August 8, 1996
DELAWARE GROUP GOVERNMENT FUND, INC.
GOVERNMENT INCOME SERIES
Supplement to Prospectus dated November 29, 1995
The following replaces the information in the section of the
Prospectus entitled Asset-Backed Securities under Investment
Policies.
Subject to the limitations set forth in Investment
Objectives, the Government Income Series 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 Standard & Poor's
Ratings Group or Aaa by Moody's Investors Service, Inc.).
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 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.
