16 other investment companies in the
Delaware Group (which excludes Delaware Pooled Trust, Inc.),
Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
WINTHROP S. JESSUP (51)
Executive Vice President of Government Fund, Inc., 16 other investment
companies in the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware
Management Company, Inc., Delaware International Holdings Ltd.
and Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various executive
capacities at different times within the Delaware
organization.
RICHARD G. UNRUH, JR. (56)
Executive Vice President of Government Fund, Inc. and each of the
other 17 investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior Vice President of Delaware Management Holdings, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.
- ------------------
*Director affiliated with Government Fund, Inc.'s investment manager and
considered an "interested person" as defined in the 1940 Act.
-50-
<PAGE> 183
PAUL E. SUCKOW (49)
Executive Vice President/Chief Investment Officer, Fixed Income of
Government Fund, Inc., each of the other 17 investment
companies in the Delaware Group and Delaware Management
Company, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Senior Vice President/Chief Investment Officer, Fixed Income of
Delaware Management Holdings, Inc.
Director of Founders CBO Corporation.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed income portfolio
manager for the Delaware Group.
WALTER P. BABICH (68)
Director and/or Trustee of Government Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
ANTHONY D. KNERR (57)
Director and/or Trustee of Government Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and
Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
ANN R. LEVEN (55)
Director and/or Trustee of Government Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of
the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.
-51-
<PAGE> 184
W. THACHER LONGSTRETH (75)
Director and/or Trustee of Government Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
CHARLES E. PECK (70)
Director and/or Trustee of Government Fund, Inc. and each of the other
17 investment companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer
of The Ryland Group, Inc., Columbia, MD.
DAVID K. DOWNES (56)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Government Fund, Inc., each of the other 17
investment companies in the Delaware Group and Delaware
Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
Executive Vice President/Chief Operating Officer/Chief Administrative
Officer/Chief Financial Officer/Treasurer of Delaware
Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director
of DMH Corp.
Senior Vice President/Chief Administrative Officer and Director of
Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International
Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Capital Management, Inc.
Senior Vice President/Chief Financial Officer and Director of Founders
Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer
of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President
from December 1985 through March 1992 and Vice Chairman from
March 1992 through August 1992.
-52-
<PAGE> 185
GEORGE M. CHAMBERLAIN, JR. (49)
Senior Vice President and Secretary of Government Fund, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc. and Delaware Distributors,
L.P.
Executive Vice President, Secretary and Director of Delaware
Management Trust Company. Senior Vice President, Secretary and
Director of DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Founders Holdings, Inc., Delaware Investment & Retirement
Services, Inc. and Delaware Capital Management, Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware
organization.
ROGER A. EARLY (42)
Vice President/Senior Portfolio Manager of Government Fund, Inc., of
nine other investment companies in the Delaware Group and of
Delaware Management Company, Inc.
Before joining the Delaware Group in 1994, Mr. Early was Senior Vice
President/Portfolio Manager for Federated Investors,
Pittsburgh, PA from 1984 to 1994.
JOSEPH H. HASTINGS (46)
Vice President/Corporate Controller of Government Fund, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Founders Holdings, Inc. and
Delaware International Holdings Ltd.
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings
served as Controller and Treasurer for Fine Homes
International, L.P., Stamford, CT from 1987 to 1989.
MICHAEL P. BISHOF (34)
Vice President/Treasurer of Government Fund, Inc., each of the other
17 investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.
and Founders Holdings, Inc.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.
-53-
<PAGE> 186
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from
Government Fund, Inc. and the total compensation received from all Delaware
Group funds for the fiscal year ended July 31, 1996 and an estimate of annual
benefits to be received upon retirement under the Delaware Group Retirement
Plan for Directors/Trustees as of July 31, 1996.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS
ACCRUED ESTIMATED TOTAL
AGGREGATE AS PART OF ANNUAL COMPENSATION
COMPENSATION GOVERNMENT BENEFITS FROM ALL 18
FROM GOVERNMENT FUND, INC. UPON DELAWARE
NAME FUND, INC. EXPENSES RETIREMENT* GROUP FUNDS
<S> <C> <C> <C> <C>
W. Thacher Longstreth $1,933 None $30,000 $47,993
Ann R. Leven $2,258 None $30,000 $56,129
Walter P. Babich $2,066 None $30,000 $51,993
Anthony D. Knerr $2,224 None $30,000 $55,129
Charles E. Peck $2,090 None $30,000 $51,129
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of
his or her retirement from the Board, has attained the age of 70 and
served on the Board for at least five continuous years, is entitled to
receive payments from each fund in the Delaware Group for a period
equal to the lesser of the number of years that such person served as
a director or the remainder of such person's life. The amount of such
payments will be equal, on an annual basis, to the amount of the
annual retainer that is paid to directors of each fund at the time of
such person's retirement. If an eligible director retired as of July
31, 1996, he or she would be entitled to annual payments totaling
$30,000, in the aggregate, from all of the funds in the Delaware
Group, based on the number of funds in the Delaware Group as of that
date.
-54-
<PAGE> 187
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Group are set forth
in the relevant prospectuses for such classes. The following supplements that
information. The Fund may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
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. A shareholder requesting such an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund or
series and the purchase of another. The sale may involve either a capital gain
or loss to the shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges
between funds in the Delaware Group on behalf of their clients by telephone or
other expedited means. This service may be discontinued or revised at any time
by the Transfer Agent. Such exchange requests may be rejected if it is
determined that a particular request or the total requests at any time could
have an adverse effect on any of the funds. Requests for expedited exchanges
may be submitted with a properly completed exchange authorization form, as
described above.
TELEPHONE EXCHANGE PRIVILEGE
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 or, in the case of shareholders of
the Institutional Class, their Client Services Representative at 800-828-5052
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder
information and dividend option as the account from which the shares were
exchanged. The exchange requirements of the fund into which the exchange is
being made, such as sales charges, eligibility and investment minimums, must be
met. (See the prospectus of the fund desired or inquire by calling the
Transfer Agent or, as relevant, your Client Services Representative.) Certain
funds are not available for retirement plans.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Fund reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
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<PAGE> 188
As described in the Fund's Prospectuses, 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 Fund shares
which are reasonably believed to be genuine.
RIGHT TO REFUSE TIMING ACCOUNTS
With regard to accounts that are administered by market timing
services ("Timing Firms") to purchase or redeem shares based on changing
economic and market conditions ("Timing Accounts"), the Fund will refuse any
new timing arrangements, as well as any new purchases (as opposed to exchanges)
in Delaware Group funds from Timing Firms. The Fund reserves the right to
temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain
predetermined market indicators, will be aggregated for purposes of the
exchange limits.
RESTRICTIONS ON TIMED EXCHANGES
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1)
Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4)
Limited-Term Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve,
(7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Group funds are available for timed exchanges. Assets redeemed or exchanged
out of Timing Accounts in Delaware Group funds not listed above may not be
reinvested back into that Timing Account. The Fund reserves the right to apply
these same restrictions to the account(s) of any person whose transactions seem
to follow a timing pattern (as described above).
The Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting significant
portions of the Fund's assets. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to the Fund and
therefore may be refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
DELAWARE FUND seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that
are believed to demonstrate potential for income and capital growth. DEVON
FUND seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
TREND FUND seeks long-term growth by investing in common stock issued
by emerging growth companies exhibiting strong capital appreciation potential.
-56-
<PAGE> 189
VALUE FUND seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DELCAP FUND seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
DECATUR INCOME FUND seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. DECATUR TOTAL RETURN
FUND seeks long-term growth by investing primarily in securities that provide
the potential for income and capital appreciation without undue risk to
principal.
DELCHESTER FUND seeks as high a current income as possible by
investing principally in high yield, high risk corporate bonds, and also in
U.S. government securities and commercial paper. STRATEGIC INCOME FUND seeks
to provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities,
investment grade fixed-income securities and foreign government and other
foreign fixed-income securities. In addition, the fund may invest in U.S.
equity securities.
LIMITED-TERM GOVERNMENT FUND seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. GOVERNMENT MONEY FUND seeks
maximum current income with preservation of principal and maintenance of
liquidity by investing only in short-term securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities, and repurchase agreements collateralized by such securities,
while maintaining a stable net asset value.
DELAWARE CASH RESERVE seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in
short-term money market instruments, while maintaining a stable net asset
value.
TAX-FREE USA FUND seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers.
TAX-FREE INSURED FUND invests in these same types of securities but with an
emphasis on municipal bonds protected by insurance guaranteeing principal and
interest are paid when due. TAX-FREE USA INTERMEDIATE FUND seeks a high level
of current interest income exempt from federal income tax, consistent with the
preservation of capital by investing primarily in municipal bonds.
TAX-FREE MONEY FUND seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
TAX-FREE PENNSYLVANIA FUND seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.
-57-
<PAGE> 190
INTERNATIONAL EQUITY FUND seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. GLOBAL BOND FUND
seeks to achieve current income consistent with the preservation of principal
by investing primarily in global fixed-income securities that may also provide
the potential for capital appreciation. GLOBAL ASSETS FUND seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. EMERGING MARKETS FUND
seeks long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries.
ENTERPRISE FUND seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S.
GROWTH FUND seeks to maximize capital appreciation by investing in companies of
all sizes which have low dividend yields, strong balance sheets and high
expected earnings growth rates relative to their industry. WORLD GROWTH FUND
seeks to maximize total return (capital appreciation and income), principally
through investments in an internationally diversified portfolio of equity
securities. NEW PACIFIC FUND seeks long-term capital appreciation by investing
primarily in companies which are domiciled in or have their principal business
activities in the Pacific Basin. FEDERAL BOND FUND seeks to maximize current
income consistent with preservation of capital. The fund attempts to achieve
this objective by investing primarily in securities issued by the U.S.
government, its agencies and instrumentalities. CORPORATE INCOME FUND seeks to
provide high current income consistent with preservation of capital. The fund
attempts to achieve this objective primarily by investing in a diversified
portfolio of investment grade fixed-income securities issued by U.S.
corporations.
DELAWARE GROUP PREMIUM FUND offers ten funds available exclusively as
funding vehicles for certain insurance company separate accounts.
EQUITY/INCOME SERIES seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. HIGH YIELD SERIES seeks as high
a current income as possible by investing in rated and unrated corporate bonds,
U.S. government securities and commercial paper. CAPITAL RESERVES SERIES seeks
a high stable level of current income while minimizing fluctuations in
principal by investing in a diversified portfolio of short- and
intermediate-term securities. MONEY MARKET SERIES seeks the highest level of
income consistent with preservation of capital and liquidity through
investments in short-term money market instruments. GROWTH SERIES seeks
long-term capital appreciation by investing its assets in a diversified
portfolio of securities exhibiting the potential for significant growth.
MULTIPLE STRATEGY SERIES seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth. INTERNATIONAL EQUITY
SERIES seeks long-term growth without undue risk to principal by investing
primarily in equity securities of foreign issuers that provide the potential
for capital appreciation and income. VALUE SERIES seeks capital appreciation by
investing in small- to mid-cap common stocks whose market values appear low
relative to their underlying value or future earnings and growth potential.
Emphasis will also be placed on securities of companies that may be temporarily
out of favor or whose value is not yet recognized by the market. EMERGING
GROWTH SERIES seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the marketplace and to have fundamental
characteristics to support growth. Income is not an objective. GLOBAL BOND
SERIES seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may
also provide the potential for capital appreciation.
For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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<PAGE> 191
GENERAL INFORMATION
The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds in the
Delaware Group. The Manager, through a separate division, also manages private
investment accounts. While investment decisions of the Fund are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Fund.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general
restrictions and procedures: (1) certain blackout periods apply to personal
securities transactions of those persons; (2) transactions must receive advance
clearance and must be completed on the same day as the clearance is received;
(3) certain persons are prohibited from investing in initial public offerings
of securities and other restrictions apply to investments in private placements
of securities; (4) opening positions may only be closed-out at a profit after a
60-day holding period has elapsed; and (5) the Compliance Officer must be
informed periodically of all securities transactions and duplicate copies of
brokerage confirmations and account statements must be supplied to the
Compliance Officer.
The Distributor acts as national distributor for the Fund and for the
other mutual funds in the Delaware Group. As previously described, prior to
January 3, 1995, DDI served as the national distributor for the Fund. The
Distributor and, in its capacity as such, DDI received net commissions from the
Fund on behalf of Class A Shares after reallowances to dealers, as follows:
<TABLE>
<CAPTION>
CLASS A SHARES
TOTAL AMOUNT AMOUNTS NET
OF UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSION TO DEALERS TO DISTRIBUTOR
----------------- ---------- ---------- --------------
<S> <C> <C> <C>
July 31, 1996 $303,067 $252,496 $50,571
July 31, 1995 421,205 352,504 68,701
July 31, 1994 1,460,993 1,218,796 242,197
</TABLE>
The Distributor and, in its capacity as such, DDI received in the
aggregate Limited CDSC payments with respect to Class A Shares as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED LIMITED CDSC PAYMENTS
----------------- ---------------------
<S> <C>
July 31, 1996 $5,766
July 31, 1995 5,405
July 31, 1994 2,781
</TABLE>
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<PAGE> 192
The Distributor and, in its capacity as such, DDI received in the
aggregate CDSC payments with respect to Class B Shares as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED CDSC PAYMENTS
----------------- -------------
<S> <C>
July 31, 1996 $38,778
July 31, 1995 21,099
July 31, 1994* 354
</TABLE>
*Date of initial public offering was May 2, 1994.
The Distributor received CDSC payments with respect to Class C Shares
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED CDSC PAYMENTS
----------------- -------------
<S> <C>
July 31, 1996* - $0 -
</TABLE>
*Date of initial public offering was November 29, 1995.
Effective as of January 3, 1995, all such payments described above
have been paid to the Distributor.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the
other mutual funds in the Delaware Group. The Transfer Agent is paid a fee by
the Fund for providing these services consisting of an annual per account
charge of $11.00 plus transaction charges for particular services according to
a schedule. Compensation is fixed each year and approved by the Board of
Directors, including a majority of the unaffiliated directors. The Transfer
Agent also provides accounting services to the Fund. Those services include
performing all functions related to calculating the Fund's net asset value and
providing all financial reporting services, regulatory compliance testing and
other related accounting services. For its services, the Transfer Agent is paid
a fee based on total assets of all funds in the Delaware Group for which it
provides such accounting services. Such fee is equal to 0.25% multiplied by the
total amount of assets in the complex for which the Transfer Agent furnishes
accounting services, where such aggregate complex assets are $10 billion or
less, and 0.20% of assets, if such aggregate complex assets exceed $10 billion.
The fees are charged to each fund, including the Fund, on an aggregate pro rata
basis. The asset-based fee payable to the Transfer Agent is subject to a
minimum fee calculated by determining the total number of investment portfolios
and associated classes.
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Government Fund, Inc.'s
advisory relationship with the Manager or its distribution relationship with
the Distributor, the Manager and its affiliates could cause Government Fund,
Inc. to delete the words "Delaware Group" from Government Fund, Inc.'s name.
Bankers Trust Company, One Bankers Trust Plaza, New York, NY 10006, is
custodian of the Fund's securities and cash. As custodian for the Fund,
Bankers Trust Company maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
receives and disburses money on behalf of the Fund; and collects and receives
income and other payments and distributions on account of the Fund's portfolio
securities.
The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for Government
Fund, Inc. by Stradley, Ronon, Stevens & Young, LLP Philadelphia, Pennsylvania.
CAPITALIZATION
Government Fund, Inc. has a present authorized capitalization of five
hundred million shares of capital stock with a $.01 par value per share. The
Board of Directors has allocated eighty million shares to each of the Class A
Shares and Class B Shares, fifty million shares to the Class C Shares and
twenty million shares to the Institutional Class.
-60-
<PAGE> 193
Each Class represents a proportionate interest in the assets of the
Fund, and each has the same voting and other rights and preferences as the
other classes, except that shares of the Institutional Class may not vote on
matters affecting the Fund's Distribution Plans under Rule 12b-1. Similarly,
as a general matter, the shareholders of the Class A Shares, Class B Shares and
Class C Shares may only vote on matters affecting the 12b-1 Plan that relates
to the class of shares that they hold. However, Class B Shares may vote on any
proposal to increase materially the fees to be paid by the Fund under the Rule
12b-1 Plan relating to Class A Shares. General expenses of the Fund will be
allocated on a pro-rata basis to the classes according to asset size, except
that expenses of the Rule 12b-1 Plans of Class A, Class B and Class C Shares
will be allocated solely to those classes.
Shares do not have preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable.
Until May 31, 1992, the Fund offered two retail classes of shares,
Government Income Series I class and Government Income Series II class (now,
Class A Shares). Shares of the Government Income Series I class were offered
with a higher sales charge than that applicable to the Government Income Series
II class, 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 U.S. Government Fund class. Effective May 2, 1994, the
U.S. Government Fund class is known as the U.S. Government Fund A Class and the
U.S. Government Fund (Institutional) class is known as the U.S. Government Fund
Institutional Class.
NONCUMULATIVE VOTING
FUND SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS THAT THE
HOLDERS OF MORE THAN 50% OF THE SHARES OF GOVERNMENT FUND, INC. VOTING FOR THE
ELECTION OF DIRECTORS CAN ELECT ALL THE DIRECTORS IF THEY CHOOSE TO DO SO, AND,
IN SUCH EVENT, THE HOLDERS OF THE REMAINING SHARES WILL NOT BE ABLE TO ELECT
ANY DIRECTORS.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
-61-
<PAGE> 194
APPENDIX A--IRA INFORMATION
The Tax Reform Act of 1986 (the "Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the
full deduction for IRAs ($2,000 for each working spouse and $2,250 for
one-income couples) was retained for all taxpayers who are not covered by an
employer-sponsored retirement plan. Even if a taxpayer (or his or her spouse)
is covered by an employer-sponsored retirement plan, the full deduction is
still available if the taxpayer's adjusted gross income is below $25,000
($40,000 for taxpayers filing joint returns). A partial deduction is allowed
for married couples with incomes between $40,000 and $50,000, and for single
individuals with incomes between $25,000 and $35,000. The Act does not permit
deductions for contributions to IRAs by taxpayers whose adjusted gross income
before IRA deductions exceeds $50,000 ($35,000 for singles) and who are active
participants in an employer-sponsored retirement plan. Taxpayers who were not
allowed deductions on IRA contributions still can make nondeductible IRA
contributions of as much as $2,000 for each working spouse ($2,250 for
one-income couples), and defer taxes on interest or other earnings from the
IRAs. Special rules apply for determining the deductibility of contributions
made by married individuals filing separate returns.
As illustrated in the following tables, maintaining an IRA remains a
valuable opportunity.
For many, an IRA will continue to offer both an up-front tax break
with its tax deduction each year and the real benefit that comes with
tax-deferred compounding. For others, losing the tax deduction will impact
their taxable income status each year. Over the long term, however, being able
to defer taxes on earnings still provides an impressive investment
opportunity--a way to have money grow faster due to tax-deferred compounding.
-62-
<PAGE> 195
Even if your IRA contribution is no longer deductible, the benefits of
saving on a tax-deferred basis can be substantial. The following tables
illustrate the benefits of tax-deferred versus taxable compounding. Each
reflects a constant 9% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into account any sales
charges or fees. Of course, earnings accumulated in your IRA will be subject
to tax upon withdrawal. If you choose a mutual fund with a fluctuating net
asset value, like the Fund, your bottom line at retirement could be lower--it
could also be much higher.
$2,000 INVESTED ANNUALLY ASSUMING A 9% ANNUALIZED RETURN
15% Tax Bracket Single -- $0 - $24,000
--------------- Joint -- $0 - $40,100
<TABLE>
<CAPTION>
HOW MUCH
CUMULATIVE HOW MUCH YOU HAVE
END OF INVESTMENT YOU HAVE WITH FULL
YEAR AMOUNT WITHOUT IRA IRA DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,830 $ 2,180
5 10,000 10,661 13,047
10 20,000 26,075 33,121
15 30,000 48,357 64,007
20 40,000 80,570 111,529
25 50,000 127,139 184,648
30 60,000 194,463 297,150
35 70,000 291,791 470,249
40 80,000 432,496 736,584
</TABLE>
[Without IRA-investment of $1,700 ($2,000 less 15%) earning 7.65% (9%
less 15%)]
-63-
<PAGE> 196
28% Tax Bracket Single -- $24,001 - $58,150
--------------- Joint -- $40,101 - $96,900
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,533 $ 1,570 $ 2,180
5 10,000 8,727 9,394 13,047
10 20,000 20,672 23,847 33,121
15 30,000 37,022 46,085 64,007
20 40,000 59,402 80,301 111,529
25 50,000 90,037 132,947 184,648
30 60,000 131,969 213,948 297,150
35 70,000 189,366 338,580 470,249
40 80,000 267,931 530,340 736,584
</TABLE>
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 6.48% (9%
less 28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000 less 28%)
earning 9%]
31% Tax Bracket Single -- $58,151 - $121,300
--------------- Joint -- $96,901 - $147,700
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,466 $ 1,504 $ 2,180
5 10,000 8,297 9,002 13,047
10 20,000 19,511 22,853 33,121
15 30,000 34,666 44,165 64,007
20 40,000 55,150 76,955 111,529
25 50,000 82,834 127,407 184,648
30 60,000 120,250 205,034 297,150
35 70,000 170,818 324,472 470,249
40 80,000 239,164 508,243 736,584
</TABLE>
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.21% (9%
less 31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less 31%)
earning 9%]
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<PAGE> 197
36% Tax Bracket* Single -- $121,301 - $263,750
--------------- Joint -- $147,701 - $263,750
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,354 $ 1,395 $ 2,180
5 10,000 7,595 8,350 13,047
10 20,000 17,643 21,197 33,121
15 30,000 30,939 40,964 64,007
20 40,000 48,532 71,379 111,529
25 50,000 71,809 118,175 184,648
30 60,000 102,609 190,176 297,150
35 70,000 143,361 300,960 470,249
40 80,000 197,281 471,414 736,584
</TABLE>
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 5.76% (9%
less 36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000 less 36%)
earning 9%]
39.6% Tax Bracket* Single -- over $263,750
----------------- Joint -- over $263,750
<TABLE>
<CAPTION>
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH FULL IRA
END OF INVESTMENT WITHOUT NO
YEAR AMOUNT IRA DEDUCTION DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,274 $ 1,317 $ 2,180
5 10,000 7,100 7,880 13,047
10 20,000 16,350 20,005 33,121
15 30,000 28,403 38,660 64,007
20 40,000 44,108 67,364 111,529
25 50,000 64,573 111,527 184,648
30 60,000 91,238 179,479 297,150
35 70,000 125,983 284,031 470,249
40 80,000 171,255 444,897 736,584
</TABLE>
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 5.436%
(9% less 39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%)
earning 9%]
- ------------
* For tax years beginning after 1992, a 36% tax rate applies to all
taxable income in excess of the maximum dollar amounts subject to the
31% tax rate. In addition, a 10% surtax (not applicable to capital
gains) applies to certain high-income taxpayers. It is computed by
applying a 39.6% rate to taxable income in excess of $263,750. The
above tables do not reflect the personal exemption phaseout nor the
limitations of itemized deductions that may apply.
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<PAGE> 198
$2,000 SINGLE INVESTMENT AT A RETURN OF 9%
COMPOUNDED MONTHLY
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- ------------------------------------------------------------
<S> <C> <C> <C>
10 $ 3,440 $ 3,553 $ 3,716
15 4,512 4,735 5,064
20 5,917 6,312 6,903
30 10,178 11,212 12,824
40 17,508 19,918 23,825
</TABLE>
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- ------------------------------------------------------------
<S> <C> <C> <C>
10 $ 3,817 $ 4,288 $ 4,903
15 5,273 6,278 7,676
20 7,284 9,192 12,018
30 13,900 19,705 29,461
40 26,527 42,243 72,220
</TABLE>
$2,000 INVESTED ANNUALLY AT A RETURN OF 9%
COMPOUNDED MONTHLY
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- ------------------------------------------------------------
<S> <C> <C> <C>
10 $ 27,280 $ 27,809 $ 28,565
15 47,579 48,985 51,023
20 74,203 77,210 81,633
30 154,915 164,970 180,223
40 293,746 320,871 363,386
</TABLE>
<TABLE>
<CAPTION>
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- ------------------------------------------------------------
<S> <C> <C> <C>
10 $ 29,030 $ 31,156 $ 33,846
15 52,294 58,262 66,184
20 84,431 97,949 116,815
30 190,158 241,137 320,202
40 391,924 548,102 818,777
</TABLE>
- -----------------------
* For tax years beginning after 1992, a 36% tax rate applies to all
taxable income in excess of the maximum dollar amounts subject to the
31% tax rate. In addition, a 10% surtax (not applicable to capital
gains) applies to certain high-income taxpayers. It is computed by
applying a 39.6% rate to taxable income in excess of $263,750. The
above tables do not reflect the personal exemption phaseout nor the
limitations of itemized deductions that may apply.
-66-
<PAGE> 199
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing
$2,000 each January--the earliest opportunity--compared to contributing on
April 15th of the following year--the latest, for each tax year.
<TABLE>
<S> <C>
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
</TABLE>
Compounded returns for the longest period of time is the key. The
above illustration assumes a 10% rate of return and the reinvestment of all
proceeds.
And it pays to shop around. If you get just 2% more per year, it can
make a big difference when you retire. A constant 8% versus 10% return,
compounded monthly, illustrates the point. This chart is based on a yearly
investment of $2,000 on January 1. After 30 years the difference can mean as
much as 50% more!
<TABLE>
<CAPTION>
8% 10%
-- ---
<S> <C> <C>
10 years $ 31,828 $ 36,018
30 years 259,288 397,466
</TABLE>
The statistical exhibits above are for illustration purposes only and
do not reflect the actual performance for Government Fund, Inc. either in the
past or in the future.
-67-
<PAGE> 200
FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware
Group Government Fund, Inc. - Government Income Series and, in its capacity as
such, audits the financial statements contained in the Fund's Annual Report.
The Fund's Statement of Net Assets, Statement of Operations, Statement of
Changes in Net Assets and Notes to Financial Statements, as well as the report
of Ernst & Young LLP, independent auditors, for the fiscal year ended July 31,
1996, are included in the Fund's Annual Report to shareholders. The financial
statements, the notes relating thereto and the report of Ernst & Young LLP
listed above are incorporated by reference from the Annual Report into this
Part B.
-68-
<PAGE> 201
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's
Report listed above are incorporated into
Part B by reference to the Registrant's
Annual Report for the fiscal year ended July
31, 1996.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation, as
amended and supplemented
through November 20, 1995
incorporated into this filing
by reference to Post-Effective
Amendment No. 17 filed
November 20, 1996.
(b) Executed Articles Supplementary
(November 28, 1995) attached as
Exhibit.
(2) By-Laws. By-Laws, as amended through
November 20, 1995 incorporated into
this filing by reference to
Post-Effective Amendment No. 17 filed
November 20, 1996.
(3) Voting Trust Agreement. Inapplicable.
<PAGE> 202
PART C - Other Information
(Continued)
(4) Copies of All Instruments Defining the
Rights of Holders.
(a) Articles of Incorporation,
Articles of Amendment and Articles
Supplementary.
(i) Article Second of Articles
Supplementary (April 29,
1994), Article Fourth of
Articles Supplementary (June
1, 1992), Article Fifth of
Articles of Amendment (June
14, 1988) and Article Eighth
of Articles of Incorporation
(April 19, 1985) incorporated
into this filing by reference
to Post-Effective Amendment
No. 17 filed November 20,
1995.
(ii) Article Fourth of Articles
Supplementary (November 28,
1995) attached as Exhibit
24(b)(1)(b).
(b) By-Laws. Article II, Article
III, as amended, and Article
XIII, which was subsequently
redesignated as Article XIV,
incorporated into this filing
by reference to Post-Effective
Amendment No. 17 filed
November 20, 1995.
(5) Investment Management Agreement.
Investment Management Agreement between
Delaware Management Company, Inc. and
the Registrant dated April 3, 1995
incorporated into this filing by
reference to Post-Effective Amendment
No. 17 filed November 20, 1995.
(6) (a) Distribution Agreement.
(i) Form of Distribution Agreement
(April 3, 1995) incorporated
into this filing by reference
to Post-Effective Amendment
No. 17 filed November 20,
1995.
(ii) Form of Amendment No. 1 to
Distribution Agreement
(November 28, 1995)
incorporated into this filing
by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(b) Administration and Service
Agreement. Form of
Administration and Service
Agreement (as amended November
1995) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(c) Dealer's Agreement. Dealer's
Agreement (as amended November
1995) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(d) Mutual Fund Agreement for the
Delaware Group of Funds (as
amended November 1995)
included as Module.
<PAGE> 203
PART C - Other Information
(Continued)
(7) Bonus, Profit Sharing, Pension
Contracts.
(a) Amended and Restated Profit
Sharing Plan (November 17,
1994) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(b) Amendment to Profit Sharing
Plan (December 21, 1995) included
as Module.
(8) Custodian Agreement.
(a) Form of Custodian Agreement
(1996) between the Registrant
and Bankers Trust Company
attached as Exhibit.
(b) Form of Securities Lending
Agreement (1996) between the
Registrant and Bankers Trust
Company attached as Exhibit.
(9) Other Material Contracts.
(a) Shareholders Services
Agreement between Delaware
Service Company, Inc. and the
Registrant dated June 29, 1988
attached as Exhibit.
(b) Executed Delaware Group of
Funds Fund Accounting
Agreement between Delaware
Service Company, Inc. and the
Registrant (August 19, 1996)
attached as Exhibit.
(i) Form of Amendment No. 1
(September 30, 1996) to
Schedule A to Delaware Group
of Funds Fund Accounting
Agreement attached as Exhibit
(10) Opinion of Counsel. To be filed with
letter relating to Rule 24f-2 on or
about September 30, 1996.
(11) Consent of Auditors. Attached as
Exhibit.
(12-13) Inapplicable.
(14) Model Plans. Incorporated into this
filing by reference to Post-Effective
Amendment No. 14 filed September 29,
1993 and Post-Effective Amendment No.
17 filed November 20, 1995.
<PAGE> 204
PART C - Other Information
(Continued)
**(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1
for Class A (November 29,
1995) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(b) Form of Plan under Rule 12b-1
for Class B (November 29,
1995) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(c) Form of Plan under Rule 12b-1
for Class C (November 29,
1995) incorporated into this
filing by reference to
Post-Effective Amendment No.
17 filed November 20, 1995.
(16) Schedules of Computation for each
Performance Quotation.
(a) Incorporated into this filing
by reference to Post-Effective
Amendment No. 17 filed
November 20, 1996.
(b) Schedules of Computation for
each Performance Quotation for
periods not previously
electronically filed attached
as Exhibit.
(17) Financial Data Schedules. Attached as
Exhibit.
(18) Inapplicable.
(19) Other: Directors' Power of Attorney.
Incorporated into this filing
by reference to Post-Effective
Amendment No. 17 filed
November 20, 1995.
** Relates only to U.S. Government Fund A Class, U.S.
Government Fund B Class and U.S. Government Fund C
Class.
Item 25. Persons Controlled by or under Common Control with
Registrant. None.
<PAGE> 205
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Delaware Group Government Fund, Inc.'s:
U.S. Government Fund A Class
Common Stock Par Value 7,991 Accounts as of
$.01 Per Share August 31, 1996
U.S. Government Fund B Class
Common Stock Par Value 359 Accounts as of
$.01 Per Share August 31, 1996
U.S. Government Fund C Class
Common Stock Par Value 35 Accounts as of
$.01 Per Share August 31, 1996
U.S. Government Fund Institutional Class
Common Stock Par Value 18 Accounts as of
$.01 Per Share August 31, 1996
</TABLE>
Item 27. Indemnification. Incorporated into this filing by reference to
initial Registration Statement filed May 17, 1985 and
Post-Effective Amendment No. 17 filed November 20, 1996.
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, Inc. (the "Manager") serves as
investment manager to the Registrant and also serves as investment manager or
sub-adviser to certain other funds in the Delaware Group (Delaware Group
Delaware Fund, Inc., Delaware Group Trend Fund, Inc., Delaware Group Value
Fund, Inc., Delaware Group DelCap Fund, Inc., Delaware Group Decatur Fund,
Inc., Delaware Group Delchester High-Yield Bond Fund, Inc., Delaware Group
Limited-Term Government Funds, Inc., Delaware Group Cash Reserve, Inc.,
Delaware Group Tax-Free Fund, Inc., DMC Tax-Free Income Trust-Pennsylvania,
Delaware Group Tax-Free Money Fund, Inc., Delaware Group Premium Fund, Inc.,
Delaware Group Global & International Funds, Inc., Delaware Pooled Trust, Inc.,
Delaware Group Adviser Funds, Inc., Delaware Group Dividend and Income Fund,
Inc. and Delaware Group Global Dividend and Income Fund, Inc.) and provides
investment advisory services to institutional accounts, primarily retirement
plans and endowment funds. In addition, certain directors of the Manager also
serve as directors/trustees of the other Delaware Group funds, and certain
officers are also officers of these other funds. A company owned by the
Manager's parent company acts as principal underwriter to the mutual funds in
the Delaware Group (see Item 29 below) and another such company acts as the
shareholder servicing, dividend disbursing, fund accounting and transfer agent
for all of the mutual funds in the Delaware Group.
<PAGE> 206
PART C - Other Information
(Continued)
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------------- -------------------------------------------------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment Officer and
Director of Delaware Management Company, Inc.; President, Chief Executive Officer,
Chairman of the Board and Director of the Registrant and, with the exception of Delaware
Pooled Trust, Inc., each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware International Holdings Ltd. and Founders Holdings,
Inc.; Chairman of the Board and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.; and Director of Delaware Service Company, Inc.
Winthrop S. Jessup Executive Vice President and Director of Delaware Management Company, Inc., DMH Corp.,
Delaware International Holdings Ltd. and Founders Holdings, Inc.; Executive Vice
President of the Registrant and, with the exception of Delaware Pooled Trust, Inc., each
of the other funds in the Delaware Group and Delaware Management Holdings, Inc.;
President and Chief Executive Officer of Delaware Pooled Trust, Inc.; Vice Chairman of
Delaware Distributors, L.P.; Vice Chairman and Director of Delaware Distributors, Inc.;
Director of Delaware Service Company, Inc., Delaware Management Trust Company, Delaware
International Advisers Ltd. and Delaware Investment & Retirement Services, Inc.; and
President and Director of Delaware Capital Management, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company, Inc.; Executive
Vice President of the Registrant and each of the other funds in the Delaware Group;
Senior Vice President of Delaware Management Holdings, Inc.; and Director of Delaware
International Advisers Ltd.
Board of Directors, Chairman of Finance Committee, Keystone Insurance Company since
1989, 2040 Market Street, Philadelphia, PA; Board of Directors, Chairman of Finance
Committee, Mid Atlantic, Inc. since 1989, 2040 Market Street, Philadelphia, PA
Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware Management
Company, Inc., the Registrant and each of the other funds in the Delaware Group; Senior
Vice President/Chief Investment Officer, Fixed Income of Delaware Management Holdings,
Inc.; Executive Vice President and Director of Founders Holdings, Inc.; and Director of
Founders CBO Corporation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 207
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
David K. Downes Senior Vice President, Chief Administrative Officer and Chief Financial Officer of
Delaware Management Company, Inc., the Registrant and each of the other funds in the
Delaware Group; Chairman and Director of Delaware Management Trust Company; Executive
Vice President, Chief Operating Officer, Chief Administrative Officer, Chief Financial
Officer and Treasurer of Delaware Management Holdings, Inc.; Senior Vice President,
Chief Financial Officer, Treasurer and Director of DMH Corp.; Senior Vice President and
Chief Administrative Officer of Delaware Distributors, L.P.; Senior Vice President,
Chief Administrative Officer and Director of Delaware Distributors, Inc.; Senior Vice
President, Chief Administrative Officer, Chief Financial Officer and Director of
Delaware Service Company, Inc.; Chief Financial Officer and Director of Delaware
International Holdings Ltd.; Senior Vice President, Chief Financial Officer and
Treasurer of Delaware Capital Management, Inc.; Senior Vice President, Chief Financial
Officer and Director of Founders Holdings, Inc.; Chief Executive Officer and Director of
Delaware Investment & Retirement Services, Inc.; and Director of Delaware International
Advisers Ltd.
Chief Executive Officer, Chief Financial Officer and Treasurer of Forewarn, Inc. since
1992, 8 Clayton Place, Newtown Square, PA
George M. Chamberlain, Jr. Senior Vice President, Secretary and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Delaware Service Company, Inc., Founders Holdings,
Inc., Delaware Capital Management, Inc. and Delaware Investment & Retirement Services,
Inc.; Senior Vice President and Secretary of the Registrant, each of the other funds in
the Delaware Group, Delaware Distributors, L.P. and Delaware Management Holdings, Inc.;
Executive Vice President, Secretary and Director of Delaware Management Trust Company;
Secretary and Director of Delaware International Holdings Ltd.; and Director of Delaware
International Advisers Ltd.
Director of ICI Mutual Insurance Co. since 1992, P.O. Box 730, Burlington, VT
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 208
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Richard J. Flannery Managing Director/Corporate Tax & Affairs of Delaware Management Company, Inc.,
Delaware Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Founders CBO Corporation, Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Vice President of the Registrant and each of the other funds
in the Delaware Group; Managing Director/Corporate Tax & Affairs and Director of
Founders Holdings, Inc.; Managing Director and Director of Delaware International
Holdings Ltd.; and Director of Delaware International Advisers Ltd.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA;
Director and Member of Executive Committee of Stonewall Links, Inc. since 1991, Bulltown
Rd., Elverton, PA
Michael P. Bishof(1) Vice President and Treasurer of Delaware Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group, Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc. and Founders Holdings, Inc.;
Assistant Treasurer of Founders CBO Corporation; and Vice President and Manager of
Investment Accounting of Delaware International Holdings Ltd.
Eric E. Miller Vice President and Assistant Secretary of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors, L.P., Delaware Distributors Inc.,
Delaware Service Company, Inc., Delaware Management Trust Company, Founders Holdings,
Inc., Delaware Capital Management, Inc. and Delaware Investment & Retirement Services,
Inc.
Richelle S. Maestro Vice President and Assistant Secretary of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Management Holdings,
Inc., Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., DMH Corp., Delaware Management Trust Company, Delaware Capital
Management, Inc., Delaware Investment & Retirement Services, Inc. and Founders Holdings,
Inc.; Secretary of Founders CBO Corporation; and Assistant Secretary of Delaware
International Holdings Ltd.
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Ln., Philadelphia, PA
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 209
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
John M. Zerr(2) Vice President and Assistant Secretary of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, DMH
Corp., Delaware Distributors, L.P., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Joseph H. Hastings Vice President/Corporate Controller of Delaware Management Company, Inc.,
the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Founders Holdings, Inc. and Delaware
International Holdings Ltd.; Executive Vice President, Chief Financial
Officer and Treasurer of Delaware Management Trust Company; Chief
Financial Officer and Treasurer of Delaware Investment & Retirement
Services, Inc.; and Assistant Treasurer of Founders CBO Corporation
Bruce A. Ulmer Vice President/Director of Internal Audit of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp. and Delaware Management
Trust Company; and Vice President/Internal Audit of Delaware Investment &
Retirement Services, Inc.
Steven T. Lampe(3) Vice President/Taxation of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Lisa O. Brinkley Vice President/Compliance of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, DMH Corp.,
Delaware Distributors, L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Management Trust Company, Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, Delaware Distributors, L.P.
and Delaware Distributors, Inc.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 210
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Douglas L. Anderson Vice President/Operations of Delaware Management Company, Inc. and
Delaware Service Company, Inc.; and Vice President/Operations and Director
of Delaware Management Trust Company
Michael T. Taggart Vice President/Facilities Management and Administrative Services of
Delaware Management Company, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds
and the closed-end funds in the Delaware Group; Vice President of Founders
Holdings, Inc.; and Treasurer Assistant Secretary, and Director of
Founders CBO Corporation
J. Michael Pokorny Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income
funds in the Delaware Group
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income
funds in the Delaware Group and Delaware Capital Management, Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds, the fixed income funds
and the closed-end funds in the Delaware Group; Vice President of Founders
Holdings, Inc.; and President and Director of Founders CBO Corporation
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income
funds in the Delaware Group
Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., the Registrant, each of the tax-exempt funds and the fixed income
funds in the Delaware Group
Edward N. Antoian Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 211
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
David C. Dalrymple Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
Gerald S. Frey(4) Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc. and each of the equity funds in the Delaware Group
Faye P. Staples(5) Vice President/Human Resources of Delaware Management Company, Inc.,
Delaware Distributors, L.P. and Delaware Distributors, Inc.; and Vice
President/Director of Human Resources of Delaware Service Company, Inc.
Daniel H. Carlson(6) Vice President/Marketing Manager of Delaware Management Company, Inc.,
Delaware Investment & Retirement Services, Inc. and Delaware Distributors,
L.P.
</TABLE>
(1) VICE PRESIDENT/GLOBAL INVESTMENT MANAGEMENT OPERATIONS, Bankers
Trust and VICE PRESIDENT, CS First Boston Investment Management
prior to June 1995.
(2) ATTORNEY, Ballard Spahr Andrews & Ingersoll prior to July 1995.
(3) TAX MANAGER, Price Waterhouse prior to October 1995.
(4) SENIOR DIRECTOR, Morgan Grenwell Capital Management prior to June 1996.
(5) VICE PRESIDENT/HUMAN RESOURCES, Nova Care prior to September
1995.
(6) PRINCIPAL AND CONSULTANT, Buck Consultants prior to October
1995.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 212
PART C - Other Information
(Continued)
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter
for all the mutual funds in the Delaware Group.
(b) Information with respect to each director, officer or
partner of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------------------- --------------------- -----------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Winthrop S. Jessup Vice Chairman Executive Vice President
Keith E. Mitchell President and Chief None
Executive Officer
David K. Downes Senior Vice President and Senior Vice President/Chief
Chief Administrative Officer Administrative Officer/Chief
Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
J. Lee Cook Senior Vice President/ None
Eastern Sales Division
Thomas E. Sawyer Senior Vice President/ None
Western Sales Division
Stephen H. Slack Senior Vice President/ None
Wholesaler
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
Minette van Noppen Senior Vice President/ None
Retirement Services
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 213
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
J. Chris Meyer Senior Vice President/ None
Product Development
Richard J. Flannery Managing Director/Corporate Vice President
& Tax Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
John M. Zerr Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Susan J. Black Vice President/ None
Manager Key Accounts
Daniel H. Carlson Vice President/ None
Marketing Manager
Diane M. Anderson Vice President/ None
Retirement Services
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/ None
Client Services
Jerome J. Alrutz Vice President/ None
Client Services
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 214
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Joanne A. Mettenheimer Vice President/ None
National Accounts
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Steven J. DeAngelis Vice President/ None
Product Development
Susan T. Friestedt Vice President/ None
Customer Service
Dinah J. Huntoon Vice President/ None
Product Development
Soohee Lee Vice President/ None
Product Development
Ellen M. Krott Vice President/ None
Communications
Holly W. Riemel Vice President/ None
Telemarketing
Frank Albanese Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William S. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
William M. Kimbrough Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Henry W. Orvin Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 215
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Michael W. Rose Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Faye P. Staples Vice President/Human Resources None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia
at 1818 Market Street, Philadelphia, PA 19103 or One
Commerce Square, Philadelphia, PA 19103.
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a
copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting
upon the question of removal of any director when
requested in writing to do so by the record holders
of not less than 10% of the outstanding shares.
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 24th day of September, 1996.
DELAWARE GROUP GOVERNMENT FUND, INC.
By /s/ Wayne A. Stork
-------------------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- ----------------------------------------------- --------------------
<S> <C> <C>
Chairman of the Board, President,
/s/ Wayne A. Stork Chief Executive Officer and Director September 24, 1996
- ----------------------------------------
Wayne A. Stork
Senior Vice President/Chief Financial
Officer/Chief Administrative Officer
(Principal Financial Officer and
/s/David K. Downes Principal Accounting Officer) September 24, 1996
- ---------------------------------------
David K. Downes
/s/Walter P. Babich * Director September 24, 1996
- ---------------------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director September 24, 1996
- ---------------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director September 24, 1996
- ---------------------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director September 24, 1996
- ---------------------------------------
W. Thacher Longstreth
/s/Charles E. Peck * Director September 24, 1996
- ---------------------------------------
Charles E. Peck
</TABLE>
*By /s/Wayne A. Stork
-----------------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
<PAGE> 217
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
EX-99.B1B Executed Articles Supplementary (November 28, 1995)
EX-99.B6D Form of Mutual Fund Agreement for the Delaware Group of Funds
(Module Name (as amended November 1995)
MFAGMT95)
EX-99.B7 Amendment to Profit Sharing Plan (December 21, 1995)
(Module Name
AMEND_PROF_SHAR)
EX-99.B8A Form of Custodian Agreement (1996) between Registrant and Bankers
Trust Company
EX-99.B8B Form of Securities Lending Agreement (1996) between Registrant
and Bankers Trust Company
EX-99.B9A Shareholders Services Agreement between Delaware Service
Company and the Registrant (June 29, 1988)
EX-99.B9B Executed Delaware Group of Funds Fund Accounting Agreement between Delaware Service
Company, Inc. and the Registrant (August 19, 1996)
EX-99.B9BI Form of Amendment No. 1 (September 30, 1996) to Delaware Group of Funds Fund Accounting
Agreement
EX-99.B11 Consent of Auditors
EX-99.B16B Schedules of Computation for each Performance Quotation for periods
not previously electronically filed
EX-27 Financial Data Schedules
</TABLE>
<PAGE> 218
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE> 1
EX-99.B1B
DELAWARE GROUP GOVERNMENT FUND, INC.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
Delaware Group Government Fund, Inc., a Maryland corporation
having its principal office in Baltimore, Maryland (the "Corporation"), hereby
certifies, in accordance with Section 2-208 and Section 2-208.1 of the Maryland
General Corporation Law, to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Corporation has authority to issue a total of Two
Hundred Million (200,000,000) shares of common stock with a par value of One
Cent ($0.01) per share of the Corporation ("Common Stock"), having an aggregate
par value of Two Million Dollars ($2,000,000). Of such Two Hundred Million
(200,000,000) shares of Common Stock, One Hundred Eighty Million (180,000,000)
shares have been allocated to the Government Income Series of the Common Stock
as follows: (1) Twenty Million (20,000,000) shares have been allocated to the
U.S. Government Fund (Institutional) class and (2) Eighty Million (80,000,000)
shares have been allocated to each of the U.S. Government Fund B Class and the
U.S. Government Fund class.
SECOND: The Board of Directors of the Corporation, at a
meeting held on July 20, 1995, adopted resolutions increasing the aggregate
number of shares of Common Stock that the Corporation has authority to issue to
Five Hundred Million (500,000,000) shares, classifying a fourth class of shares
of the Government Income Series of the Common Stock as the U.S. Government
Fund C Class (the "C Class") and classifying and allocating Fifty Million
(50,000,000) shares of authorized, unissued and unclassified Common Stock to
the C Class.
THIRD: As a result of the aforesaid increase in the
authorized Common Stock and classification, the Corporation has authority to
issue Five Hundred Million (500,000,000) shares of Common Stock, having an
aggregate par value of Five Million Dollars ($5,000,000). Of such Five Hundred
Million (500,000,000) shares of Common Stock, Two Hundred Thirty Million
(230,000,000) shares have been allocated to the Government Income Series of the
Common Stock as follows: (1) Twenty Million (20,000,000) shares have been
allocated to the U.S. Government Fund (Institutional) class; (2) Eighty Million
(80,000,000) shares have been allocated to each of the U.S. Government Fund
class and the U.S. Government
-2-
<PAGE> 2
Fund B Class; and (3) Fifty Million (50,000,000) shares have been allocated to
the C Class.
FOURTH: The shares of the C Class shall represent
proportionate interests in the same portfolio of investments as the shares of
the U.S. Government Fund (Institutional) class, U.S. Government Fund B Class
and U.S. Government Fund class of the Government Income Series of the Common
Stock. The shares of the C Class shall have the same preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the shares of the U.S.
Government Fund (Institutional) class, U.S. Government Fund B Class and U.S.
Government Fund class of the Government Income Series of the Common Stock, all
as set forth in the Articles of Incorporation of the Corporation, except for
the differences hereinafter set forth:
1. The dividends and distributions of investment income
and capital gains with respect to shares of the C Class shall
be in such amounts as may be declared from time to time by the
Board of Directors, and such dividends and distributions may
vary with respect to such class from the dividends and
distributions of investment income and capital gains with
respect to shares of the other classes of the Government
Income Series of the Common Stock to reflect differing
allocations of the expenses of the Corporation among the
shares of such classes and any resultant difference among the
net asset values per share of the shares of such classes, to
such extent and for such purposes as the Board of Directors
may deem appropriate. The allocation of investment income and
capital gains and expenses and liabilities of the Corporation
among the four classes of the Government Income Series of the
Common Stock shall be determined by the Board of Directors in
a manner that is consistent with the order, as applicable,
dated September 6, 1994 (Investment Company Act of 1940
Release No. 20529) issued by the Securities and Exchange
Commission, and any amendments to such order, any future order
or any Multiple Class Plan adopted by the Corporation in
accordance with Rule 18f-3 under the Investment Company Act of
1940, as amended, that modifies or supersedes such order.
2. Except as may otherwise be required by law pursuant
to any applicable order, rule or interpretation issued by the
Securities and Exchange Commission, or otherwise, the holders
of shares of the
-3-
<PAGE> 3
C Class shall have (i) exclusive voting rights with respect to
any matter submitted to a vote of stockholders that affects
only holders of shares of the C Class, including without
limitation the provisions of any Distribution Plan adopted
pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (a "Distribution Plan") applicable to shares
of the C Class, and (ii) no voting rights with respect to the
provisions of any Distribution Plan applicable to any other
class of Common Stock or with regard to any other matter
submitted to a vote of stockholders which does not affect
holders of shares of the C Class.
3. The shares of the C Class shall not automatically
convert into shares of the U.S. Government Fund class of the
Government Income Series of the Common Stock as do the shares
of the U.S. Government Fund B Class of the Government Income
Series of the Common Stock.
FIFTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940, as amended.
SIXTH: The total number of shares of Common Stock
that the Corporation has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland General
Corporation Law.
SEVENTH: The shares of Common Stock classified as
shares of the C Class pursuant to these Articles Supplementary have been
classified by the Board of Directors pursuant to authority contained in the
Articles of Incorporation of the Corporation.
EIGHTH: These Articles Supplementary shall become
effective on November 28, 1995.
IN WITNESS WHEREOF, Delaware Group Government Fund, Inc. has
caused these Articles Supplementary to be signed in its name and on its behalf
this 14th day of November, 1995.
DELAWARE GROUP GOVERNMENT FUND, INC.
/s/George M. Chamberlain, Jr.
By:
----------------------------------
George M. Chamberlain, Jr.
Senior Vice President
ATTEST:
/s/Richelle S. Maestro
- -------------------------------
Assistant Secretary
-4-
<PAGE> 4
THE UNDERSIGNED, Senior Vice President of DELAWARE GROUP
GOVERNMENT FUND, INC., who executed on behalf of the said Corporation the
foregoing Articles Supplementary, of which this instrument is made a part,
hereby acknowledges, in the name of and on behalf of said Corporation, said
Articles Supplementary to be the corporate act of said Corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects, under the penalties of
perjury.
/s/George M. Chamberlain, Jr.
-----------------------------------
George M. Chamberlain, Jr.
Senior Vice President
-5-
<PAGE> 1
<PAGE>
MUTUAL FUND AGREEMENT
FOR THE DELAWARE GROUP OF FUNDS
Gentlemen:
We are the national distributor for the Delaware Group of Funds with exclusive
right to sell and distribute Fund shares. (The term "Funds" in this Agreement
refers to each or any of the Funds that from time to time comprise the Delaware
Group and for whom we act as distributor.) You have indicated that you wish to
act as agent for your customers in connection with the purchase, sale and
redemption of Fund shares and desire to provide certain services to your
customers relating to their ownership of Fund shares, all in accordance with the
terms of this Agreement.
AGENT FOR CUSTOMERS: In placing orders for the purchase and sale of Fund shares,
you will be acting as agent for your customers and will not have any authority
to act as agent for us, any of the Funds or any of our affiliates or
representatives. Neither you nor any of your employees or agents are authorized
to make any representations concerning the Funds or Fund shares except those
contained in the then current "Prospectus" and in written information issued by
the Fund or by us as a supplement to the Prospectus. In purchasing Fund shares
your customers may rely on such authorized information.
OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by
the Fund or its agent, Delaware Service Co., Inc., will be at the public
offering price applicable to each order as set forth in the Prospectus. The
manner of computing the net asset value, the public offering price and the
effective time of orders received from you are described in the Prospectus for
each Fund. We reserve the right at any time, without notice, to suspend the sale
of Fund shares or withdraw the public offering.
SALES, ORDERS AND CONFIRMATIONS: All orders must be made subject to
confirmation. Your orders must be wired, telephoned or written to the Fund or
its agent. You agree to place orders on behalf of your customers for the number
of shares, and at the price, as in bona fide orders from your customers. We will
not accept any conditional orders. We will send a written confirmation of each
trade indicating that the trade was on a fully disclosed basis to your customer.
It is agreed and understood that, whether shares are registered in the
purchaser's name, in your name or in the name of your nominee, your customer
will have full beneficial ownership of the Fund shares.
AGENCY FEES: On each order accepted by us for a Fund with a sales charge, we
understand that you will charge your customer an agency commission or agency
transaction fee ("agency fee") as set forth in the schedule of sales concessions
and agency fees set forth in that Fund's Prospectus, as it may be amended from
time to time. This fee shall be subject to the provisions of all terms set forth
in the Prospectus for volume purchases and special plans and accounts (e.g.
retirement plans, letters of intent, etc.) You will not receive from us a
<PAGE>
dealer's concession or similar allowance out of the sales charge. In accordance
with interpretations by the Staff of the Securities and Exchange Commission (the
"Commission"), the agency fee will be your sole charge to your customers for
placing such orders. You may elect to make payments in either of two ways: (a)
you may send us the public offering price for the Fund shares purchased less the
amount of the agency fee due you or (b) you or your customer may send us the
entire public offering price for the Fund shares and we will, on a periodic
basis, remit to you the agency fee due. You will notify us in writing of which
method of payment you elect. If any shares sold to your customer under the terms
of this Agreement are repurchased by the Fund or by us, or are tendered to a
Fund for redemption or repurchase, within seven (7) business days after the date
of the confirmation of the original purchase order, you will promptly refund to
us full agency fee paid or allowed to you on such shares.
PAYMENT AND ISSUANCE OF CERTIFICATES: Regardless of the payment method elected,
Fund shares purchased by you for your customers hereunder shall be paid for in
full by check payable to the Fund at its office within three business days after
our acceptance of your order. If not so paid, the Fund reserves the right,
without notice, to cancel the sale and to hold you responsible for any loss,
including lost profit, sustained by us or the Fund in consequence. Certificates
representing Fund shares will not be issued unless a specific request is
received from you or your customer. Certificates, if requested, will be issued
in the names indicated by registration instructions accompanying payment.
REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all
ordinary circumstances, will repurchase its shares from shareholders on demand.
You agree that you will not make any representations to shareholders relating to
the purchase of their Fund shares other than the statements contained in the
Prospectus and the underlying organizational documents of the Fund, to which it
refers, and that you will quote to your customers as the redemption price only
the price determined by the Fund.
12b-1 PLAN: With respect to any Fund that has a Distribution Plan under Rule
12b-1 (a "12b-1Plan") of the Investment Company Act of 1940 (the "1940 Act"), we
expect you will provide shareholder and administrative services to your
customers who own Fund shares, such as: answering inquiries regarding the Fund;
assisting in changing dividend options, account designations and addresses;
establishing and maintaining shareholder accounts and records; arranging for
bank wires; or such other services as the Fund may require to the extent
permitted by applicable statutes, rules or regulations. You will promptly answer
all written complaints received by you relating to Fund accounts or promptly
forward such complaints to us and assist us in answering such complaints. For
such services we will pay you a fee as set by us from time to time, based on a
portion of the net asset value of the accounts of your clients in the Fund. We
are permitted to make this payment under the terms of the 12b-1 Plan adopted by
2
<PAGE>
certain of the Funds, as such 12b-1 Plans may be in effect from time to time.
Each Fund reserves the right, at any time, to suspend payments under its 12b-1
Plan. You will furnish the Fund and us with such information as may be
reasonably requested by the Fund or its directors or trustees or by us with
respect to fees paid to you pursuant to this Agreement. In accordance with
interpretations and rulings to the Staff of the Commission, you will not charge
your customers any fees for services for which you are being compensated under a
12b-1 Plan of a Fund.
SALES OF NO-LOAD - NON 12b-1 PLAN FUNDS: In connection with any orders placed by
you on behalf of your customers for shares of Funds that do not charge a sales
load and do not have a 12b-1 Plan, we understand that you may charge your
customers a limited service or transaction fee, in accordance with
interpretations and rulings of the Staff of the Commission.
LEGAL COMPLIANCE: This Agreement and any transaction with or payment to you
pursuant to the terms hereof is conditioned on your representation to us that,
as of the date of this Agreement you are and at all times during its
effectiveness you will be (a) a registered broker-dealer under the Securities
Exchange Act of 1934 and qualified under applicable state securities laws, if
any, to act as a broker or dealer in securities, and a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD"); or (b) a
"bank" as defined in Section 3(a)(6) of the Securities and Exchange Act of 1934
(or other financial institution) and not otherwise required to register as a
broker or dealer under such Act. You agree to notify us promptly in writing if
this representation ceases to be true. You also agree that you will comply with
the rules of the NASD including, in particular, Sections 2 and 26 of Article III
thereof, to the extent applicable, that you will maintain adequate records with
respect to your customers and their transactions, and that such transactions
will be without recourse against you by your customers. We recognize that, in
addition to applicable provisions of state and federal securities laws, you may
be subject to the provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by federal and state chartered and
supervised financial institutions and their affiliated organizations. Because
you will be the only one having a direct relationship with the customer, you
will be responsible in that relationship for insuring compliance with all laws
and regulations, including those of all applicable federal and state regulatory
authorities and bodies having jurisdiction over you or your customers to the
extent applicable to securities purchases hereunder.
BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to
your right to sell Fund shares in any state or jurisdiction. From time to time
we shall furnish you with information identifying the states under the
securities laws of which it is believed a Fund's shares may be sold. You will
not transact orders for Fund shares in states which we indicate Fund shares may
not be sold.
LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales
literature and other information made publicly available by the Fund, in
3
<PAGE>
reasonable quantities upon your request. We shall file Fund sales literature and
promotional material with the NASD and SEC as required. You may not publish or
use any sales literature or promotional material with respect to the Funds
without our prior review and written approval.
CUSTOMERS: The name of your customers will remain your sole property and will
not be used by us except for servicing or informational mailings and other
correspondence in the normal course of business.
NOTICES AND COMMUNICATIONS: All communications from you should be addressed to
us at 1818 Market Street, Philadelphia, PA 19103. Any notice from us to you
shall be deemed to have been duly given if mailed or telegraphed to you at the
address set forth above. Each of us may change the address to which notices
shall be sent by notice to the other in accordance with the terms hereof.
TERMINATION: This Agreement may be terminated by either party at any time by
written notice to that effect. Notwithstanding the termination of this
Agreement, you shall remain liable for any amounts otherwise owing to us or the
Fund and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Fund, us or any one or more of our dealers,
based upon the claim that you and such dealers or any of them constitute a
partnership, an unincorporated business or other separate entity.
AMENDMENT: This Agreement may be amended or revised at any time by us upon
notice to you and, unless you promptly notify us in writing to the contrary, you
will be deemed to have accepted such modifications.
GENERAL: Your acceptance hereof will constitute an obligation on your part to
observe all the terms and conditions hereof. In the event you breach any of the
terms and conditions of this Agreement, you will indemnify us, the Funds, and
our affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of or relating to such breach. Nothing contained
herein shall constitute you, us and any dealers an association or partnership.
All references in this Agreement to the "Prospectus" include the Statement of
Additional Information incorporated by reference therein and any stickers or
supplements thereto, provided that any requirement in this Agreement to deliver
a copy of the Prospectus shall not include the Statement of Additional
Information unless requested by the customer. This Agreement is to be construed
in accordance with the laws of the State of Delaware.
4
<PAGE>
Please confirm this Agreement by executing one copy of this Agreement below and
returning it to us. Keep the enclosed duplicate copy for your records.
Date: DELAWARE DISTRIBUTORS, L.P.
----------------------------
BY: DELAWARE DISTRIBUTORS, INC.
General Partner
BY:
--------------------------------
Accepted and Agreed to:
- ---------------------------------
(Name of Firm)
BY:
------------------------------
Name:
Title:
5
<PAGE> 1
AMENDMENT NO. 1
TO THE
SECOND AMENDMENT AND RESTATEMENT OF THE
PROFIT SHARING PLAN OF
DELAWARE GROUP DELAWARE FUND, INC.
EFFECTIVE APRIL 1, 1989
This Amendment is made this 21st day of December, 1995, by Delaware
Group Delaware fund, Inc. (the "Employer").
WITNESSETH:
-----------
WHEREAS, the Employer adopted the second amendment and restatement of
the Profit Sharing Plan of Delaware Management Company, Inc. (the "Plan"),
effective April 1, 1989; and
WHEREAS, the Employer desires to clarify the provisions of the Plan
pertaining to the crediting of service for vesting purposes.
NOW THEREFORE, Section 2.28 of the Plan is hereby amended as follows:
"2.28 "Year of Service" shall mean the completion by an Employee of
1,000 or more Hours of Service during his initial Eligibility
Computation Period and during any Plan Year, beginning with the Plan
Year which commences after the Employee first performs an Hour of
Service. However, for the period from October 1, 1988 through March 31,
1990, an Employee shall be given credit for a Year of Service if he
completes 1,000 Hours of Service during the period October 1, 1988 to
September 30, 1989 and shall be given credit for an additional Year of
Service if he completes 1,000 Hours of Service during the period April
1, 1989 to March 31, 1990. For purposes of determining a Participant's
nonforfeitable right to his Employer Contribution Account, Years of
Service shall include an Employee's prior service with Delaware
Management Company, Inc. or any other Entity required to be aggregated
with Delaware Management Company, Inc. under Sections 414(b) or (c) of
the Code."
IN WITNESS WHEREOF, the Employer has caused this Amendment to be
executed by its duly authorized officers and its corporate seal to be impressed
hereon the date first written above.
ATTEST: DELAWARE GROUP DELAWARE FUND, INC.
/s/ George M. Chamberlain, Jr. By: /s/ Wayne A. Stork
- ------------------------------- -------------------------
Senior Vice President/Secretary Chairman
<PAGE> 1
EX-99.B8A
Mutual Fund/Business Trust/Series
Form of Agreement
CUSTODIAN AGREEMENT
AGREEMENT dated as of _____________, 199_ between BANKERS TRUST
COMPANY (the "Custodian") and [name of customer] (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the
Custodian as custodian of all assets of each Portfolio which are delivered to
and accepted by the Custodian or any Subcustodian (as that term is defined in
Section 4) (the "Property") pursuant to the terms and conditions set forth
herein. Without limitation, such Property shall include stocks and other
equity interests of every type, evidences of indebtedness, other instruments
representing same or rights or obligations to receive, purchase, deliver or
sell same and other non-cash investment property of a Portfolio which is
acceptable for deposit ("Securities") and cash from any source and in any
currency ("Cash"). The Custodian shall not be responsible for any property of
a Portfolio held or received by the Customer or others and not delivered to the
Custodian or any Subcustodian.
2. Maintenance of Securities and Cash at Custodian and
Subcustodian Locations. Pursuant to Instructions, the Customer shall direct
the Custodian to (a) settle Securities transactions and maintain cash in the
country or other jurisdiction in which the principal trading market for such
Securities is located, where such Securities are to be presented for payment or
where such Securities are acquired and (b) maintain cash and cash equivalents
in such countries in amounts reasonably necessary to effect the Customer's
transactions in such Securities. Instructions to settle Securities
transactions in any country shall be deemed to authorize the holding of such
Securities and Cash in that country.
3. Custody Account. The Custodian agrees to establish and
maintain one or more custody accounts on its books each in the name of a
Portfolio (each, an "Account") for any and all Property from time to time
received and accepted by the Custodian or any
<PAGE> 2
Subcustodian for the account of such Portfolio. Upon delivery by the Customer
to the Custodian of any Property belonging to a Portfolio, the Customer shall,
by Instructions (as hereinafter defined in Section 14), specifically indicate
which Portfolio such Property belongs or if such Property belongs to more than
one Portfolio shall allocate such Property to the appropriate Portfolio. The
Custodian shall allocate such Property to the Accounts in accordance with the
Instructions; provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept any Property that is not in proper form for
deposit for any reason. The Customer on behalf of each Portfolio, acknowledges
its responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the
same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as the same become
payable and credit the same to the appropriate Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Custodian or Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of temporary
securities for those in definitive form and the exchange of warrants, or other
documents of entitlement to securities, for the Securities themselves) and (ii)
when notification of a tender or exchange offer (other than ministerial
exchanges described in (i) above) is received for an Account, endeavor to
receive Instructions, provided that if such Instructions are not received in
time for the Custodian to take timely action, no action shall be taken with
respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock split is
received for an Account and such rights entitlement or fractional interest
bears an expiration date, if after endeavoring to obtain Instructions such
Instructions are not received in time for the Custodian to take timely action
or if actual notice of such actions was received too late to seek Instructions,
sell in the discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to
<PAGE> 3
make) such rights entitlement or fractional interest and credit the Account
with the net proceeds of such sale;
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other similar income on the
Property in such Account by any governmental authority. In the event there is
insufficient Cash available in such Account to pay such taxes and levies, the
Custodian shall notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in such Account or take
steps to have sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the payment of any
such taxes to cooperate with the Custodian in furnishing information, executing
documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f), including,
without limitation, affiliates of the Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody
accounts which have been established by the Custodian with (a) one of its U.S.
branches or another U.S. bank or trust company or branch thereof located in the
U.S. which is itself qualified under the Investment Company Act of 1940, as
amended ("1940 Act"), to act as custodian (individually, a "U.S.
Subcustodian"), or a U.S. securities depository or clearing agency or system in
which the Custodian or a U.S. Subcustodian participates (individually, a "U.S.
Securities System") or (b) one of its non-U.S. branches or majority-owned
non-U.S. subsidiaries, a non-U.S. branch or majority-owned subsidiary of a U.S.
bank or a non-U.S. bank or trust company, acting as custodian (individually, a
"non-U.S. Subcustodian"; U.S. Subcustodians and non-U.S. Subcustodians,
collectively, "Subcustodians"), or a non-U.S. depository or clearing agency or
system in which the Custodian or any Subcustodian participates (individually, a
"non-U.S. Securities System"; U.S. Securities System and non-U.S. Securities
System, collectively, Securities System"), provided that in each case in which
a U.S. Subcustodian or U.S. Securities System is employed, each such
Subcustodian or Securities System shall have been approved by Instructions;
provided further that in each case in which a non-U.S. Subcustodian or non-U.S.
Securities System is employed, (a) such Subcustodian or Securities System
either is (i) a "qualified U.S. bank" as defined by Rule 17f-5 under the 1940
Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within the meaning
of Rule 17f-5 or such Subcustodian or Securities System is the subject of an
order granted by the U.S. Securities and Exchange Commission ("SEC") exempting
such agent or the subcustody arrangements thereto from all or part of the
provisions of Rule 17f-5 and (b) the agreement between the Custodian and such
non-U.S. Subcustodian has been approved by Instructions; it being understood
that the Custodian shall have no liability or responsibility for determining
whether the approval of any Subcustodian or Securities System has been proper
under the 1940 Act or any rule or regulation thereunder.
<PAGE> 4
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account
which is maintained by the Custodian in the custody of a Subcustodian employed
pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
<PAGE> 5
administration and expenses related thereto, (iii) beneficial ownership of such
Securities be freely transferable without the payment of money or value other
than for safe custody or administration and expenses related thereto, (iv)
adequate records will be maintained identifying the Property held pursuant to
such Agreement as belonging to the Custodian, on behalf of its customers and
(v) to the extent permitted by applicable law, officers of or auditors employed
by, or other representatives of or designated by, the Custodian, including the
independent public accountants of or designated by, the Customer be given
access to the books and records of such Subcustodian relating to its actions
under its agreement pertaining to any Property held by it thereunder or
confirmation of or pertinent information contained in such books and records be
furnished to such persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the
Account(s) which are maintained by the Custodian or any Subcustodian in the
custody of a Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books such Property as
being held for the account of the Custodian or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the instructions of the
Custodian or such Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the Custodian or
Subcustodian, as the case may be, unless precluded by applicable law, rule, or
regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a Subcustodian or in a
Securities System as authorized herein, shall be clearly recorded on the
Custodian's books as belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions for
each Account. All accounts, books and records of the Custodian relating
thereto shall be open to inspection and audit at all reasonable times during
normal business hours by any person designated by the Customer. All such
accounts shall be maintained and preserved in the form
<PAGE> 6
reasonably requested by the Customer. The Custodian will supply to the
Customer from time to time, as mutually agreed upon, a statement in respect to
any Property in an Account held by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such
statement, such statement shall be presumed to be for all purposes correct with
respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and
with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required by the Customer
and as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, the Customer hereby acknowledges
that the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii)
shall be without liability in selecting and utilizing such service or
furnishing any information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an
Account which are held by the Custodian or any Subcustodian may be held by such
entity in the name of the Customer, on behalf of a Portfolio, in the
Custodian's or Subcustodian's name, in the name of the Custodian's or
Subcustodian's nominee, or in bearer form. Securities that are held by a
Subcustodian or which are eligible for deposit in a Securities System as
provided above may be maintained with the Subcustodian or the Securities System
in an account for the Custodian's or Subcustodian's customers, unless
prohibited by law, rule, or regulation. The Custodian or Subcustodian, as the
case may be, may combine certificates representing Securities held in an
Account with certificates of the same issue held by it as fiduciary or as a
custodian. In the event that any Securities in the name of the Custodian or
its nominee or
<PAGE> 7
held by a Subcustodian and registered in the name of such Subcustodian or its
nominee are called for partial redemption by the issuer of such Security, the
Custodian may, subject to the rules or regulations pertaining to allocation of
any Securities System in which such Securities have been deposited, allot, or
cause to be allotted, the called portion of the respective beneficial holders
of such class of security in any manner the Custodian deems to be fair and
equitable.
10. Proxies, etc. With respect to any proxies, notices, reports
or other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto
as are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit
B attached hereto (as such service therein described may be in effect from time
to time) (the "Proxy Service") and (iii) as may otherwise be agreed upon
between the Custodian and the Customer. The liability and responsibility of
the Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with
the requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred,
exchanged or delivered by the Custodian or a Subcustodian upon receipt by the
Custodian of Instructions which include all information required by the
Custodian. Settlement and payment for Securities received for an Account and
delivery of Securities out of such Account may be effected in accordance with
the customary or established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering Securities to the purchaser
thereof or to a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for such
Securities from such purchaser or dealer, as such practices and procedures may
be modified or supplemented in accordance with the standard operating
procedures of the Custodian in effect from time to time for that jurisdiction
or market. The Custodian shall not be liable for any loss which results from
effecting transactions in accordance with the customary or established
securities trading or securities processing practices and procedures in the
applicable jurisdiction or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined
in the Investment Manager User
<PAGE> 8
Guide provided to the Customer by the Custodian, the Custodian may, at its sole
option, reverse such credits or debits to the appropriate Account in the event
that the transaction does not settle, or the income is not received in a timely
manner, and the Customer agrees to hold the Custodian harmless from any losses
which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such
Account unless such Securities are in deliverable form. Notwithstanding the
foregoing, if the purchase price of such securities exceeds the amount of Cash
in an Account at the time of settlement of such purchase, the Custodian may, in
its sole discretion, but in no way shall have any obligation to, permit an
overdraft in such Account in the amount of the difference solely for the
purpose of facilitating the settlement of such purchase of securities for
prompt delivery for such Account. The Customer agrees to immediately repay the
amount of any such overdraft in the ordinary course of business and further
agrees to indemnify and hold the Custodian harmless from and against any and
all losses, costs, including, without limitation the cost of funds, and
expenses incurred in connection with such overdraft. The Customer agrees that
it will not use the Account to facilitate the purchase of securities without
sufficient funds in the Account (which funds shall not include the proceeds of
the sale of the purchased securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
<PAGE> 9
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of
the Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a Subcustodian
or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc., relating to compliance
with the rules of The Options Clearing Corporation, the Commodities Futures
Trading Commission and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be released only
upon payment to the Custodian of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the option, or
at expiration, the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance with Instructions
in the delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not returned
promptly when due other than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from Securities related
transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from
the Customer in respect of any of the Custodian's duties hereunder which have
been received by the Custodian at its address set forth in Section 21 below (i)
in writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the
<PAGE> 10
Custodian or other electronic instruction system acceptable to the Custodian,
or (iii) a telephonic or oral communication by one or more persons as the
Customer shall have from time to time authorized to give the particular class
of Instructions in question and whose name has been filed with the Custodian;
or (iv) upon receipt of such other form of instructions as the Customer may
from time to time authorize in writing and which the Custodian has agreed in
writing to accept. Instructions in the form of oral communications shall be
confirmed by the Customer by tested telex or writing in the manner set forth in
clause (i) above, but the lack of such confirmation shall in no way affect any
action taken by the Custodian in reliance upon such oral instructions prior to
the Custodian's receipt of such confirmation. Instructions may relate to
specific transactions or to types or classes of transactions, and may be in the
form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with
the Custodian pursuant to this Section has been authorized by the Customer to
give the Instructions in question and that such authorization has not been
revoked. The Custodian may act upon and conclusively rely on, without any
liability to the Customer or any other person or entity for any losses
resulting therefrom, any Instructions reasonably believed by it to be furnished
by the proper person or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed
by it to be genuine and to be signed or furnished by the proper party or
parties, including, without limitation, Instructions, and shall be indemnified
by the Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by
reason of the failure of the Custodian or a Subcustodian to utilize reasonable
care, the Custodian shall be liable to the Customer to the extent of the
Customer's actual damages at the time such loss was discovered without
reference to any special conditions or circumstances. In no event shall the
Custodian be liable for any consequential or special damages. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be
counsel for the Customer) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
<PAGE> 11
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree
to defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have
no liability for any loss occasioned by delay in the actual receipt of notice
by the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war,
terrorism, insurrection or revolution; strikes or work stoppages; the inability
of a local clearing and settlement system to settle transactions for reasons
beyond the control of the Custodian; hurricane, cyclone, earthquake, volcanic
eruption, nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage
or expense suffered by the Customer, insofar as such loss, damage or expense
arises from the performance of the Custodian's duties hereunder by reason of
the Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under
this Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions
or Regulations. The Custodian shall not be liable to the Customer and the
Customer agrees to indemnify the Custodian and its nominees, for any loss,
damage or expense suffered or incurred by the Custodian or its nominees arising
out of any violation of any investment restriction or other restriction or
limitation applicable to the Customer or any Portfolio pursuant to any contract
or any law or regulation. The provisions of this Section shall survive
termination of this Agreement.
17. Fees and Expenses. The Customer agrees to pay to the
Custodian such compensation for its services pursuant to this Agreement as may
be mutually agreed upon in writing from time to time and the Custodian's
reasonable out-of-pocket or incidental expenses
<PAGE> 12
in connection with the performance of this Agreement, including (but without
limitation) legal fees as described herein and/or deemed necessary in the
judgment of the Custodian to keep safe or protect the Property in the Account.
The initial fee schedule is attached hereto as Exhibit C. The Customer hereby
agrees to hold the Custodian harmless from any liability or loss resulting from
any taxes or other governmental charges, and any expense related thereto, which
may be imposed, or assessed with respect to any Property in an Account and also
agrees to hold the Custodian, its Subcustodians, and their respective nominees
harmless from any liability as a record holder of Property in such Account.
The Custodian is authorized to charge the applicable Account for such items and
the Custodian shall have a lien on the Property in the applicable Account for
any amount payable to the Custodian under this Agreement, including but not
limited to amounts payable pursuant to the last paragraph of Section 12 and
pursuant to indemnities granted by the Customer under this Agreement. The
provisions of this Section shall survive the termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and
which may be deducted from any income received from any Property in an Account,
the Custodian shall perform such services with respect thereto as are described
in Exhibit D attached hereto and shall in connection therewith be subject to
the standard of care set forth in such Exhibit D. Such standard of care shall
not be affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement
may be amended, modified or waived except in a writing signed by the parties
hereto. No waiver of any provision hereto shall be deemed a continuing waiver
unless it is so designated. No failure or delay on the part of either party
in exercising any power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right.
20. Termination. (a) Termination of Entire Agreement. This
Agreement may be terminated by the Customer or the Custodian by ninety (90)
days' written notice to the other; provided that notice by the Customer shall
specify the names of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such Account shall be paid.
If notice of termination is given by the Custodian, the Customer shall, within
ninety (90) days following the giving of such notice, deliver to the Custodian
a written notice specifying the names of the persons to whom the Custodian
shall deliver the Securities in each Account and to whom the Cash in such
Account shall be paid. In either case, the Custodian will deliver such
Securities and Cash to the persons so specified, after deducting therefrom any
amounts which the Custodian determines to be owed to it under Sections 12, 17,
and 23. In addition, the Custodian may in its discretion withhold from such
delivery such Cash and Securities as may be necessary to settle transactions
pending at the time of such delivery. The Customer grants to the Custodian a
lien and right of setoff against the Account and all Property held therein from
time to time in the full amount of the foregoing obligations. If within ninety
(90) days following the giving of a notice of termination by the Custodian, the
Custodian does not receive from the Customer a written notice specifying the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid, the Custodian, at
its election, may deliver such Securities and pay such Cash to a bank or trust
company doing business in the State of
<PAGE> 13
New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that the
Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may
be terminated by the Customer or the Custodian as to one or more Portfolios
(but less than all of the Portfolios) by delivery of an amended Exhibit A
deleting such Portfolios, in which case termination as to such deleted
Portfolios shall take effect ninety (90) days after the date of such delivery,
or such earlier time as mutually agreed. The execution and delivery of an
amended Exhibit A which deletes one or more Portfolios shall constitute a
termination of this Agreement only with respect to such deleted Portfolio(s),
shall be governed by the preceding provisions of Section 20 as to the
identification of a successor custodian and the delivery of Cash and Securities
of the Portfolio(s) so deleted to such successor custodian, and shall not
affect the obligations of the Custodian and the Customer hereunder with respect
to the other Portfolios set forth in Exhibit A, as amended from time to time.
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
if to the Custodian, to:
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations
due hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided
that, if there is more than one Account and the obligations secured
<PAGE> 14
pursuant to this Section can be allocated to a specific Account or the
Portfolio related to such Account, such security interest and right of setoff
will be limited to Property held for that Account only and its related
Portfolio. Should the Customer fail to pay promptly any amounts owed
hereunder, Custodian shall be entitled to use available Cash in the Account or
applicable Account, as the case may be, and to dispose of Securities in the
Account or such applicable Account as is necessary. In any such case and
without limiting the foregoing, Custodian shall be entitled to take such other
action(s) or exercise such other options, powers and rights as Custodian now or
hereafter has as a secured creditor under the New York Uniform Commercial Code
or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian
that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any
obligation by which the Customer is bound, whether arising by contract,
operation of law or otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence
of such authorization as the Custodian may reasonably require, whether by way
of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer
that:
(i) the terms of this Agreement do not violate any
obligation by which the Custodian is bound, whether arising by contract,
operation of law or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may reasonably require, whether
by way of a certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will remain so qualified or upon
ceasing to be so qualified shall promptly notify the Customer in writing.
<PAGE> 15
25. Governing Law and Successors and Assigns. This Agreement
shall be governed by the law of the State of New York and shall not be
assignable by either party, but shall bind the successors in interest of the
Customer and the Custodian.
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties
hereto that refer in any way to the Custodian. Customer shall not distribute
or permit the distribution of such materials if Custodian reasonably objects in
writing within ten (10) business days of receipt thereof (or such other time as
may be mutually agreed) after receipt thereof. The provisions of this Section
shall survive the termination of this Agreement.
27. Representative Capacity and Binding Obligation. A copy of the
[DECLARATION OF TRUST/TRUST INSTRUMENT] of the Customer is on file with The
Secretary of the [COMMONWEALTH OF MASSACHUSETTS/ STATE OF DELAWARE], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees
of the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of
the Customer arising out of this Agreement.
28. Submission to Jurisdiction. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal court
sitting in the City of New York, State of New York, United States of America,
and the Customer irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding brought in such a
court and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
29. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered
by each of the parties hereto.
30. Confidentiality. The parties hereto agree that each shall
treat confidentially the terms and conditions of this Agreement and all
information provided by each party to the other regarding its business and
operations. All confidential information provided by a party hereto shall be
used by any other party hereto solely for the purpose of rendering services
pursuant to this Agreement and, except as may be required in carrying out this
Agreement, shall not be disclosed to any third party without the prior consent
of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through a breach of this Agreement, or that is
required or requested to be disclosed by any bank or other regulatory
<PAGE> 16
examiner of the Custodian, Customer, or any Subcustodian, any auditor of the
parties hereto, by judicial or administrative process or otherwise by
applicable law or regulation.
31. Severability. If any provision of this Agreement is
determined to be invalid or unenforceable, such determination shall not affect
the validity or enforceability of any other provision of this Agreement.
32. Headings. The headings of the paragraphs hereof are included
for convenience of reference only and do not form a part of this Agreement.
[NAME OF CUSTOMER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 17
EXHIBIT A
To Custodian Agreement dated as of ______________, 199_ between
Bankers Trust Company and ____________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of: [NAME OF CUSTOMER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 18
EXHIBIT B
To Custodian Agreement dated as of _____________, 199_ between Bankers
Trust Company and ___________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the
transmission of corporate communications in connection with shareholder
meetings relating to Securities held in Argentina, Australia, Austria, Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Indonesia, Ireland,
Italy, Japan, Korea, Malaysia, Mexico, Netherlands, New Zealand, Pakistan,
Poland, Singapore, South Africa, Spain, Sri Lanka, Sweden, United Kingdom,
United States, and Venezuela. For the United States and Canada, the term
"corporate communications" means the proxy statements or meeting agenda, proxy
cards, annual reports and any other meeting materials received by the
Custodian. For countries other than the United States and Canada, the term
"corporate communications" means the meeting agenda only and does not include
any meeting circulars, proxy statements or any other corporate communications
furnished by the issuer in connection with such meeting. Non-meeting related
corporate communications are not included in the transmission service to be
provided by the Custodian except upon request as provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the official
language of the country in which the related security is held, the Custodian
will as soon as practicable after receipt of the original meeting agenda by a
Subcustodian provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based
thereon.
<PAGE> 19
-2-
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language
agendas, and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention
to any required procedures will be very important. Upon timely receipt of
voting instructions, the Custodian will promptly forward such instructions to
the applicable Subcustodian. If voting instructions are not timely received,
the Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such
reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: [NAME OF CUSTOMER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
<PAGE> 20
-3-
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 21
EXHIBIT C
To Custodian Agreement dated as of ______________, 199_ between
Bankers Trust Company and ____________________.
CUSTODY FEE SCHEDULE
<PAGE> 22
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE> 23
EXHIBIT D
To Custodian Agreement dated as of ______________, 199_ between
Bankers Trust Company and ____________________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer
and advise what documentation, if any, is required to obtain the exemption.
Upon receipt of such documentation from the Customer, the Custodian will file
for exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian
shall be entitled to apply categorical treatment of the Customer according to
the Customer's nationality, the particulars of its organization and other
relevant details that shall be supplied by the Customer. It shall be the duty
of the Customer to inform the Custodian of any change in the organization,
domicile or other relevant fact concerning tax treatment of the Customer and
further to inform the Custodian if the Customer is or becomes the beneficiary
of any special ruling or treatment not applicable to the general nationality
and category or entity of which the Customer is a part under general laws and
treaty provisions. The Custodian may rely on any such information provided by
the Customer.
<PAGE> 24
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or
other professional tax advisers in such jurisdictions. The Custodian is
entitled to rely, and may act, on information set forth in such services and on
advice received from a Subcustodian, counsel or other professional tax advisers
and shall be without liability to the Customer for any action reasonably taken
or omitted pursuant to information contained in such services or such advice.
<PAGE> 25
Dated as of: [NAME OF CUSTOMER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
BANKERS TRUST COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 1
EX-99.B8B
Form of Agreement
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
USA
RE: Securities Lending Agreement
Dear Sirs:
This letter will confirm our agreement, as set forth below, pursuant
to which Bankers Trust Company ("BTC") will be authorized to lend on our behalf
certain securities held by BTC as trustee and/or custodian:
1. Appointment of Agent
(a) Until this Agreement is terminated pursuant to Section 11, BTC
is authorized as our agent to lend on a disclosed basis our securities held in
custody by BTC to such borrowers as appear on your approved list of borrowers,
a copy of which you may obtain at any time upon request, at the time of any
loan and on such terms as BTC shall in its sole discretion decide. Such
borrowers may include Bankers Trust International PLC, an affiliate of BTC, if
we provide BTC with our authorization in the form attached as Exhibit A hereto,
and certain United Kingdom entities, if we provide BTC with our authorization
in the form attached hereto as Exhibit B. BTC shall further be authorized as
our agent to sign agreements with borrowers, ownership or other certificates as
may be required by the Internal Revenue Service or any other tax authorities,
and to take any other actions necessary to effect such loans.
(b) We acknowledge that BTC acts as agent for other securities
lending clients who may hold some of the same securities as we may hold and,
accordingly, that any given loan to a borrower may be allocated among several
of BTC's clients. We agree that BTC shall have full discretion to allocate
such loans among BTC's clients as it deems appropriate and shall have no
obligation to include us in any such allocation.
(c) We represent that:(i) [COMPANY] is a ________________
established pursuant to _____________________; (ii) we have and will have the
right to lend the securities subject to loans hereunder; (iii) the assets
subject to this Agreement [do / do not] consist of assets which are deemed to
be plan assets under
<PAGE> 2
the Employee Retirement Income Security Act of 1974, or the Internal Revenue
Code of 1986, each as amended; (iv) the execution, delivery and performance of
this Agreement are within our powers, have been and remain duly authorized by
all necessary action and will not violate or constitute a default under any
applicable law or regulation or of any decree, order, judgment, agreement or
instrument binding on us; (v) no consent (including, but not limited to,
exchange control consents) of any applicable governmental authority or body is
necessary, except for such consents as have been obtained and are in full force
and effect, and all conditions of which have been duly complied with; and (vi)
this Agreement constitutes a legal, valid and binding obligation enforceable
against us in accordance with its terms.
2. Remuneration
Unless otherwise agreed, BTC shall pay us a fee for each loan equal to
an agreed percentage of (a) in the case of loans not collateralized by cash,
the fee paid by the borrower to BTC with respect to each loan, and (b) in the
case of loans collateralized by cash, the difference between (i) the net
realized income derived from approved investments of the cash collateral, minus
(ii) the borrower's rebate. BTC shall receive any fee paid by the borrower
and, provided that BTC shall have actually received payment of such fees from
the borrower, credit our portion of such fees to our account monthly.
3. Statements of Loan Activity and Fees
BTC shall promptly advise us by written or electronic means of any
loan entered into by BTC on our behalf. In addition, BTC shall send us a
monthly statement summarizing securities lending activity (including revenues
therefrom) for the previous month effected by BTC on our behalf.
4. Distributions on Loaned Securities and Collateral
All borrowers shall be required to pay or otherwise deliver to BTC all
substitute payments in respect of interest payments, dividends, or other
distributions made on the loaned securities. Such payments shall be credited
by BTC to our account upon receipt by BTC of such payments from the borrower,
unless otherwise agreed upon by the parties. We authorize BTC to pay, provided
that the borrower is not in default under its agreement with BTC, to the
borrower all interest payments received by BTC on Government Securities (as
defined in Section 6(a)) held by BTC as collateral for our loans.
<PAGE> 3
5. Recalls of Securities
(a) Unless otherwise agreed by us, we may instruct BTC to
terminate any loan in whole or in part by giving BTC written notice thereof (a
"Recall Notice"). BTC shall thereupon promptly recall the securities from the
borrower, within the recall period specified by BTC's agreement with the
borrower, which shall not be later than the fifth business day (but, in the
case of U.S. equity securities, the third business day, and, in the case of
Government Securities, the first business day) following the business day on
which BTC gives a notice recalling the securities to the borrower (the "Recall
Period"). If, on the day BTC receives the Recall Notice, (i) the borrower is
closed for business or (ii) the principal market for the loaned securities is
closed for trading, the Recall Period will commence on the next business day on
which both the borrower and the principal trading market are open.
(b) If any loaned security is not returned by a borrower by the
expiration of the applicable recall period, BTC shall notify us of such fact.
BTC shall take all steps which BTC deems appropriate to secure the prompt
return of the securities pursuant to BTC's agreement with the borrower (which
may include the liquidation of collateral and the purchase of replacement
securities).
6. Collateral
(a) Unless otherwise indicated to us by BTC, prior to or
simultaneously with the delivery of our securities to a borrower, BTC shall
obtain and hold on our behalf collateral having a value not less than the value
(the "Margin Requirement") specified in Exhibit C hereto. The collateral shall
consist of (i) cash, (ii) securities issued or guaranteed by the United States
Government or its agencies ("Government Securities"), or (iii) letters of
credit issued by banks as may be acceptable to BTC.
(b) BTC will mark to market loaned securities and collateral (if
the collateral is represented by Government Securities) on a daily basis, and
if on any day, the aggregate market value of the collateral held by BTC for
loans made to any one borrower is less than the Margin Requirement, BTC shall
obtain from such borrower pursuant to BTC's agreement with the borrower such
additional collateral so that the aggregate market value of the collateral is
not less than the Margin Requirement. We understand that BTC may be obligated
to release collateral in excess of the Margin Requirement to the borrower when
so required by BTC's agreement with the borrower.
<PAGE> 4
(c) We authorize BTC to invest, on our behalf and for our account,
any cash collateral received from a borrower in any of the instruments
described in Exhibit C hereto, including any such instrument issued by,
purchased through or entered into with BTC or its affiliates. We acknowledge
that such cash collateral is invested at our risk, and if, upon termination of
any loan, the cash collateral held by BTC for our account is less than the
amount required to be returned to the borrower under BTC's agreement with the
borrower, we will provide BTC with cash in the amount of any such deficiency.
7. Indemnification
(a) In the event that any loan is terminated and the loaned
Securities or any portion thereof shall not have been returned to BTC by or on
behalf of Borrower within the time specified by BTC's agreement with the
borrower, BTC shall at its expense (i) within one (1) business day after the
expiration of the Recall Period, replace the loaned Securities (or any portion
thereof not so returned) with a like amount of the loaned securities of the
same issuer, class and denomination, and hold us harmless from any brokerage
commission, fees, and New York State or City transfer taxes incurred by BTC in
the purchase of such replacement securities or (ii) if BTC is unable to
purchase such securities on the open market, credit our account with an amount
of cash in U.S. dollars equal to the Market Value (as defined below) of such
unreturned loaned Securities determined at the close of business as of the date
on which the loaned Securities should have been returned plus, until such time
as the events in (i) or (ii) are consummated, all financial benefits derived
from the beneficial ownership of the loaned Securities which have accrued on
the loaned Securities whether or not received from Borrower. The Market Value
of any securities listed on a national securities exchange will be the last
sales price on the principal exchange on which trading occurred on the date the
Market Value is determined or, if there was no sale on any such exchange on
such date, the last bid price quoted. The Market Value of securities traded in
the over-the-counter market will be the last quoted bid price in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated or any successor organization. The Market Value of Government
Securities shall be the price as quoted by a generally recognized pricing
service for the business day preceding the date of determination (or, if not so
quoted on such day, the next preceding day
<PAGE> 5
on which they were so quoted). The Market Value of securities the principal
trading market for which is outside the United States will be the last sale
price on the principal exchange on which they are traded, or if there was no
sale on that date, the last sale price on the next preceding day on which there
was such a sale on such exchange, all as quoted in the DataSheet Service of the
Interactive Data Corporation, or, if not therein quoted, then as quoted by any
such exchange; the foreign exchange rate used to calculate the Market Value of
foreign securities not denominated in U.S. dollars shall be the foreign
exchange rate quoted by Bankers Trust Company at the close of business in New
York on the preceding day. The Market Value of securities for which market
quotations are not readily available over a reasonable period of time, will be
the average of values quoted by three major investment banking firms which are
mutually agreeable to BTC and us.
(b) In the event that BTC shall be required to make any payment to
us or shall incur any loss or expense pursuant to (a) above, it shall, to the
extent of such payment or loss or expense, be subrogated to, and succeed to,
all of our rights against the borrower and to the collateral involved; to the
extent the collateral consists of cash or Government Securities, we shall
contemporaneously with any such payment to us by BTC surrender same to BTC for
its sole disposition.
(c) Except as provided in this Section 7, BTC shall have no
liability to us for any failure of a borrower to return loaned securities.
8. BTC's Relationship with a Borrower.
We acknowledge that BTC and/or its affiliates may be a creditor of,
for its own account or in a fiduciary capacity, or generally engage in any kind
of commercial or investment banking business with, a borrower to whom BTC has
lent our securities. Without limiting the generality of the foregoing, BTC
shall not be required to disclose to us any financial information about a
borrower obtained in the course of its relationship with such borrower.
9. Notices
All notices under this Agreement, including Recall Notices, shall be
in writing and sent by mail or facsimile, addressed as follows:
If to BTC:
Bankers Trust Company
c/o BTNY Services, Inc.
34 Exchange Place
<PAGE> 6
Jersey City, NJ 07302
U.S.A.
Attention: Securities Lending Unit
Facsimile No.: (201) 860-2587
If to us:
[CLIENT NAME]
[ADDRESS]
ATTENTION:
FACSIMILE NO.:
Notices shall be effective upon receipt. The address indicated above
for either party may be changed by prior written notice to the other party.
10. Indemnification and Reimbursement of Agent, etc.
(a) We agree to indemnify BTC and to hold BTC harmless from any
liabilities, losses, costs or expenses (including reasonable attorneys' fees)
which BTC may incur in connection with this Agreement or the transactions
contemplated hereby; provided that such indemnification shall not extend to
liabilities, losses, costs or expenses to the extent that such liabilities,
losses, costs or expenses (i) are found by a final judgment of a court of
competent jurisdiction to have resulted from BTC's own willful misconduct or
gross negligence or (ii) result from BTC's indemnity provided in Section 7.
(b) We agree that BTC's duties and responsibilities shall only be
those expressly set forth herein and that BTC may consult with counsel and be
fully protected with respect to any action taken or omitted to be taken in good
faith upon advice of such counsel.
(c) We agree that BTC may rely on any certificate, statement,
request, consent, agreement or other instrument which it believes to be genuine
and to have been signed or presented by a proper person or persons.
11. Termination
Either party may terminate this Agreement by giving not less than five
business days written notice to the other party. Such termination shall be
effective on the date specified therein, provided that such termination notice
shall not constitute a
<PAGE> 7
notice pursuant to Section 5 unless so specified by us, and further provided
that this Agreement shall continue to govern all outstanding loans until the
termination thereof.
12. Governing Law and Legal Proceedings
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to
conflicts of laws principles thereof).
(b) We hereby agree that any legal action or proceeding arising
out of or relating to this Agreement may be brought in the courts of the State
of New York, the courts of the United States of America located in the City of
New York or in any other court having jurisdiction with respect thereto, and we
hereby irrevocably consent to service of process in any said action or
proceeding in any of such courts by the mailing of copies thereof, postage
prepaid, to us at [ADDRESS OF DESIGNATED AGENT FOR SERVICE OF PROCESS IN NEW
YORK], such service to be effective 10 days after such mailing. We hereby
waive, in relation to any such action or proceeding, [any sovereign immunity or
other immunity to suit or to the execution or attachment (whether before or
after judgment) to which we or any of our property may be or become entitled,
or](1) any defense to any action or proceeding based on venue or that the action
has been brought in an inconvenient forum.
13. Force Majeure
Notwithstanding any other provision contained herein, BTC shall not be
liable for any action taken, or any failure to take any action required to be
taken hereunder or otherwise to fulfill BTC's obligations hereunder in the
event and to the extent that the taking of such action or such failure arises
out of or is caused by acts of governmental authorities (whether de jure or de
facto), including nationalization, expropriation, the imposition of currency
restrictions, war, insurrection, riot, revolution, terrorism or civil
commotion; acts of God, accident, fire, water damage, explosion, hurricane,
cyclone, earthquake, volcanic eruption, nuclear fusion, fission, or
radioactivity; mechanical breakdown, computer or system failure or computer
virus, failure or malfunctioning of any communications media for whatever
reason; interruption (whether partial or total) of power supplies or other
- -----------------------------------
(1) Can delete for U.S. Clients
<PAGE> 8
utility or service; strike or other stoppage (whether partial or total) of
labor; any law, decree, regulation or order of any government or governmental
body (including any court or tribunal); or any other cause (whether similar or
dissimilar to any of the foregoing) whatsoever beyond BTC's control.
14. Miscellaneous
This Agreement constitutes the entire agreement of the parties with
respect to BTC's acting as our agent in connection with the loan of our
securities which we have placed in custody with BTC, and supersedes all prior
understandings, written or oral, or any previous agreement with respect
thereto. Neither party shall be bound by any modifications of this Agreement
unless it has so agreed in writing.
If the terms hereof accurately reflect our agreement, please so
indicate by signing below.
[CLIENT NAME]
By:
---------------------
Name:
Title:
AGREED TO AND ACCEPTED BY
AS OF THE DATE HEREOF:
BANKERS TRUST COMPANY
By:
-----------------------
Name:
Title:
<PAGE> 9
Exhibit A
AUTHORIZATION TO LEND TO BANKERS TRUST INTERNATIONAL PLC
The following procedures will be employed to ensure that each loan to
Bankers Trust International ("BTI"), wholly owned subsidiary established under
English law of Bankers Trust Company ("Bankers Trust"), is made in conformity
with the requirements of the Department of Labor.
1. Loans of securities to BTI will be competitively negotiated.
Each prospective transaction with BTI will be evaluated by comparing rates and
terms offered by BTI to those offered by other unrelated borrowers on our
approved list of borrowers. Any loan of securities to BTI will be at market
rates and in no event less favorable than a loan of such securities, if such
loan could be made at the same time under the same circumstances to an
unaffiliated borrower.
2. Bankers Trust will maintain transactional and market records
which contain information to assure that all loans made to BTI are effectively
at arms-length terms. These records will contain data pertaining to loans made
to BTI and other bids, if any, made for such loans or other rates on similar
loans by unaffiliated borrowers. You may obtain a copy of such records upon
written request.
3. As is the case with loans to unrelated approved borrowers, if
prevailing market interest or rebate rates change, the rates on outstanding
loans to BTI will be adjusted accordingly.
4. All loans to BTI will be made on terms which are substantively
identical to those contained in the standard Bankers Trust UK Securities
Lending Agreement ("the Securities Lending Agreement"), which is our contract
for loans to unrelated approved UK borrowers. Among other things, the
Securities Lending Agreement with BTI will provide the lending client with all
right, title and interest in the collateral delivered by the borrower.
A copy of the BTI Securities Lending Agreement is available to
you at any time upon request. We will provide you at least thirty (30) days
advance written notice of any substantive amendments or changes to the
Securities Lending Agreement with BTI.
5. As is Bankers Trust's present policy for all loans to
unrelated borrowers, any and all loans to BTI will be:
<PAGE> 10
(a) Collateralized for each loan transaction in an amount
equal to the agreed upon percentage, which shall be at least 102% of the market
value of securities, plus accrued interest (in the case of debt securities).
We will mark loans to market on a daily basis to ensure that the loan
collateral is maintained at the agreed upon percentage.
As is the case with loans to unrelated approved borrowers,
permissible collateral will include any combination of the following:
- Cash collateral which will be invested for you if you
so request by Bankers Trust, in the investment vehicle that you have chosen for
the investment of your cash collateral, a current description of which is
available upon request.
- Securities issued or guaranteed by the United States
Government or any agency thereof.
- Letters of credit issued by banks as may be
acceptable to Bankers Trust (a current list of such institutions is available
upon request, at any time.) In no event will Bankers Trust, or any affiliate
of Bankers Trust, be the issuer of a letter of credit in connection with the
securities lending program.
(b) Cancelable by you or by Bankers Trust at any time.
Upon termination of a loan, the securities are required to be returned to us as
your agent on the day that would be the standard settlement day in the
principal market in which securities are traded, for transactions effected on
the business day on which Bankers Trust as your agent gives notice of
termination to BTI, in no event to exceed 5 business days in the market in
which the security is traded.
6. You may receive a copy of BTI's most recent available audited
and unaudited financial statements upon request. Should we believe there to be
any material adverse change in the financial condition of BTI, we will promptly
advise you of such change and ask you for your approval to continue lending to
BTI.
7. In case of a default by BTI in any securities loan
transaction, Bankers Trust will promptly notify you of such fact and use all
appropriate means as your agent to enforce your rights under the BTI Securities
Lending Agreement against BTI. In such event, you may, if you so choose, at
your expense, assume the rights of Bankers Trust to enforce the terms of the
BTI Securities Lending Agreement against BTI.
<PAGE> 11
8. The current monthly report furnished to you, covering all
securities loans outstanding in the previous month, enables you to review all
lending activity for your account, including BTI loans and all other loan
transactions. The format includes a list of outstanding loans and loans that
terminated during the prior month, showing the number of securities involved,
value of securities and collateral, daily and monthly rate of interest or
rebate rates and number of days securities have been out on loan. A weekly
report of specific outstanding loans is also available, upon request.
By:
--------------------------
Name:
Title:
<PAGE> 12
Exhibit B
LOANS TO UK COUNTERPARTIES
Certain of the borrowers to which Bankers Trust Company ("BTC") may
loan our securities held in trust and/or custody are entities which are
organized and existing under the laws of the United Kingdom ("UK
Counterparties"). Loans to UK Counterparties will be made by BTC as our agent
pursuant to a form of securities lending agreement governed by the laws of the
United Kingdom (the "UK Agreement") which is available to us upon request.
[In order to ensure that securities loans to such UK Counterparties
which do not at the present time meet the requirements of Prohibited
Transaction Exemption 81-6 or another available exemption do not result in a
prohibited transaction under ERISA, BTC will require such borrowers to
represent to BTC that they are not a "party in interest" within the meaning of
ERISA with respect to any pension or retirement plan the assets of which are
being lent.](2)
By signing this authorization, we grant our consent to BTC making, on
our behalf, the following representations and warranties to such UK
Counterparties:
(1) We are duly authorized and empowered to perform our respective
duties and obligations under the UK Agreement;
(2) We are not restricted under the terms of our constitution or
in any other manner from lending securities in accordance with
the UK Agreement or from otherwise performing our obligations
thereunder; and
(3) We are absolutely entitled to pass full beneficial ownership
of all securities loaned under the UK Agreement to the
applicable UK Counterparty free from all liens, charges and
encumbrances.
We authorize BTC as our agent to(a) disclose our name to the UK Inland
Revenue for approval of us as an approved lender to a UK Counterparty and (b)
undertake to the Inland Revenue on our behalf to lend securities on certain
specified terms, with which BTC as our agent will comply. We agree to provide
BTC with all documents, certificates or other information necessary to enable
BTC to make the appropriate filings on our behalf with the Inland Revenue to
become an approved lender to UK Counterparties. [We understand such
- ----------------------------------
(2) For ERISA clients.
<PAGE> 13
approval is necessary to enable the UK Counterparty to make manufactured
payments in respect of interest, dividends or other distributions on the loaned
securities without deduction of [UK] withholding tax.](3) [We understand such
approval is necessary in order to prevent certain UK tax costs arising for the
UK Counterparty.](4)
In order to make loans to UK Counterparties, we understand that we will be
required to submit to the non-exclusive jurisdiction of the courts of England
in connection with any disputes which may arise out of or in connection with
the UK Agreement, and waive any objection to proceedings in such courts whether
on the grounds of sovereignty, venue or that the proceedings have been brought
in an inconvenient forum. By signing this authorization, we also consent to
BTC's entering into such agreements on our behalf.
Except as specifically described above, all provisions of the
Securities Lending Agreement between us and BTC shall be applicable to loans to
UK Counterparties.
THE LENDING OF SECURITIES TO UK COUNTERPARTIES IS AUTHORIZED UNDER THE
PROCEDURES DESCRIBED ABOVE SUBJECT TO ANY LIMITATIONS SET FORTH BELOW.
By:
------------------------
Name:
Title:
- ----------------------------------
(3) For use with clients resident and subject to tax in a jurisdiction
having a double tax treaty with the UK containing an "other income" article
exempting such income from UK tax.
(4) For use with other clients.
<PAGE> 14
EXHIBIT C
I. Margin Requirements Referred to in Section 6(a)
For loans of securities the principal trading market for which is in
the United States, 102%, and for loans of securities the principal trading
market for which is outside the United States, 105%, of the aggregate market
value of the loaned securities plus any accrued but unpaid distributions
thereon.
II. Investment Vehicles Referred to in Section 6 (c)
[List]
<PAGE> 15
___________, 1996
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10004
U.S.A.
Re: Securities Lending Agreement
Dear Sirs:
In accordance with Section 2 of the securities lending agreement
between you and us dated ___________ 1996, we hereby confirm our agreement that
the fee paid by the borrower with respect to each loan of securities thereunder
shall be apportioned between us as __% for us and __% for BTC.
Very truly yours,
[CUSTOMER]
By:
---------------------
Name:
Title:
AGREED TO AND ACCEPTED:
BANKERS TRUST COMPANY
By:
-----------------------
Name:
Title:
<PAGE> 1
EX-99.B9A
DELAWARE GROUP GOVERNMENT FUND, INC.
GOVERNMENT INCOME SERIES
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made as of this 29th day of June, 1988 by and between
DELAWARE GROUP GOVERNMENT FUND, INC. (the "Fund"), a Maryland Corporation for
the GOVERNMENT INCOME SERIES (the "Series") and DELAWARE SERVICE COMPANY, INC.
("DSC"), a Delaware Corporation, each having its principal office and place of
business at Ten Penn Center Plaza, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreement between Fund and Delaware
Management Company, Inc. provides that Fund shall conduct its own business and
affairs and shall bear the expenses and salaries necessary and incidental
thereto including, but not in limitation of the foregoing, the costs incurred
in: the maintenance of its corporate existence; the maintenance of its own
books, records and procedures; dealing with its own shareholders; the payment
of dividends; transfer of stock, including issuance and redemption of shares;
reports and notices to shareholders; calling and holding of shareholder
meetings; miscellaneous office expenses; brokerage commissions; legal and
accounting fees; taxes; and federal and state registration fees; and
WHEREAS, the predecessor to DSC previously served as the Shareholder
Services Agent for the Series and the Fund has designated DSC to act as
Shareholder Services Agent for the Series as of the date of this Agreement; and
WHEREAS, Fund and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 Fund hereby appoints DSC Shareholder Services Agent
for the Series to provide as agent for the Fund services as Transfer Agent,
Dividend Disbursing Agent to provide and Shareholder Servicing Agent and DSC
hereby accepts such appointment and agrees to provide Fund, as its agent, the
services described herein.
<PAGE> 2
Section 1.2 Fund shall pay DSC and DSC shall accept, for the
services provided hereunder, the compensation provided for in Section VIII
hereof. Fund also shall reimburse DSC for expenses incurred or advanced by it
for the Fund in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Fund represents that it has provided or made
available to DSC (or has given DSC an opportunity to examine) copies of, and,
DSC represents that it has received from Fund (or is otherwise familiar with),
the following documents:
A. The Articles of Incorporation or
other document evidencing Fund's form of organization and any current
amendments thereto.
B. The By-Laws of Fund;
C. Any resolution or other action of
Fund or the Board of Directors of Fund establishing or affecting the rights,
privileges or other status of any class or series of shares of Fund, or
altering or abolishing any such class or series;
D. A certified copy of a resolution of
the Board of Directors of Fund appointing DSC as Shareholder Services Agent and
authorizing the execution of this Agreement;
E. The form of share certificates of
Fund in the form approved by the Board of Directors of Fund;
F. A copy of Fund's currently effective
prospectus and Statement of Additional Information under the Securities act of
1933;
G. Copies of all account application
forms and other documents relating to shareholder accounts in the Series.
H. Copies of documents relating to
Plans of Fund for the purchase, sale or repurchase of its shares, including
periodic payment or withdrawal plans, reinvestment plans or retirement plans;
-3-
<PAGE> 3
I. Any opinion of counsel to Fund
relating to the authorization and validity of the shares of the Series issued
or proposed to be issued under the law of the State of Fund's organization,
including the status thereof under any applicable securities laws;
J. A certified copy of any resolution
of the Board of Directors of Fund authorizing any person to give instructions
to DSC under this Agreement, (with a specimen signature of such person if not
already provided), setting forth the scope of such authority; and
K. Any amendment, revocation or other
document altering, adding, qualifying or repealing any document or authority
called for under this Section 2.1.
Section 2.2 Fund and DSC may consult as to forms or documents
that may be required in performing services hereunder:
Section 2.3 Fund shall provide or make available to DSC a
certified copy of any resolution of the shareholders or the Board of Directors
of Fund providing for a dividend, capital gains distribution, distribution of
capital, stock dividend, stock split or other similar action affecting the
authorization or issuance of shares of Fund or the payment of dividends.
Section 2.4 In the case of any recapitalization or other capital
adjustment requiring a change in the form of stock or share certificate or the
books recording the same, Fund shall deliver or make available to DSC:
A. A certified copy of any document
authorizing or effecting such change;
B. Written instructions from an
authorized officer implementing such change; and
C. An opinion of counsel to Fund as to
the validity of such action, if requested by DSC.
Section 2.5 Fund warrants the following:
A. Fund is, or will be, a properly
registered investment company under the Investment Company Act of 1940 and any
and all Series shares which it issues
-4-
<PAGE> 4
will be properly registered and lawfully issued under applicable federal and
state laws.
B. The provisions of this contract do
not violate the terms of any instrument by which the Fund is bound; nor do they
violate any law or regulation of any body having jurisdiction over the Fund or
its property.
Section 2.6 DSC warrants the following:
A. DSC is and will be properly
registered as a transfer agent under the Securities Exchange Act of 1934 and is
duly authorized to serve, and may lawfully serve as such.
B. The provisions of this contract do
not violate the terms of any instrument by which the Fund is bound; nor do they
violate any law or regulation of any body having jurisdiction over DSC or its
property.
III. SHARE CERTIFICATES
Section 3.1 Fund shall furnish or authorize DSC to obtain, at
Fund's expense a sufficient supply of blank stock certificates for the Series,
and from time to time will replenish such supply upon the request of DSC. Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and all claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this section.
Section 3.2 DSC shall safeguard, and shall account to Fund, upon
its demand for, all such share certificates: (A) as issued, showing to whom
issued, or (B) as unissued, establishing the safekeeping, cancellation or
destruction thereof.
Section 3.3 Fund shall promptly inform DSC in writing of any
change in the officers authorized to sign share certificates or in the form
thereof. If an officer whose manual or fascimile signature is affixed to any
blank share certificate shall die, resign or be removed prior to the issuance
of such certificate, DSC may nevertheless issue such certificate
notwithstanding such death, resignation or removal, and the Fund shall with
respect thereto, promptly
-5-
<PAGE> 5
provide to DSC any approval, adoption or ratification as may be required by
DSC.
IV. TRANSFER AGENT
Section 4.1 As Transfer Agent for the Series, DSC shall issue,
redeem and transfer shares of the Series, and in connection therewith but not
in limitation thereof, it shall:
A. Upon receipt of authority to issue
shares, determine the total shares to be issued and issue such shares by
crediting shares to accounts created and maintained in the registration forms
provided; as applicable, prepare, issue and deliver stock certificates.
B. Upon proper transfer authorization,
transfer shares by debiting transferor-shareholder accounts and crediting such
shares to accounts created and/or maintained for transferee-shareholders; if
applicable, issue and/or cancel stock certificates.
C. Upon proper redemption
authorization, determine the total shares to be redeemed and redeemed;
determine the total redemption payments to be made and made; redeem shares by
debting shareholder accounts; as applicable receive and cancel stock
certificates for shares redeemed; and remit or cause to be remitted the
redemption proceeds to shareholders.
D. Create and maintain accounts;
reconcile and control cash due and paid, shares issued and to be issued, cash
to be remitted and remitted and shares debted and credited to accounts; provide
such notices, instructions or authorizations as Fund may require.
Section 4.2 DSC shall not be required to issue, transfer or
redeem Series shares upon receipt of it from Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series shares has been suspended or discontinued.
-6-
<PAGE> 6
V. DIVIDEND DISBURSING AGENT
Section 5.1 As Dividend Disbursing Agent for the Series, DSC
shall disburse and cause to be disbursed to Series shareholders Series
dividends, capital gains distributions or any payments from other sources as
directed by Fund. In connection therewith, but not in limitation thereof, DSC
shall:
A. Calculate the total disbursement due
and payable and the disbursement to each shareholder as to shares owned, in
accordance with Fund's authorization.
B. Calculate the total disbursements
for each shareholder, as aforesaid, to be disbursed in cash; prepare and mail
check therefor.
C. Calculate the total disbursement for
each shareholder, as aforesaid, for which Series shares are to be issued, and
authorized and instruct the issuance of Series shares therefor in accordance
with Section IV hereof.
D. Prepare and mail or deliver such
forms and notices pertaining to disbursements as required by the federal or
state authority.
E. Create and maintain records,
reconcile and control disbursements to be made and made, both as to cash and
shares, as aforesaid; provide such notices, instruction or authorization as
Fund may require.
Section 5.2 DSC shall not be required to make any disbursement
upon the receipt from Fund, or from any federal or state agency or authority,
written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
Section 6.1 As Shareholder Servicing Agent for the Series, DSC
shall provide those services ancillary to but in implementation of the services
provided under Sections I through V hereof, and those generally defined and
accepted as shareholder services. In connection therewith, but not in
limitation thereof, DSC shall:
-7-
<PAGE> 7
A. Except where instructed in writing
by the Fund not to do so, and where in compliance with applicable law, accept
orders on behalf of the Fund; receive and process investments and applications;
remit to Fund or its custodian payments for shares acquired and to be issued;
and direct the issuance of shares in accordance with Section IV hereof.
B. Receive, record and respond to
communications of shareholders and their agents.
C. As instructed by Fund, prepare and
mail shareholder account information, mail Series shareholder reports and
Series prospectuses.
D. Prepare and mail proxies and
material for Fund shareholder meetings, receive and process proxies from
shareholders, and deliver such proxies as directed by Fund.
E. Administer investment plans offered
by Fund to investors and Series shareholders, including Retirement Plans,
including activities not otherwise provided in Section I through V of this
Agreement.
VII. PERFORMANCE OF DUTIES
Section 7.1 The parties hereto intend that Series shareholders
and their shareholdings shall be confidential, and any information relating
thereto shall be released by DSC only to those persons or authorities who DSC
has reason to believe are authorized to receive such information; or, as
instructed by Fund.
Section 7.2 DSC may, in performing this Agreement, require Fund
or Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or shareholders.
Section 7.3 DSC may request or receive instructions from Fund and
may at Fund's expense, consult with counsel for the Fund or its own counsel,
with respect to any matter arising in connection with the performance of its
duties hereunder, and shall not be liable for any action taken or omitted by it
in good faith in accordance with such instructions or opinions of counsel.
-8-
<PAGE> 8
Section 7.4 DSC shall maintain reasonable insurance coverage for
errors and omissions and reasonable bond coverage for fraud.
Section 7.5 Upon notice thereof to Fund DSC may employ others to
provide services to DSC in its performance of this Agreement.
Section 7.6 Personnel and facilities of DSC used to perform
services hereunder may be used to perform similar services to other Funds of
the Delaware Group and to others, and, may be used to perform other services
for Fund, the other Funds of the Delaware Group and others.
Section 7.7 DSC shall provide its services as transfer agent
hereunder in accordance with Section 17 of the Securities Exchange Act of 1934,
and the rules and regulations thereunder. Further, the parties intend that the
processes, procedures, safeguards and controls employed should be those
generally applied and accepted for the type services provided hereunder by
other institutions providing the same or similar services, and, those which
should provide efficient, safe and economical services so as to promote
promptness and accuracy and to maintain the integrity of Fund's records.
Section 7.8 Fund and DSC may, from time to time, set forth in
writing Guidelines For Selective Procedures to be applicable to the services
hereunder.
VIII. COMPENSATION
Section 8.1 Fund and DSC acknowledge that because DSC has common
ownership and close management ties with Fund's investment advisor and Fund's
distributor and serves the other Funds of the Delaware Group, DSC having been
originally established to provide the services hereunder for Fund and the other
Funds of the Delaware Group, advantages and benefits to Fund in the employment
of DSC hereunder can be available which may not generally be available to it
from others providing similar services.
Section 8.2 Fund and DSC further acknowledge that the
compensation by Fund to DSC is intended to induce DSC to provide services under
this agreement of a nature and quality which the Board of Directors of Fund,
including a
-9-
<PAGE> 9
majority who are not parties to this agreement or interested person of the
parties hereto, has determined after due consideration to be necessary for the
conduct of the business of the Fund in the best interests of Fund,the Series
and its shareholders.
Section 8.3 Compensation by Fund to DSC hereunder shall be
determined in accordance with Schedule A hereto as it shall be amended from
time to time as provided for herein and which is incorporated herein as a part
hereof.
Section 8.4 Compensation as provided in Schedule A shall be
reviewed and approved in the manner set forth in Section 10.1 hereof by the
Board of Directors of Fund at least annually and may be reviewed and approved
more frequently at the request of either party. The Board may request and DSC
shall provide such information as the Board may reasonably require to evaluate
the basis of and approve the compensation.
IX. STANDARD OF CARE
Section 9.1 Fund acknowledges that DSC shall not be liable for,
and in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of the performance of its duties under this contract, agrees
to indemnify DSC against, any claim, or deficiency arising from the performance
of DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other proceeding, and acknowledges that any risk of loss or damage arising from
the conduct of the Fund's affairs in accordance herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by Fund.
X. CONTRACTUAL STATUS
Section 10.1 This Agreement shall be executed and become effective
on the date first written above if approved by a vote of the Board of
Directors, including an affirmative vote of a majority of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on such approval. It shall continue in effect for an indeterminate
period, and is subject to termination on sixty (60) days notice by either party
unless earlier terminated or
-10-
<PAGE> 10
amended by agreement among the parties. Compensation under this Agreement
shall require approval by a majority vote of the Board of Directors of Fund,
including an affirmative vote of the majority of the non-interested members of
the Board cast in person at a meeting called for the purpose of voting such
approval.
Section 10.2 This Agreement may not be assigned without the
approval of Fund.
Section 10.3 This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/Joseph J. Daniero
--------------------
Joseph J. Daniero
ATTEST:/s/George M. Chamberlain
------------------------
George M. Chamberlain
DELAWARE GROUP GOVERNMENT FUND, INC.
GOVERNMENT INCOME SERIES
/s/Wayne A. Stork
-----------------
Wayne A. Stork
ATTEST:/s/Stephen C. Beach
-------------------
Stephen C. Beach
-11-
<PAGE> 11
SCHEDULE A
COMPENSATION
1. DSC will determine and report to the Fund, at least annually, the
compensation for services to be provided to the Fund for DSC's
forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a fee to be
charged per account and/or per transaction, as may be applicable, for
services provided. DSC will bill, and the Fund will pay, such
compensation monthly.
3. For the period commencing October 1, 1984, the charge will be at the
annual rate of $9.50 per account.
<PAGE> 12
SCHEDULE A
COMPENSATION
1. DSC will determine and report to the Fund, at least annually, the
compensation for services to be Provided to the Fund for DSC's
forthcoming fiscal year or period.
2. In determining such compensation, DSC will fix and report a fee to be
charged per account and/or per transaction, as may be applicable, for
services provided. DSC will bill, and the Fund will pay, such
compensation monthly.
3. The fee will consist of an annual per account charge coupled with a
series of transaction charges. These are as follows:
<TABLE>
<S> <C> <C>
A. ANNUAL CHARGE
-------------
Daily Dividend Funds $9.00 per annum
Other Funds $4.20 per annum
B. TRANSACTION CHARGE
------------------
TRANSACTION CHARGE
----------- ------
1. Dividend Payment $ 0.35
2. New Account 5.75
3. Purchase:
a. Wire 6.00
b. Money Market Automated 1.50
c. Other 2.25
4. Transfer 2.25
5. Certificate Issuance 2.00
6. Liquidation:
a. Wire 12.25
b. Draft .50
c. Money Market Regular 2.50
d. Daily Dividend Regular 6.00
7. Exchanges 7.00
</TABLE>
<PAGE> 1
EX-99.B9B
DELAWARE GROUP OF FUNDS
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made as of this 19th day of August, 1996 by and
between the registered investment companies in the Delaware Group listed on
Schedule A, which Schedule may be amended from time to time as provided in
Section 8 hereof (each corporation or common law or business trust, hereinafter
referred to as a "Company," and all such entities collectively hereinafter
referred to as, the "Companies"), on behalf of the portfolio(s) of securities
of such Companies listed on Schedule A, which Schedule may be amended from time
to time (when used in this Agreement in the context of a Company that offers
only a single portfolio/series of shares, the term "Portfolio" shall be a
reference to such Company, and when used in the context of a Company that
offers multiple portfolios/series of shares, shall be a reference to each
portfolio/series of such Company) and DELAWARE SERVICE COMPANY, INC. ("DSC"),
a Delaware corporation, having its principal office and place of business at
1818 Market Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the Companies
with respect to each Portfolio and either Delaware Management Company, Inc. or
its U.K. affiliate, Delaware
-2-
<PAGE> 2
International Advisers Ltd., provide, in part, that each Portfolio shall
conduct its business and affairs and shall bear the expenses necessary and
incidental thereto including, but not in limitation of the foregoing, the costs
incurred with respect to accounting services; and
WHEREAS, the services to be provided under this agreement previously
were provided by employees of the Companies; and
WHEREAS, the Companies and DSC desire to have a written agreement
concerning the performance of accounting services for each Portfolio and
providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 The Companies hereby appoint DSC the
accounting agent ("Accounting Agent") for all of the classes of each Portfolio,
to provide such accounting services as are set forth herein and DSC hereby
accepts such appointment and agrees to provide the Companies, as their agent,
the services described herein.
Section 1.2 The Companies shall pay DSC and DSC shall
accept, for the services provided hereunder, the compensation provided for in
Section VI hereof. The Companies
-3-
<PAGE> 3
also shall reimburse DSC for expenses incurred or advanced by it for the
Companies in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Each Company represents that it has provided
or made available to DSC (or has given DSC an opportunity to examine) copies
of, and, DSC represents that it has received from the Companies (or is
otherwise familiar with), the following documents:
A. The Articles of Incorporation or
Agreement and Declaration of Trust or other document, as relevant, evidencing
each Company's form of organization and any current amendments thereto;
B. The By-Laws or Procedural Guidelines
of each Company;
C. Any resolution or other action of
each Company or the Board of Directors or Trustees of each Company establishing
or affecting the rights, privileges or other status of any class of shares of a
Portfolio, or altering or abolishing any such class;
D. A certified copy of a resolution of
the Board of Directors or Trustees of each Company appointing DSC as Accounting
Agent for each Portfolio and authorizing the execution of this Agreement or an
amendment to Schedule A of this Agreement;
-4-
<PAGE> 4
E. A copy of each Company's currently
effective prospectus[es] and Statement[s] of Additional Information under the
Securities Act of 1933, if effective;
F. A certified copy of any resolution of
the Board of Directors or Trustees of each Company authorizing any person to
give instructions to DSC under this Agreement (with a specimen signature of
such person if not already provided), setting forth the scope of such
authority; and
G. Any amendment, revocation or other
document altering, adding, qualifying or repealing any document or authority
called for under this Section 2.1.
Section 2.2 Each Company and DSC may consult as to forms
or documents that may be required in performing services hereunder.
Section 2.3 Each Company warrants the following:
A. The Company is, or will be, a
properly registered investment company under the Investment Company Act of 1940
(the "1940 Act") and any and all shares of a Portfolio which it issues will be
properly registered and lawfully issued under applicable federal and state
laws.
B. The provisions of this contract do
not violate the terms of any instrument by which the Company or the Company on
behalf of a Portfolio is bound; nor do they violate any law or regulation of
any body having jurisdiction over the Company or its property.
Section 2.4 DSC warrants the following:
-5-
<PAGE> 5
A. The provisions of this contract do
not violate the terms of any instrument by which DSC is bound; nor do they
violate any law or regulation of any body having jurisdiction over DSC or its
property.
III. SERVICES TO BE PROVIDED BY DSC
Section 3.1 DAILY NET ASSET VALUE ("NAV") CALCULATION.
As Accounting Agent for each Portfolio of the Companies, DSC will perform all
functions necessary to provide daily Portfolio NAV calculations, including:
A. Maintaining each Portfolio's
securities portfolio history by:
1. recording portfolio purchases
and sales;
2. recording corporate actions
and capital changes relating to portfolio securities;
3. accruing interest, dividends
and expenses; and
4. maintaining the income
history for securities purchased by a Portfolio.
B. Determining distributions to
Portfolio shareholders;
C. Recording and reconciling shareholder
activity including:
1. recording subscription,
liquidations and dividend reinvestments;
-6-
<PAGE> 6
2. recording settlements of
shareholder activity; and
3. reconciling Portfolio shares
outstanding to the records maintained by DSC, as transfer agent of the
Portfolio.
D. Valuing a Portfolio's securities
portfolio which includes determining the NAVs for all classes of the Portfolio;
E. Disseminating Portfolio NAVs and
dividends to interested parties (including the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the Investment
Company Institute ("ICI"), Morningstar, and Lipper Analytical Services, Inc.
("Lipper")); and
F. Resolving pricing and/or custody
discrepancies.
Section 3.2 FINANCIAL REPORTING. As Accounting Agent,
DSC shall perform financial reporting services for each Portfolio, which shall
include:
A. The preparation of semi-annual and
annual reports for shareholders which involves the performance of the following
functions:
1. preparing all statements of net
assets, statements of operations and statements of changes in net assets for
the Portfolio;
-7-
<PAGE> 7
2. preparing footnotes to
financial statements for the Portfolio;
3. preparing workpapers for each
Company's annual audit by its independent public accountants; and
4. coordinating the annual audit
by each Company's independent public accountants.
B. Reporting to the ICI in response to
requests for monthly and other periodic information;
C. Performing statistical reporting,
which includes daily, monthly, quarterly and annual reports for Lipper,
Weisenberger and other third party reporting agencies; and
D. Furnishing financial information for
any additional required SEC reporting, such as the preparation of financial
information for each Company's reporting on Form N-SAR, the furnishing of
financial information for each Company's prospectus[es] and statement[s] of
additional information, and the financial information required for each
Company's annual Rule 24f-2 notice filing;
Section 3.3 COMPLIANCE TESTING. DSC will monitor, test
and prepare and maintain supporting schedules which evidence compliance with
the definitional and distribution requirements under the Internal Revenue Code
of 1986, as amended ("IRC"), including the following:
-8-
<PAGE> 8
A. The requirement to be registered at
all times during the taxable year under the 1940 Act (IRC Section 851(a));
B. The annual ninety percent gross
income test (IRC Section 851(b)(2));
C. The short/short (thirty percent)
gross income test (IRC Section 851(b)(3));
D. The quarterly IRC industry
diversification tests (IRC Sections 851(b)(4) and 817(h)); and
E. The 90% distribution requirements (IRC
Section 852(a)).
Section 3.4 OTHER SERVICES. In addition to the above,
DSC, in its capacity as Accounting Agent for the Company, will perform the
following services:
A. The calculation of required Portfolio
monthly yields and total return calculations in accordance with the prescribed
rules of the U.S. Securities and Exchange Commission;
B. Providing the financial information
necessary for the preparation of all federal and state tax returns and
ancillary schedules, including:
1. year-end excise tax
distributions; and
2. compliance with Subchapter M and
Section 4982 of the IRC;
-9-
<PAGE> 9
C. Performing special tax reporting to
shareholders, including the preparation of reports which reflect income earned
by each Portfolio by state, exempt income and distributions that qualify for
the corporate dividends received deduction;
D. The preparation of expense and budget
figures for each Portfolio, including the maintenance of detailed records
pertaining to expense accruals and payments and adjusting reports to reflect
accrual adjustments;
E. The preparation of reports for Board
of Directors' or Trustees' meetings;
F. Coordination of the custody
relationships;
G. Facilitating security settlements;
H. Performance of required foreign
security accounting functions;
I. Performance of daily cash
reconciliations for each Portfolio;
J. Providing identified reports to
portfolio managers including:
1. providing portfolio holdings and
security valuation reports;
2. preparing cash forecasts and
reconciliations as mutually agreed upon; and
3. preparing income projections.
-10-
<PAGE> 10
IV. PERFORMANCE OF DUTIES
Section 4.1 DSC may request or receive instructions from
a Company and may, at a Portfolio's expense, consult with counsel for the
Company or its own counsel, with respect to any matter arising in connection
with the performance of its duties hereunder, and shall not be liable for any
action taken or omitted by it in good faith in accordance with such
instructions or opinions of counsel.
Section 4.2 DSC shall maintain reasonable insurance
coverage for errors and omissions and reasonable bond coverage for fraud.
Section 4.3 Upon notice thereof to a Company, DSC may
employ others to provide services to DSC in its performance of this Agreement.
Section 4.4 Personnel and facilities of DSC used to
perform services hereunder may be used to perform similar services to all
Companies of the Delaware Group and their Portfolios and to others, and may be
used to perform other services for all of the Companies of the Delaware Group
and others.
Section 4.5 The Companies and DSC may, from time to time,
set forth in writing at the Companies' expense certain guidelines to be
applicable to the services hereunder.
-11-
<PAGE> 11
V. ACCOUNTS AND RECORDS
Section 5.1 The parties hereto agree and acknowledge that
the accounts and records maintained by DSC with respect to a Portfolio shall be
the property of such Portfolio, and shall be made available to the relevant
Company promptly upon request and shall be maintained for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940 or such
longer period as shall be agreed to by the parties hereto, at such Portfolio's
expense.
VI. COMPENSATION
Section 6.1 The Companies and DSC acknowledge that the
compensation to be paid hereunder to DSC is intended to induce DSC to provide
services under this Agreement of a nature and quality which the Boards of
Directors or Trustees of the Companies, including a majority who are not
parties to this Agreement or interested person of the parties hereto, have
determined after due consideration to be necessary for the conduct of the
business of a Portfolio in the best interests of a Portfolio and its
shareholders.
Section 6.2 Compensation by a Portfolio hereunder shall
be determined in accordance with Schedule B hereto as it shall be amended from
time to time as provided for herein and which is incorporated herein as a part
hereof.
Section 6.3 Compensation as provided in Schedule B shall
be reviewed and approved for each Portfolio in the manner
-12-
<PAGE> 12
set forth in Section 8.1 hereof by the Boards of Directors or Trustees of the
Companies at least annually and may be reviewed and approved more frequently at
the request of either party. The Boards may request and DSC shall provide such
information as the Boards may reasonably require to evaluate the basis of and
approve the compensation.
VII. STANDARD OF CARE
Section 7.1 The Companies on behalf of each Portfolio
acknowledge that DSC shall not be liable for, and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
performance of its duties under this contract, agree to indemnify DSC against,
any claim or deficiency arising from the performance of DSC's duties hereunder,
including DSC's costs, counsel fees and expenses incurred in investigating or
defending any such claim or any administrative or other proceeding, and
acknowledge that any risk of loss or damage arising from the conduct of a
Portfolio's affairs in accordance herewith or in accordance with guidelines or
instructions given hereunder, shall be borne by the Portfolio. The
indemnification provided for in this Section 7.1 shall be made Portfolio by
Portfolio so that DSC is only entitled to indemnification from a Company on
behalf of a Portfolio for actions arising from the performance of DSC's duties
as to that Portfolio.
-13-
<PAGE> 13
VIII. CONTRACTUAL STATUS
Section 8.1 This Agreement shall be executed and become
effective as to a Company with regard to a Portfolio listed on Schedule A as of
the date first written above if approved by a vote of such Company's Board of
Directors or Trustees, including an affirmative vote of a majority of the
non-interested members of the Board of such Company, cast in person at a
meeting called for the purpose of voting on such approval. It shall continue in
effect for an indeterminate period, and is subject to termination as to a
Company on behalf of a Portfolio or DSC, as the case may be, on sixty (60) days
notice by either that Company or DSC, unless earlier terminated or amended by
agreement among the parties. A Company shall be permitted to terminate this
Agreement as to a Portfolio on sixty (60) days notice to DSC. Compensation
under this Agreement by a Portfolio shall require approval by a majority vote
of the Board of Directors or Trustees of such Portfolio's Company, including an
affirmative vote of the majority of the non-interested members of such Board
cast in person at a meeting called for the purpose of voting such approval.
Section 8.2 This Agreement shall become effective as to
any Company or Portfolio not included on Schedule A as of the date first
written above, but desiring to participate in this Agreement, on such date as
an amended Schedule A adding such new Company or Portfolio to such Schedule is
executed by DSC and such new Company or a Company on behalf of a new Portfolio
following
-14-
<PAGE> 14
approval by the Company or by the Company on behalf of a new Portfolio desiring
to be included in this Agreement in accordance with the method specified in
Section 8.1. Any such amended Schedule A shall not affect the validity of this
Agreement as between DSC and the other Companies which have executed this
Agreement or any subsequent amendment to Schedule A of this Agreement.
Section 8.3 This Agreement may not be assigned by DSC
without the approval of all of the Companies.
Section 8.4 This Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
By:
-------------------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
-15-
<PAGE> 15
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
/s/Wayne A. Stork
By:
-------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
/s/ Wayne A. Stork
By:
-------------------------------------
Wayne A. Stork, Chairman
-16-
<PAGE> 16
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*****
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Delchester High-Yield Bond Fund, Inc.
- ----------------------------------
* Except as otherwise noted, all Portfolios included on this Schedule
A are Existing Portfolios for purposes of the compensation described on
Schedule B to that Fund Accounting Agreement between Delaware Service Company,
Inc. and the Delaware Group of Funds dated as of August 19, 1996 ("Agreement").
All Portfolios added to this Schedule A by amendment executed by a Company on
behalf of such Portfolio hereof shall be a New Portfolio for purposes of
Schedule B to the Agreement.
-17-
<PAGE> 17
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
-18-
<PAGE> 18
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: August 19, 1996
-19-
<PAGE> 19
SCHEDULE B
COMPENSATION
FEE SCHEDULE FOR THE DELAWARE GROUP OF FUNDS
PART 1 -- FEES FOR EXISTING PORTFOLIOS
Existing Portfolios are those so designated on Schedule A to the Fund
Accounting Agreement between Delaware Service Company, Inc. and the Delaware
Group of Funds dated as of August 19, 1996 ("Agreement").
ANNUAL ASSET BASED FEES
<TABLE>
<S> <C>
First $10 Billion of Aggregate
Complex Net Assets 2.5 Basis Points
Aggregate Complex Net Assets
over $10 Billion 2.0 Basis Points
</TABLE>
Annual asset based fees will be charged at a rate of 2.5 basis points for the
first $10 Billion of Aggregate Complex Net Assets. Aggregate Complex Net
Assets over $10 Billion will be charged at a rate of 2.0 basis points. These
fees will be charged to a Portfolio on an aggregated pro rated basis.
ANNUAL MINIMUM FEES
<TABLE>
<S> <C>
Domestic Equity Portfolio $35,000
Domestic Fixed Income Portfolio $45,000
International Series Portfolio $70,000
Per Class of Share Fee $ 4,000
</TABLE>
There is an annual minimum fee that will be charged only if the annual asset
based fee is less than the calculation for the minimum fee. This fee is based
on the type and the number of classes per Portfolio. For an equity Portfolio
$35,000 will be charged; for a fixed income Portfolio $45,000 will be charged,
and for an international Portfolio $70,000 will be charged. For each class of
shares, $4,000 will be charged, such amount to be prorated over a period of
less than a year for any classes added after April 30, 1996. A total of all
minimum fees will be compared to the total asset based fee to determine which
fee is higher and, subsequently, will be used to bill the Companies.
PART 2 -- FEES FOR NEW PORTFOLIOS
For each Portfolio designated as a New Portfolio on Schedule A to the
Agreement, there will be a fee of 2.0 basis points, providing that the Delaware
complex net assets are above $10 Billion (the
<PAGE> 20
rate would be 2.5 basis points if under $10 Billion and then 2.0 basis points
once the net assets cross $10 Billion), or an annual minimum fee calculated in
the manner described above, whichever is higher. This new fee would be added
to the total of Existing Portfolio fees and then pro rated. Fees shall not be
charged for New Portfolios included on Schedule A until such Portfolios shall
have commenced operations.
Dated as of: August 19, 1996
-21-
<PAGE> 1
EX-99.B9BI
AMENDMENT NO.1 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule
B to that Fund Accounting Agreement between Delaware Service Company, Inc. and
the Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on
behalf of such Portfolio hereof shall be a New Portfolio for purposes of
Schedule B to the Agreement.
2
<PAGE> 2
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group Delcap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
3
<PAGE> 3
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: September 30, 1996
----------------------
DELAWARE SERVICE COMPANY, INC.
By:
-----------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By:
--------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By:
----------------------
Wayne A. Stork
Chairman
4
<PAGE> 1
Consent of Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses of Delaware Group Government Fund, Inc. -
Government Income Series for the A Class, B Class and C Class, and for the
Institutional Class and "Financial Statements" in the Statement of
Additional Information of Delaware Group Government Fund, Inc. - Government
Income Series and to the incorporation by reference in this Post- Effective
Amendment No. 18 to the Registration Statement (Form N-1A No. 2-97889) of
Delaware Group Government Fund, Inc. - Government Income Series of our report
dated September 10, 1996, included in the 1996 Annual Report to Shareholders of
the Delaware Group Government Fund, Inc. - Government Income Series.
/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 24, 1996
<PAGE> 2
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Government Fund, Inc. - Government Income Series
We have audited the accompanying statement of net assets of Delaware Group
Government Fund, Inc. - Government Income Series (the "Fund") as of July 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Government Fund, Inc. - Government Income Series at July 31,
1996, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 10, 1996
<PAGE> 1
EX-99.B16B
DELAWARE GROUP US GOVERNMENT FUND A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
10
$1000(1 - T) = $1,949.36
T = 6.90%
<PAGE> 2
DELAWARE GROUP US GOVERNMENT FUND A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
10
$1000(1 - T) = $1,857.61
T = 6.39%
<PAGE> 3
DELAWARE GROUP US GOVERNMENT FUND A
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $9.78
Initial Shares 102.249
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1987 102.249 $0.946 11.112 113.361
- --------------------------------------------------------
1988 113.361 $0.817 11.088 124.449
- --------------------------------------------------------
1989 124.449 $0.772 11.678 136.127
- --------------------------------------------------------
1990 136.127 $0.749 12.428 148.555
- --------------------------------------------------------
1991 148.555 $0.753 13.499 162.054
- --------------------------------------------------------
1992 162.054 $0.769 14.541 176.595
- --------------------------------------------------------
1993 176.595 $0.763 15.574 192.169
- --------------------------------------------------------
1994 192.169 $0.714 16.668 208.837
- --------------------------------------------------------
1995 208.837 $0.656 18.222 227.059
- --------------------------------------------------------
1996 227.059 $0.588 17.685 244.744
- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 244.744
Ending NAV x $7.59
----------
Investment Return $1,857.61
Total Return Performance
- ------------------------
Investment Return $1,857.61
Less Initial Investment $1,000.00
----------
$857.61 /$1,000.00 x 100
Total Return: 85.76%
</TABLE>
<PAGE> 4
DELAWARE GROUP US GOVERNMENT FUND INSTITUTIONAL
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1996
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
TEN
YEARS
10
$1000(1 - T) = $1,992.41
T = 7.14%
<PAGE> 5
DELAWARE GROUP US GOVERNMENT FUND INSTITUTIONAL
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $9.32
Initial Shares 107.296
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1987 107.296 $0.946 11.662 118.958
- --------------------------------------------------------
1988 118.958 $0.817 11.634 130.592
- --------------------------------------------------------
1989 130.592 $0.793 12.609 143.201
- --------------------------------------------------------
1990 143.201 $0.771 13.461 156.662
- --------------------------------------------------------
1991 156.662 $0.774 14.656 171.318
- --------------------------------------------------------
1992 171.318 $0.792 15.848 187.166
- --------------------------------------------------------
1993 187.166 $0.791 17.140 204.306
- --------------------------------------------------------
1994 204.306 $0.739 18.373 222.679
- --------------------------------------------------------
1995 222.679 $0.679 20.140 242.819
- --------------------------------------------------------
1996 242.819 $0.611 19.685 262.504
- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 262.504
Ending NAV x $7.59
----------
Investment Return $1,992.41
Total Return Performance
- ------------------------
Investment Return $1,992.41
Less Initial Investment $1,000.00
----------
$992.41 /$1,000.00 x 100
Total Return: 99.24%
</TABLE>
<PAGE> 6
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $7.65
Initial Shares 130.719
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1995 130.719 $0.123 2.120 132.839
- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 132.839
Ending NAV x $7.59
----------
$1,008.25
Total Return Performance
- ------------------------
Investment Return $1,008.25
Less Initial Investment $1,000.00
----------
($8.25)/$1,000.00 x 10
Total Return: 0.83%
</TABLE>
<PAGE> 7
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $7.80
Initial Shares 128.205
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1995 128.205 $0.123 4.634 132.839
- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 132.839
Ending NAV x $7.59
----------
$1,008.25
Less CDSC $9.92
----------
Investment Return $998.33
Total Return Performance
- ------------------------
Investment Return $998.33
Less Initial Investment $1,000.00
----------
($1.67)/$1,000.00 x 100
Total Return: -0.17%
</TABLE>
<PAGE> 8
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $8.03
Initial Shares 124.533
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1995 | 124.533 $0.253 4.167 128.700
- -----------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 128.700
Ending NAV x $7.59
-----------
$976.83
Total Return Performance
- ------------------------
Investment Return $967.38
Less Initial Investment $1,000.00
-----------
($23.17)/ $1,000.00 x 10
Total Return: -2.32%
</TABLE>
<PAGE> 9
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $8.03
Initial Shares 124.533
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1995 124.533 $0.253 4.167 128.700
- -----------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 128.700
Ending NAV x $7.59
-----------
$976.83
Less CDSC $9.45
-----------
Investment Return $967.38
Total Return Performance
- ------------------------
Investment Return $967.38
Less Initial Investment $1,000.00
-----------
($32.62)/ $1,000.00 x 100
Total Return: -3.26%
</TABLE>
<PAGE> 10
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $7.95
Initial Shares 125.786
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1995 125.786 $0.348 5.747 131.533
- ---------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 131.533
Ending NAV x $7.59
--------
Investment Return $998.34
Total Return Performance
- ------------------------
Investment Return $998.34
Less Initial Investment $1,000.00
--------
($1.66)/$1,000.00 x 100
Total Return: -0.17%
</TABLE>
<PAGE> 11
DELAWARE GROUP US GOVERNMENT FUND C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Initial Investment $1,000.00
Beginning OFFER $7.95
Initial Shares 125.786
</TABLE>
<TABLE>
<CAPTION>
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1995 125.786 $0.348 5.747 131.533
- ---------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Ending Shares 131.533
Ending NAV x $7.59
--------
$998.34
Less CDSC $9.55
--------
Investment Return $988.79
Total Return Performance
- ------------------------
Investment Return $988.79
Less Initial Investment $1,000.00
--------
($11.21)/$1,000.00 x 100
Total Return: -1.12%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000769220
<NAME> DELAWARE GROUP GOVERNMENT FUND, INC.
<SERIES>
<NUMBER> 011
<NAME> U.S. GOVERNMENT FUND A CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 186,432,641
<INVESTMENTS-AT-VALUE> 182,938,468
<RECEIVABLES> 3,624,483
<ASSETS-OTHER> 0
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<TOTAL-ASSETS> 186,624,878
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 885,182
<TOTAL-LIABILITIES> 885,182
<SENIOR-EQUITY> 244,752
<PAID-IN-CAPITAL-COMMON> 225,685,733
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<SHARES-COMMON-PRIOR> 26,215,651
<ACCUMULATED-NII-CURRENT> 0
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<ACCUM-APPREC-OR-DEPREC> (3,468,236)
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,773,382
<OTHER-INCOME> 0
<EXPENSES-NET> 2,476,141
<NET-INVESTMENT-INCOME> 15,297,241
<REALIZED-GAINS-CURRENT> (2,709,562)
<APPREC-INCREASE-CURRENT> (4,029,957)
<NET-CHANGE-FROM-OPS> 8,557,722
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,913,461
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,819,368
<NUMBER-OF-SHARES-REDEEMED> 7,423,018
<SHARES-REINVESTED> 1,021,509
<NET-CHANGE-IN-ASSETS> (36,073,503)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (39,770,435)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,205,666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,476,141
<AVERAGE-NET-ASSETS> 184,237,988
<PER-SHARE-NAV-BEGIN> 7.86
<PER-SHARE-NII> 0.588
<PER-SHARE-GAIN-APPREC> (0.270)
<PER-SHARE-DIVIDEND> 0.588
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.59
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000769220
<NAME> DELAWARE GROUP GOVERNMENT FUND, INC.
<SERIES>
<NUMBER> 012
<NAME> U.S. GOVERNMENT FUND B CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 186,432,641
<INVESTMENTS-AT-VALUE> 182,938,468
<RECEIVABLES> 3,624,483
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<TOTAL-ASSETS> 186,624,878
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<OTHER-ITEMS-LIABILITIES> 885,182
<TOTAL-LIABILITIES> 885,182
<SENIOR-EQUITY> 244,752
<PAID-IN-CAPITAL-COMMON> 225,685,733
<SHARES-COMMON-STOCK> 1,285,378
<SHARES-COMMON-PRIOR> 940,568
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,743,179)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,468,236)
<NET-ASSETS> 9,753,511
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,773,382
<OTHER-INCOME> 0
<EXPENSES-NET> 2,476,141
<NET-INVESTMENT-INCOME> 15,297,241
<REALIZED-GAINS-CURRENT> (2,709,562)
<APPREC-INCREASE-CURRENT> (4,029,957)
<NET-CHANGE-FROM-OPS> 8,557,722
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 620,228
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 663,515
<NUMBER-OF-SHARES-REDEEMED> 351,415
<SHARES-REINVESTED> 32,710
<NET-CHANGE-IN-ASSETS> (36,073,503)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (39,770,435)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,205,666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,476,141
<AVERAGE-NET-ASSETS> 9,163,988
<PER-SHARE-NAV-BEGIN> 7.86
<PER-SHARE-NII> 0.533
<PER-SHARE-GAIN-APPREC> (0.270)
<PER-SHARE-DIVIDEND> 0.533
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.59
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000769220
<NAME> DELAWARE GROUP GOVERNMENT FUND, INC.
<SERIES>
<NUMBER> 013
<NAME> U.S. GOVERNMENT FUND C CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 186,432,641
<INVESTMENTS-AT-VALUE> 182,938,468
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<SENIOR-EQUITY> 244,752
<PAID-IN-CAPITAL-COMMON> 225,685,733
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<ACCUMULATED-NET-GAINS> (36,743,179)
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<ACCUM-APPREC-OR-DEPREC> (3,468,236)
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<INTEREST-INCOME> 17,773,382
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<EXPENSES-NET> 2,476,141
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<REALIZED-GAINS-CURRENT> (2,709,562)
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<NUMBER-OF-SHARES-SOLD> 132,896
<NUMBER-OF-SHARES-REDEEMED> 851
<SHARES-REINVESTED> 3,619
<NET-CHANGE-IN-ASSETS> (36,073,503)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (39,770,435)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,205,666
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,476,141
<AVERAGE-NET-ASSETS> 669,150
<PER-SHARE-NAV-BEGIN> 7.95
<PER-SHARE-NII> 0.348
<PER-SHARE-GAIN-APPREC> (0.360)
<PER-SHARE-DIVIDEND> 0.348
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.59
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000769220
<NAME> DELAWARE GROUP GOVERNMENT FUND, INC.
<SERIES>
<NUMBER> 014
<NAME> U.S. GOVERNMENT FUND INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<INVESTMENTS-AT-COST> 186,432,641
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<TOTAL-LIABILITIES> 885,182
<SENIOR-EQUITY> 244,752
<PAID-IN-CAPITAL-COMMON> 225,685,733
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<SHARES-COMMON-PRIOR> 1,057,903
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<ACCUMULATED-NET-GAINS> (36,743,179)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,468,236)
<NET-ASSETS> 10,780,007
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<INTEREST-INCOME> 17,773,382
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<EXPENSES-NET> 2,476,141
<NET-INVESTMENT-INCOME> 15,297,241
<REALIZED-GAINS-CURRENT> (2,709,562)
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<NET-CHANGE-IN-ASSETS> (36,073,503)
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<GROSS-ADVISORY-FEES> 1,205,666
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<GROSS-EXPENSE> 2,476,141
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<PER-SHARE-GAIN-APPREC> (0.270)
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<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
