<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-97889
File No. 811-4304
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
---------
Post-Effective Amendment No. 19 / X /
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 19
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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)
Approximate Date of Public Offering: September 29, 1997
------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
--------
X on September 29, 1997 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.
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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 September 29, 1997.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 19 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>
CROSS-REFERENCE SHEET*
PART A
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
A Class/ Institutional
B Class/ Class
C Class
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
Objective and Objective and
Policies; Policies;
Shares; Shares;
Additional Additional
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 of Net Asset
Price and Net Value Per
Asset Value Share;
Per Share; Management
Management of of the Fund
the Fund
8 Redemption or Repurchase . . . . . . Redemption and Redemption
Exchange; and
How to Buy Exchange;
Shares How to
Buy
Shares
<PAGE>
CROSS-REFERENCE SHEET*
PART A
(CONTINUED)
Location in
Item No. Description Prospectuses
- -------- ----------- ------------
A Class/ Institutional
B Class/ Class
C Class
9 Pending Legal Proceedings. . . . . . None None
* 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>
CROSS-REFERENCE SHEET
PART B
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
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
<PAGE>
CROSS-REFERENCE SHEET
PART C
Location in
Part 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
<PAGE>
[LOGO]
A Class
B Class
C Class
DELAWARE GROUP
U.S. GOVERNMENT FUND
PROSPECTUS SEPTEMBER 29, 1997
<PAGE>
Table of
Contents
COVER PAGE........................1
SYNOPSIS..........................2
SUMMARY OF EXPENSES...............4
FINANCIAL HIGHLIGHTS..............6
INVESTMENT OBJECTIVE AND
POLICIES.......................8
SUITABILITY.....................8
INVESTMENT STRATEGY.............8
THE DELAWARE DIFFERENCE..........10
PLANS AND SERVICES.............10
RETIREMENT PLANNING..............12
CLASSES OF SHARES................14
HOW TO BUY SHARES................20
REDEMPTION AND EXCHANGE..........23
DIVIDENDS AND DISTRIBUTIONS......28
TAXES............................29
CALCULATION OF OFFERING PRICE
AND NET ASSET VALUE
PER SHARE.....................30
MANAGEMENT OF THE FUND...........31
ADDITIONAL INFORMATION ON
INVESTMENT POLICIES AND
RISK CONSIDERATIONS...........34
APPENDIX A--
INVESTMENT ILLUSTRATIONS......40
APPENDIX B--CLASSES OFFERED......41
<PAGE>
U.S. Government Fund
A Class/B Class/C Class
September 29, 1997
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 800-659-2265
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").
This PROSPECTUS relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART
B" of Government Fund Inc.'s registration statement), dated September 29, 1997,
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.
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.
---------
1
<PAGE>
Synopsis
- ----
INVESTMENT OBJECTIVE
The investment 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 OBJECTIVE AND POLICIES and ADDITIONAL
INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS.
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 OBJECTIVE AND POLICIES and ADDITIONAL INFORMATION ON INVESTMENT
POLICIES AND RISK CONSIDERATIONS.
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") furnishes investment
management services to the Fund, subject to the supervision and direction of
Government Fund, Inc.'s Board of Directors. 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 SUMMARY OF EXPENSES and
MANAGEMENT OF THE FUND for further information regarding the Manager and the
fees payable under the Fund's Investment Management Agreement.
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 5.03% of the amount invested. The front-end sales charge
is reduced on certain transactions of at least $100,000 but under $1,000,000.
For purchases of $1,000,000 or more, the front-end sales charge is eliminated
(subject to a CDSC of 1% if shares are redeemed within 12 months of purchase if
in connection with such purchase a dealer commission was paid). Class A Shares
are subject to annual 12b-1 Plan expenses for the life of the investment.
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 DEFERRED SALES CHARGE--CLASS B
SHARES and 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.
- ---------
2
<PAGE>
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, and that
Class A Shares 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.
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.
---------
3
<PAGE>
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 average daily net Class A Class B Class C
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................ 0.27% 0.27% 0.27%
-------- -------- --------
Total Operating Expenses............ 1.16% +++ 1.86% 1.86%
-------- -------- --------
-------- -------- --------
</TABLE>
* 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 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.
+ The management fee is equal to, on an annual basis, 0.60% of the
Fund's average daily net assets, less a proportionate share of all
directors' fees paid to the unaffiliated directors by the Fund.
++ 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 0.30% nor less than 0.10%.
See DISTRIBUTION (12b-1) AND SERVICE under MANAGEMENT OF THE FUND.
Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an Individual
Retirement Account ("IRA") will pay an annual IRA fee of $15 per Social Security
number. See DELAWARE GROUP ASSET PLANNER in PART B.
For expense information about the U.S. Government Fund Institutional Class,
see the separate prospectus relating to that class.
- ---------
4
<PAGE>
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) $ 83 $ 108 $ 182 $ 59 $ 83 $ 108 $ 182
Class B Shares $ 59 $ 88 $ 121 $ 200 (2) $ 19 $ 58 $ 101 $ 200 (2)
Class C Shares $ 29 $ 58 $ 101 $ 218 $ 19 $ 58 $ 101 $ 218
</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.
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.
---------
5
<PAGE>
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.
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------------------------------
Year Ended
7/31/97 7/31/96 7/31/95 7/31/94 7/31/93 7/31/92 7/31/91
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $7.590 $7.860 $8.000 $9.010 $9.020 $8.700 $8.590
Income From Investment Operations
- -----------------------------------------------
Net Investment Income.......................... 0.544 0.588 0.656 0.714 0.763 0.769 0.753
Net Gains (Losses) on Securities (both realized
and unrealized).............................. 0.170 (0.270) (0.140) (1.010) (0.010) 0.320 0.110
-------- -------- -------- -------- -------- -------- --------
Total From Investment Operations............. 0.714 0.318 0.516 (0.296) 0.753 1.089 0.863
-------- -------- -------- -------- -------- -------- --------
Less Distributions
- -----------------------------------------------
Dividends from Net Investment Income........... (0.544) (0.588) (0.656) (0.714) (0.763) (0.769) (0.753)
Distributions from Capital Gains............... none none none none none none none
-------- -------- -------- -------- -------- -------- --------
Total Distributions.......................... (0.544) (0.588) (0.656) (0.714) (0.763) (0.769) (0.753)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period................. $7.760 $7.590 $7.860 $8.000 $9.010 $9.020 $8.700
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- ---------------------------------------------------------------------------------------------------------------------
Total Return(3)................................ 9.77% 4.09% 6.82% (3.51%) 8.70% 12.98% 10.48%
- -----------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $138,844 $164,156 $206,083 $222,555 $223,416 $184,401 $150,491
Ratio of Expenses to Average Daily Net
Assets....................................... 1.16% 1.20% 1.24% 1.23% 1.26% 1.17% 1.13%
Ratio of Net Investment Income to Average Daily
Net Assets................................... 7.13% 7.55% 8.40% 8.31% 8.45% 8.60% 8.74%
Portfolio Turnover Rate........................ 63% 81% 70% 309% 285% 196% 149%
<CAPTION>
7/31/90 7/31/89 7/31/88
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........... $8.750 $8.650 $8.810
Income From Investment Operations
- -----------------------------------------------
Net Investment Income.......................... 0.749 0.772 0.817
Net Gains (Losses) on Securities (both realized
and unrealized).............................. (0.160) 0.100 (0.160)
-------- -------- --------
Total From Investment Operations............. 0.589 0.872 0.657
-------- -------- --------
Less Distributions
- -----------------------------------------------
Dividends from Net Investment Income........... (0.749) (0.772) (0.817)
Distributions from Capital Gains............... none none none
-------- -------- --------
Total Distributions.......................... (0.749) (0.772) (0.817)
-------- -------- --------
Net Asset Value, End of Period................. $8.590 $8.750 $8.650
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------------------------
Total Return(3)................................ 7.14% 10.65% 7.79%
- -----------------------------------------
- -----------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $140,772 $138,904 $158,167
Ratio of Expenses to Average Daily Net
Assets....................................... 1.14% 1.22% 1.02%(1)
Ratio of Net Investment Income to Average Daily
Net Assets................................... 8.75% 9.01% 9.29%(2)
Portfolio Turnover Rate........................ 127% 172% 210%
</TABLE>
- --------------------
(1)Ratio of expenses to average daily net assets prior to expense limitation was
1.09% for 1988.
(2)Ratio of net investment income to average daily net assets prior to expense
limitation was 9.21% for 1988.
(3)Does not reflect the 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 1988 reflects the expense limitation
referenced in notes 1 and 2.
- ---------
6
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
-------------------------------------- ------------------
Period Period
5/2/94(1) Year 11/29/95(1)
Year Ended through Ended through
7/31/97 7/31/96 7/31/95 7/31/94 7/31/97 7/31/96
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $7.590 $7.860 $8.000 $8.190 $7.590 $7.950
Income From Investment Operations
- -----------------------------------------------
Net Investment Income.......................... 0.490 0.533 0.601 0.151 0.491 0.348
Net Gains (Losses) on Securities (both realized
and unrealized).............................. 0.170 (0.270) (0.140) (0.190) 0.170 (0.360)
-------- -------- -------- -------- -------- --------
Total From Investment Operations............. 0.660 0.263 0.461 (0.039) 0.661 (0.012)
-------- -------- -------- -------- -------- --------
Less Distributions
- -----------------------------------------------
Dividends from Net Investment Income........... (0.490) (0.533) (0.601) (0.151) (0.491) (0.348)
Distributions from Capital Gains............... none none none none none none
-------- -------- -------- -------- -------- --------
Total Distributions.......................... (0.490) (0.533) (0.601) (0.151) (0.491) (0.348)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period................. $7.760 $7.590 $7.860 $8.000 $7.760 $7.590
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------
Total Return(2)................................ 9.01% 3.36% 6.08% (0.46%)(1) 9.01% (0.17%)(1)
- -----------------------------------------
- -----------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------
Net Assets, End of Period (000's omitted)...... $10,695 $9,754 $7,394 $2,215 $1,308 $1,029
Ratio of Expenses to Average Daily Net
Assets....................................... 1.86% 1.90% 1.94% 1.94%(1) 1.86% 1.90%(1)
Ratio of Net Investment Income to Average Daily
Net Assets................................... 6.43% 6.85% 7.66% 7.60%(1) 6.43% 6.85%(1)
Portfolio Turnover Rate........................ 63% 81% 70% 309% 63% 81%
</TABLE>
- --------------------
(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.
---------
7
<PAGE>
Investment
Objective and Policies
- ----
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 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 by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"); (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 and/or A-1 by 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.
- ---------
8
<PAGE>
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
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.
For the fiscal years ended July 31, 1996 and 1997, the portfolio turnover
rates for the Fund were 81% and 63%, respectively.
---------
9
<PAGE>
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
annualized 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-Registered Trademark- 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.
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-SM- SERVICES
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account.
1. MONEYLINE-SM- 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-SM- 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. This service is not available for certain retirement plans.
2. MONEYLINE-SM- ON DEMAND
You or your investment dealer may request purchases and redemptions of Fund
shares by using MoneyLine-SM- On Demand. When you authorize the Fund to accept
such requests from you or your investment dealer, funds will be withdrawn from
(for share purchases) or deposited to (for share redemptions) your predesignated
bank account. Your request will be processed the same day if you call prior to 4
p.m., Eastern time. There is a $25 minimum and a $50,000 maximum limit for
MoneyLine-SM- On Demand transactions. This service is not available for
retirement plans, except for purchases of shares by IRAs.
- ---------
10
<PAGE>
For each MoneyLine-SM- Service, it may take up to four business days for the
transactions to be completed. You can initiate either service by completing an
Account Services form. If your name and address are not identical to the name
and address on your Fund account, you must have your signature guaranteed. The
Fund does not charge a fee for any MoneyLine-SM- Service; however, your bank may
change a fee. Please call the Shareholder Service Center for additional
information about these services.
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.
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 you to exchange all or part of your 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.
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.
---------
11
<PAGE>
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, SIMPLE IRAs, Simplified
Employee Pension Plans, Salary Reduction 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 shares of 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. 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")
Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may be maintained by employers having 25 or fewer employees. An
employer may elect to make additional contributions to such existing plans.
403(B)(7) DEFERRED COMPENSATION PLAN
Permits employees of public school systems or of certain types of non-profit
organizations to enter into a deferred compensation arrangement for the purchase
of shares of each of the Classes.
457 DEFERRED COMPENSATION PLAN
Permits employees of state and local governments and certain other entities
to enter into a deferred compensation arrangement for the purchase of shares of
each of the Classes.
PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLAN
Offers self-employed individuals, partnerships and corporations a
tax-qualified plan which provides for the investment of contributions in Class A
Shares 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.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan but
is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis.
SIMPLE 401(K)
A SIMPLE 401(k) is like a regular 401(k) except that plan sponsors are
limited to 100 employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required. Class B Shares are
not available for purchase by such plans.
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Group funds. See CONTINGENT DEFERRED
SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET
VALUE under REDEMPTION AND EXCHANGE.
- ---------
12
<PAGE>
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.
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 under REDEMPTION AND EXCHANGE, 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.
---------
13
<PAGE>
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 0.30% 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, below. See also CONTINGENT DEFERRED
SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET
VALUE under REDEMPTION AND EXCHANGE and DISTRIBUTION (12B-1) AND SERVICE under
MANAGEMENT OF THE FUND.
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% (0.25% 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, and, therefore, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% for the Class A Shares will apply. See AUTOMATIC CONVERSION OF CLASS B
SHARES, below.
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% (0.25% 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. 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 and the effect of earning a return on such
additional money will diminish over time. 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.
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.
- ---------
14
<PAGE>
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 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.
U.S. Government Fund A Class
<TABLE>
<CAPTION>
Front-End Sales
Charge as % of Dealer's
Commission*** as
Offering Amount % of Offering
Amount of Purchase Price Invested** Price
<S> <C> <C> <C>
Less than $100,000 4.75% 5.03% 4.00%
$100,000 but under $250,000 3.75 3.87 3.00
$250,000 but under $500,000 2.50 2.58 2.00
$500,000 but under
$1,000,000* 2.00 2.06 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 0.15% 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.
- ------------------------------------------------------
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
--------------------------------------
Amount of Purchase (as a percentage of amount purchased)
- ----------------------------------
<S> <C>
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
</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.
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15
<PAGE>
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.
Assets held by investment advisory clients of the Manager or its affiliates in a
stable value account may be combined with other Delaware Group fund holdings.
Shares 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 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.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Delaware Investment & Retirement Services, Inc. ("DIRSI")
proprietary record keeping system that (i) has in excess of $500,000 of plan
assets invested in Class A Shares of Delaware Group funds and any stable value
account available to investment advisory clients of the Manager or its
affiliates, or (ii) is sponsored by an employer that has at any point after May
1, 1997 had more than 100 employees while such plan has held Class A Shares of a
Delaware Group fund and such employer has properly represented to DIRSI in
writing that it has the requisite number of employees and has received written
confirmation back from DIRSI.
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.
Class A Shares of the Fund may be purchased at net asset value by any
investor within 90 days after a redemption of shares from a fund outside the
Delaware Group of funds provided that: 1) the redeemed shares were purchased no
more than five years before the proposed purchase of Class A Shares of the Fund;
and 2) a front-end sales charge was paid in connection with the purchase of the
redeemed shares or a contingent-deferred sales charge was paid upon their
redemption.
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16
<PAGE>
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
of the funds in the Delaware Group at net asset value.
GROUP INVESTMENT PLANS
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution
Plans, and 403(b)(7) and 457 Deferred Compensation Plans) may benefit from the
reduced front-end sales charges available on Class A Shares 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 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.
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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17
<PAGE>
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 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 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.
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
Subject to
Year After Purchase Made 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 0.30% 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.
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 0.25% 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.
- ---------
18
<PAGE>
Subject to pending amendments to the NASD's Conduct Rules, 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
Conduct Rules will be amended such that the ability of the Distributor to pay
non-cash compensation as described above will be restricted in some fashion. The
Distributor intends to comply with the NASD's Conduct Rules as they may be
amended.
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 back cover of this PROSPECTUS.
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19
<PAGE>
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, the
Delaware Group 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 Delaware Group at 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 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 Delaware Group at 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. See REDEMPTION AND EXCHANGE for more complete information concerning
your exchange privileges.
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20
<PAGE>
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. See APPENDIX B-- CLASSES OFFERED for a list of Delaware Group funds and
the classes they offer. Class B Shares of 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, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) 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 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. MONEYLINE-SM- ON DEMAND
Through the MoneyLine-SM- On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your predesignated bank
account to your Fund account. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for additional information about this service.
4. 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
account in a Delaware Group mutual fund 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 in WealthBuilder at any time by giving
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, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
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21
<PAGE>
5. 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.
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 APPENDIX B--CLASSES
OFFERED for a list of the funds offering those classes of shares. For more
information about reinvestments, call the Shareholder Service Center.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested
into the same Delaware Group fund in which their investments are held: SAR/SEP,
SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension
Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
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 is the date the order is received by the
Fund, its agent or designee. The effective date of a direct purchase is the day
your wire, electronic transfer or check is received, unless it is received after
the time the offering price 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, as a result of a
redemption, 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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22
<PAGE>
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. For example, 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.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
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 in which you want to invest 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 shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, 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 disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the
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23
<PAGE>
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 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(s) 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 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.
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24
<PAGE>
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 after receipt of the redemption 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 proceeds. If you ask for a check, it will normally be mailed the
next business day after receipt of your redemption request to your
predesignated bank account. There are no separate 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.
MONEYLINE-SM- ON DEMAND
Through the MoneyLine-SM- On Demand service, you or your investment dealer
may call the Fund to request a transfer of funds from your Fund account to your
predesignated bank account. See MONEYLINE-SM- SERVICES under THE DELAWARE
DIFFERENCE for additional information about this service.
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 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-SM-
Direct Deposit Service. Your funds will normally be credited to your bank
account up to four business days after the payment date. There are no
separate fees for this redemption method. See MONEYLINE-SM- SERVICES 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-SM- Direct Deposit Service described above
is not available for certain 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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<PAGE>
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 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)
periodic distributions from an IRA, SIMPLE IRA, or 403(b)(7) or 457 Deferred
Compensation Plan due to death, disability, or attainment of age 59 1/2, and
IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; (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).
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<PAGE>
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 minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA or 403(b)(7) or 457 Deferred Compensation Plan, (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457
Deferred Compensation Plan, and IRA distributions qualifying under Section
72(t) of the Internal Revenue Code; 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, SIMPLE IRA, 403(b)(7) or 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan,
or 401(k) Defined Contribution Plan; (iii) periodic distributions from a
403(b)(7) or 457 Deferred Compensation Plan upon attainment of age 59 1/2,
Profit Sharing Plan, Money Purchase Pension Plan, or 401(k) Defined
Contribution Plans upon attainment of age 70 1/2, and IRA distributions
qualifying under Section 72(t) of the Internal Revenue Code; (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) periodic distributions from an IRA or SIMPLE IRA on or after
attainment of age 59; 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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<PAGE>
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.
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-SM- 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-SM-SERVICES under THE DELAWARE DIFFERENCE for more
information about this service.
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<PAGE>
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 by-product 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 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.
Government Fund, Inc. 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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<PAGE>
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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30
<PAGE>
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, 1997, the Manager and its affiliates
within the Delaware Group including, Delaware International Advisers Ltd.,
were managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,844,101,000) and
investment company (approximately $15,869,009,000) accounts. The directors of
Government Fund, Inc. annually review fees paid to the Manager.
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 0.60% 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, 1997 were 0.59% of its average daily net assets.
Paul Grillo, Vice President/Portfolio Manager of the Government Fund,
Inc., has primary responsibility for making day-to-day investment decisions
for the Fund. Mr. Grillo assumed such responsibility on February 21, 1997.
Mr. Grillo holds a BA in Business Management from North Carolina State
University and an MBA in Finance from Pace University. Prior to joining the
Delaware Group in 1993, Mr. Grillo served as mortgage strategist and trader
at the Dreyfus Corporation. He also served as a mortgage strategist and
portfolio manager for the Chemical Investment Group and as financial analyst
at Chemical Bank. Mr. Grillo is a CFA charterholder.
In making investment decisions for the Fund, Mr. Grillo consults
regularly with Paul E. Suckow and Roger A. Early. Mr. Suckow is Executive
Vice President/Chief Investment Officer, Fixed-Income of the Fund. He is a
CFA charterholder and 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. Early
was the Fund's Portfolio Manager from July 18, 1994 to February 21, 1997.
While continuing in the capacity as a consultant to the Fund, going forward,
Mr. Early will be devoting more of his time to other advisory tasks on behalf
of Delaware Management Company, Inc. 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 charterholder. 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.
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.
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<PAGE>
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 shares of funds in the Delaware Group
of funds in placing portfolio orders and may place orders with broker/dealers
that have agreed to defray certain expenses of such funds, 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.
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 or life-of-fund 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 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 0.30% of
the Class A Shares' average daily net assets in any year, and 1% (0.25% 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 0.30%, but may not be less than 0.10%, because of the formula
for calculating the fee adopted by the Fund's Board of Directors. See PART B.
The Fund's 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.
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<PAGE>
While payments pursuant to the Plans may not exceed 0.30% 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 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 Fund
Accounting Agreement.
The directors annually review fees paid to the Distributor and 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, 1997, the ratios of expenses to average daily net assets
for the Class A Shares, the Class B Shares and the Class C Shares were 1.16%,
1.86% and 1.86%, respectively.
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, 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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<PAGE>
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 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.
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<PAGE>
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.
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 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.
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<PAGE>
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.
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.
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.
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<PAGE>
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.
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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<PAGE>
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.
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 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.
- ---------
38
<PAGE>
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.
---------
39
<PAGE>
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 SCENARIO 4
NO REDEMPTION REDEEM 1ST YEAR REDEEM 3RD YEAR REDEEM 5TH YEAR
------------------------- ------------------------- ------------------------- -------------------------
YEAR CLASS A CLASS B CLASS C 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> <C> <C> <C>
0 9,625 10,000 10,000 9,625 10,000 10,000 9,625 10,000 10,000 9,625 10,000 10,000
1 10,192 10,630 10,630 10,192 10,230 10,530+ 10,192 10,630 10,630 10,192 10,630 10,630
2 10,905 11,300 11,300 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+ 11,669 12,012 12,012
4 12,485 12,768 12,768 12,485 12,768 12,768
5 13,359 13,573 13,573 13,359 13,373 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>
*This assumes that Class B Shares were converted to Class A Shares at the end of
the eighth year.
$250,000 PURCHASE
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4
NO REDEMPTION REDEEM 1ST YEAR REDEEM 3RD YEAR REDEEM 5TH YEAR
------------------------- ------------------------- ------------------------- -------------------------
YEAR CLASS A CLASS B CLASS C 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> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+ 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 300,289 300,289 298,604 292,789 300,289+ 298,604 300,289 300,289
4 319,507+ 319,207 319,207 319,507+ 319,207 319,207
5 341,872 339,318 339,318 341,872 334,318 339,318
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>
*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.
- ---------
40
<PAGE>
Appendix B--
Classes Offered
- ----
<TABLE>
<CAPTION>
CONSULTANT
A CLASS B CLASS C CLASS CLASS
<S> <C> <C> <C> <C>
GROWTH OF CAPITAL
Aggressive Growth Fund x x x -
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Small Cap Value Fund x x x -
U.S. Growth Fund x x x -
Growth Stock Fund x x x -
Tax-Efficient Equity Fund x x x -
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN
Blue Chip Fund x x x -
Quantum Fund x x x -
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
- -----------------------------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund x x x -
New Pacific Fund x x x -
World Growth Fund x x x -
International Equity Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
- -----------------------------------------------------------------------------------------------------
CURRENT INCOME
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Delaware-Voyageur US Government Securities Fund x x x -
Limited-Term Government Fund x x x -
</TABLE>
---------
41
<PAGE>
<TABLE>
<CAPTION>
CONSULTANT
A CLASS B CLASS C CLASS CLASS
<S> <C> <C> <C> <C>
TAX PREFERRED INCOME
National High Yield Municipal Bond Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Arizona Insured Fund x x x -
Delaware-Voyageur Tax-Free Arizona Fund x x x -
Delaware-Voyageur Tax-Free California Insured Fund x x x -
Delaware-Voyageur Tax-Free California Fund x x x -
Delaware-Voyageur Tax-Free Colorado Fund x x x -
Delaware-Voyageur Tax-Free Florida Insured Fund x x x -
Delaware-Voyageur Tax-Free Florida Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Florida Fund x x x -
Delaware-Voyageur Tax-Free Idaho Fund x x x -
Delaware-Voyageur Tax-Free Iowa Fund x x x -
Delaware-Voyageur Tax-Free Kansas Fund x x x -
Delaware-Voyageur Minnesota High Yield Municipal Bond x x x -
Fund
Delaware-Voyageur Minnesota Insured Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Fund x x x -
Delaware-Voyageur Tax-Free Missouri Insured Fund x x x -
Delaware-Voyageur Tax-Free New Mexico Fund x x x -
Delaware-Voyageur Tax-Free New York Fund x x x -
Delaware-Voyageur Tax-Free North Dakota Fund x x x -
Delaware-Voyageur Tax-Free Oregon Insured Fund x x x -
Tax-Free Pennsylvania Fund x x x -
Delaware-Voyageur Tax-Free Utah Fund x x x -
Delaware-Voyageur Tax-Free Washington Insured Fund x x x -
Delaware-Voyageur Tax-Free Wisconsin Fund x x x -
- -------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
- ---------
42
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
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
[LOGO]
Philadelphia - London
[LOGO]
Printed in the U.S.A. on recycled paper.
P-023[--] MC 9/97
<PAGE>
U.S. GOVERNMENT FUND PROSPECTUS
INSTITUTIONAL CLASS SEPTEMBER 29, 1997
------------------------------------------------------------------------------
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.
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. The Fund's STATEMENT OF ADDITIONAL INFORMATION ("PART B" of
Government Fund Inc.'s registration statement), dated September 29, 1997, 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.
TABLE OF CONTENTS
Cover Page.................... 1
Synopsis...................... 2
Summary of Expenses........... 3
Financial Highlights.......... 4
Investment Objective and
Policies.................... 5
Suitability............... 5
Investment Strategy....... 5
Classes of Shares............. 7
How to Buy Shares............. 8
Redemption and Exchange....... 9
Dividends and Distributions... 11
Taxes......................... 11
Calculation of Net Asset Value
Per Share................... 12
Management of the Fund........ 13
Additional Information on
Investment Policies and Risk
Considerations.............. 15
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 THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.
1
<PAGE>
SYNOPSIS
Investment Objective
The investment 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 OBJECTIVE AND POLICIES and ADDITIONAL
INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS.
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 OBJECTIVE AND POLICIES and ADDITIONAL INFORMATION ON INVESTMENT
POLICIES AND RISK CONSIDERATIONS.
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") furnishes investment
management services to the Fund, subject to the supervision and direction of
Government Fund, Inc.'s Board of Directors. 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 SUMMARY OF EXPENSES and
MANAGEMENT OF THE FUND for further information regarding the Manager and the
fees payable under the Fund's Investment Management Agreement.
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.
2
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
- ----------------------------------------
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
Exchange Fees................. None*
<CAPTION>
Annual Operating Expenses
(as a percentage of average
daily net assets)
<S> <C>
- ----------------------------------------
Management Fees............... 0.59%**
12b-1 Fees.................... None
Other Operating Expenses...... 0.27%
--------
Total Operating
Expenses................ 0.86%
--------
--------
</TABLE>
* Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
**The management fee is equal to, on an annual basis, 0.60% of the Fund's
average daily net assets, less a proportionate share of all directors' fees
paid to the unaffiliated directors by the Fund.
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.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C>
$ 9 $ 27 $ 48 $ 106
</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.
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.
3
<PAGE>
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
7/31/97 7/31/96 7/31/95 7/31/94 7/31/93 7/31/92(2) 7/31/91(1) 7/31/90(1) 7/31/89(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $7.590 $7.860 $8.000 $9.010 $9.020 $8.700 $8.590 $8.750 $8.650
Income From Investment
Operations
- ------------------------------
Net Investment Income......... 0.567 0.611 0.679 0.739 0.791 0.792 0.774 0.771 0.793
Net Gains or Losses on
Securities (both realized
and unrealized)............. 0.170 (0.270 ) (0.140 ) (1.010 ) (0.010 ) 0.320 0.110 (0.160 ) 0.100
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total From Investment
Operations................ 0.737 0.341 0.539 (0.271 ) 0.781 1.112 0.884 0.611 0.893
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
- ------------------------------
Dividends (from net investment
income)..................... (0.567 ) (0.611 ) (0.679 ) (0.739 ) (0.791 ) (0.792 ) (0.774 ) (0.771 ) (0.793 )
Distributions (from capital
gains)...................... none none none none none none none none none
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions......... (0.567 ) (0.611 ) (0.679 ) (0.739 ) (0.791 ) (0.792 ) (0.774 ) (0.771 ) (0.793 )
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period...................... $7.760 $7.590 $7.860 $8.000 $9.010 $9.020 $8.700 $8.590 $8.750
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
- ----------------------------------------------------------------------------------------------------------------------
Total Return.................. 10.10% 4.39% 7.14% (3.23% ) 9.04% 13.27% 10.76% 7.40% 10.92%
- ------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------
Net Assets, End of Period
(000's omitted)............. $12,053 $10,780 $8,316 $14,016 $16,475 $19,421 $13,427 $8,359 $3,506
Ratio of Expenses to Average
Daily Net Assets............ 0.86% 0.90% 0.94% 0.94% 0.97% 0.91% 0.88% 0.89% 0.97%
Ratio of Net Investment Income
to Average Daily Net
Assets...................... 7.43% 7.85% 8.66% 8.60% 8.74% 8.85% 8.99% 9.00% 9.26%
Portfolio Turnover Rate....... 63% 81% 70% 309% 285% 196% 149% 127% 172%
</TABLE>
- ------------------
(1)The data for the period 1989 through 1991 are derived from data of the
Government Income Series I class which, like 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 $0.0657, 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.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
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 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 by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"); (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 and/or A-1 by 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.
5
<PAGE>
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
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.
For the fiscal years ended July 31, 1996 and 1997, the portfolio turnover
rates for the Fund were 81% and 63%, respectively.
6
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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 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) a bank, trust company and similar financial
institution investing for its own account or for the account of its trust
customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a
Rule 12b-1 Plan fee; 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 directly by contacting the Fund or the Distributor. The
U.S. Government Fund A Class carries a front-end sales charge and has annual
12b-1 expenses equal to a maximum of 0.30%. 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
Delaware Group at 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 Delaware Group at 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. See REDEMPTION AND EXCHANGE for more complete information
concerning your exchange privileges.
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 is the date the order is received by the
Fund, its agent or designee. 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 the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined 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 in which you want to invest 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. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
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 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 although,
in the case of an exchange, a sales charge may apply. You may also have your
investment dealer arrange to have your shares redeemed or exchanged. Your
investment dealer may charge for this service.
All authorizations given by shareholders, 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.
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<PAGE>
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 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 after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate(s)
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
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 to
unauthorized or fraudulent transactions. 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
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
after receipt of the redemption 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. If you
ask for a check, it will normally be mailed the next business day after receipt
of your redemption 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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<PAGE>
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.
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 by-product
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 long-term capital loss to the extent of capital gain dividends
received with respect to such shares.
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<PAGE>
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.
Government Fund, Inc. 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.
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of the Class is the net asset value ("NAV")
per share of Class shares 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.
12
<PAGE>
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, 1997, the Manager and its affiliates within the
Delaware Group, including Delaware International Advisers Ltd., were managing in
the aggregate more than $39 billion in assets in the various institutional or
separately managed (approximately $23,844,101,000) and investment company
(approximately $15,869,009,000) accounts. The directors of Government Fund, Inc.
annually review fees paid to the Manager.
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
0.60% 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, 1997 were
0.59% of its average daily net assets.
Paul Grillo, Vice President/Portfolio Manager of the Government Fund, Inc.,
has primary responsibility for making day-to-day decisions for the Fund. Mr.
Grillo assumed such responsibility on February 21, 1997. Mr. Grillo holds a BA
in Business Management from North Carolina State University and an MBA in
Finance from Pace University. Prior to joining the Delaware Group in 1993, Mr.
Grillo served as mortgage strategist and trader at the Dreyfus Corporation. He
also served as a mortgage strategist and portfolio manager for the Chemical
Investment Group and as financial analyst at Chemical Bank. Mr. Grillo is a CFA
charterholder.
In making investment decisions for the Fund, Mr. Grillo consults regularly
with Paul E. Suckow and Roger A. Early. Mr. Suckow is Executive Vice
President/Chief Investment Officer, Fixed-Income of the Fund. He is a CFA
charterholder and 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. Early was the Fund's
Portfolio Manager from July 18, 1994 to February 21, 1997. While continuing in
the capacity as a consultant to the Fund, going forward, Mr. Early will be
devoting more of his time to other advisory tasks on behalf of Delaware
Management Company, Inc. 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
charterholder. 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.
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.
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<PAGE>
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 shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, 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.
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.
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 Fund Accounting
Agreement. 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 directors annually review fees paid to the Distributor and the Transfer
Agent. 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 0.86% for the
fiscal year ended July 31, 1997.
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.
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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.
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.
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
15
<PAGE>
approximately 12 years. For this reason, it is standard practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The assumed
average life of pools of mortgages having terms of less than 30 years is less
than 12 years, but typically not less than five years.
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.
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
16
<PAGE>
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 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.
17
<PAGE>
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.
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.
18
<PAGE>
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.
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.
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.
19
<PAGE>
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.
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.
20
<PAGE>
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. 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.
21
<PAGE>
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
[LOGO]
Printed in the U.S.A. on recycled paper.
P-041[--] MC 9/97
- -----------------------------------------
U.S. GOVERNMENT
FUND
INSTITUTIONAL
- ----------------------
PROSPECTUS
SEPTEMBER 29, 1997
[LOGO]
Philadelphia - London
<PAGE>
- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 29, 1997
- --------------------------------------------------------------------------------
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
PROFITS DISTRIBUTIONS
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AGREEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
APPENDIX A--IRA INFORMATION
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
-1-
<PAGE>
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 0.30%. 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 29, 1997 and the current PROSPECTUS for the
Institutional Class dated September 29, 1997, 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
the Fund's national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.
-2-
<PAGE>
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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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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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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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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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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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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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
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.
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, 1997,
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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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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A CLASS A
SHARES SHARES INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS(1)
1 year ended
7/31/97 4.54% 9.77% 10.10%
3 years ended
7/31/97 5.14% 6.87% 7.18%
5 years ended
7/31/97 4.05% 5.06% 5.38%
10 years ended
7/31/97 6.88% 7.40% 7.67%
Period 8/16/85(2)
through 7/31/97 7.00% 7.44% 7.66%
(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 and Class C Shares, as shown below,
is the average annual total return quotation through July 31, 1997. The average
annual total return for Class B Shares and 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, 1997. The average annual total return for
Class B Shares and Class C Shares excluding deferred sales charge assumes the
shares were not redeemed at July 31, 1997 and therefore does not reflect the
deduction of a CDSC.
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AVERAGE ANNUAL TOTAL RETURN
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED
SALES CHARGE) SALES CHARGE)
1 year ended
7/31/97 5.01% 9.01%
3 years ended
7/31/97 5.26% 6.12%
Period 5/2/94(1)
through 7/31/97 4.71% 5.49%
(1) Date of initial public offering of Class B Shares.
AVERAGE ANNUAL TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED
SALES CHARGE) SALES CHARGE)
1 year ended
7/31/97 8.01% 9.01%
Period 11/29/95
through 7/31/97(1) 5.19% 5.19%
(1) Date of initial public offering of Class C Shares.
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:
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a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd
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.
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, 1997 using this formula were 5.93%, 5.55%,
5.55% and 6.55%, 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.
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, 1997 was 18.6
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, and a direct investment in
an index is not possible.
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,
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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.
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>
The following tables are an example, for purposes of illustration only, of
cumulative total return performance for each Class through July 31, 1997.
CUMULATIVE TOTAL RETURN
CLASS A CONSUMER
SHARES INSTITUTIONAL PRICE
(AT OFFER) CLASS(1) INDEX(2)
3 months ended
7/31/97 (0.62%) 4.45% 0.19%
6 months ended
7/31/97 0.14% 5.27% 0.88%
9 months ended
7/31/97 1.41% 6.65% 1.39%
1 year ended
7/31/97 4.54% 10.10% 2.33%
3 years ended
7/31/97 16.24% 23.14% 8.15%
5 years ended
7/31/97 21.93% 29.94% 14.23%
10 years ended
7/31/97 94.47% 109.31% 41.08%
Period 8/16/85(3)
through 7/31/97 124.52% 141.76% 48.62%
(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--Lipper Analytical Services, Inc.
(3) Date of initial public offering of Class A Shares.
-15-
<PAGE>
CUMULATIVE TOTAL RETURN
CLASS B SHARES CLASS B SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED CONSUMER PRICE
SALES CHARGE) SALES CHARGE) INDEX (1)
3 months ended
7/31/97 0.19% 4.19% 0.19%
6 months ended
7/31/97 0.75% 4.75% 0.88%
9 months ended
7/31/97 1.86% 5.86% 1.39%
1 year ended
7/31/97 5.01% 9.01% 2.23%
3 years ended
7/31/97 16.61% 19.52% 8.15%
Period 5/2/94
through 7/31/97(2) 16.13% 18.97% 8.89%
(1) Source---Lipper Analytical Services, Inc.
(2) Date of initial public offering of Class B Shares.
CUMULATIVE TOTAL RETURN
CLASS C SHARES CLASS C SHARES
(INCLUDING DEFERRED (EXCLUDING DEFERRED CONSUMER PRICE
SALES CHARGE) SALES CHARGE) INDEX (1)
3 months ended
7/31/97 3.19% 4.19% 0.19%
6 months ended
7/31/97 3.75% 4.75% 0.88%
1 year ended
7/31/97 8.01% 9.01% 1.39%
Period 11/29/95(2)
through 7/31/97 8.83% 8.83% 4.49%
(1) Source--Lipper Analytical Services, Inc.
(2) Date of initial public offering of Class C Shares.
-16-
<PAGE>
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 high 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, AUTOMATIC INVESTING PLAN and WEALTH BUILDER OPTION under
INVESTMENT PLANS for a complete description of these services, including
restrictions or limitations.
-17-
<PAGE>
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.
NUMBER
INVESTMENT PRICE PER OF SHARES
AMOUNT SHARE PURCHASED
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
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 any stock or bond fund in the Delaware Group
of funds.
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:
7% Rate 8% Rate 9% Rate
of Return of Return of Return
--------- --------- ---------
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 $20,097 $22,196 $24,514
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>
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, 1995, 1996 and 1997, 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, 1997, 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 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.
-19-
<PAGE>
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 Conduct Rules 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
expenses of the funds in the Delaware Group of funds, such as custodian fees,
and may, at the request of the Distributor, give consideration to sales of
shares of such funds 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, 1996 and 1997, the portfolio
turnover rates for the Fund were 81% and 63%, respectively.
-20-
<PAGE>
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 are responsible for 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 certain rules 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>
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 or in the case of any retirement plan
account including self-directed IRAs. 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
full share denominations purchased by sending a letter signed by each owner of
the account to the Transfer Agent requesting the certificate. No charge is
assessed by Government Fund, Inc. for any certificate issued. A shareholder may
be subject to fees for replacement of a lost or stolen certificate, under
certain conditions, including the cost of obtaining a bond covering the lost or
stolen certificate. Please contact the Fund for further information. 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 0.30% 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% (0.25% 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 0.30% 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>
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND A CLASS
- ----------------------------------------------------------------------------------------------
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% 5.03% 4.00%
$100,000 but under $250,000 3.75 3.87 3.00
$250,000 but under $500,000 2.50 2.58 2.00
$500,000 but under $1,000,000* 2.00 2.06 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.
- --------------------------------------------------------------------------------
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 0.15% 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:
-23-
<PAGE>
DEALER'S COMMISSION
-------------------
(as a percentage of
AMOUNT OF PURCHASE amount purchased)
------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
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.
-24-
<PAGE>
The following table sets forth the rates of the CDSC for Class B Shares of
the Fund:
CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
------------------------ ------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
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
0.30% of the Class A Shares' average daily net assets for the year, and up to 1%
(0.25% of which are service fees to be paid to the Distributor, dealers and
others for
-25-
<PAGE>
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 0.25% 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 0.10% 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 0.30% 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 0.30% 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 outstanding voting securities
of Class B. 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
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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, 1997, payments from the Class A Shares,
Class B Shares and Class C Shares amounted to $447,197, $103,014 and $11,437,
respectively. Such amounts were used for the following purposes:
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Advertising --- $223 ---
Annual/Semi-Annual Reports $12,476 --- ---
Broker Trails $350,651 $23,530 $1,964
Broker Sales Charges --- $34,008 $6,684
Dealer Service Expenses $2,888 $311 $35
Interest on Broker Sales Charges --- $38,101 $587
Commissions to Wholesalers $12,673 $3,694 $1,276
Promotional-Broker Meetings $21,616 $1,508 $120
Promotional-Other $8,541 --- ---
Prospectus Printing $23,354 --- ---
Telephone $2,138 $56 $34
Wholesaler Expenses $12,860 $1,583 $737
Other --- --- ---
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 0.25% 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. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Group fund shares.
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, the Manager's
affiliates 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
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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. Class A Shares may also be purchased at net
asset value by current and former officers, directors and employees (and members
of their families) of the Dougherty Financial Group LLC.
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 in Delaware-Voyageur Unit Investment Trusts may reinvest monthly
dividend checks and/or repayment of invested capital into Class A Shares of any
of the funds in the Delaware Group at net asset value.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the institutional class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Delaware Investment & Retirement Services, Inc. ("DIRSI")
proprietary record keeping system that (i) has in excess of $500,000 of plan
assets invested in Class A Shares of Delaware Group funds and any stable value
product available through the Delaware Group, or (ii) is sponsored by an
employer that has at any point after May 1, 1997 had more than 100 employees
while such plan has held Class A Shares of a Delaware Group fund and such
employer has properly represented to DIRSI in writing that it has the requisite
number of employees and has received written confirmation back from DIRSI.
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 provided by
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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 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). In addition, assets held in any stable value product available through
the Delaware Group may be considered with other Delaware Group fund holdings.
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).
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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 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
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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) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 fee; 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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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 APPENDIX B--CLASSES OFFERED
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, SIMPLE IRA, SIMPLE 401(k), 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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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, SIMPLE IRA, SIMPLE 401(k), 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.
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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. 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 giving
written notice to the fund from which exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), 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.
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. Effective September 1, 1997, the Delaware Group Asset
Planner Service is only available to financial advisers or investment dealers
who have previously used this service. 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. With the help of a financial adviser, you may also design a customized
asset allocation strategy.
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 in the
PROSPECTUS. 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 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. See APPENDIX B - CLASSES OFFERED in the PROSPECTUS for
the funds in the Delaware Group that offer consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is typically due at
the time of initial investment and by September 30 of each subsequent year. 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. However, effective November 1, 1996, the annual maintenance fee is waived
until further notice. Investors using the Asset Planner for an IRA will
continue to pay an annual IRA fee of $15 per Social Security number.
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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.
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, SIMPLE IRAs, Simplified
Employee Pension Plans, Salary Reduction 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.
Purchases of Class B Shares are subject to a maximum purchase limitation of
$250,000 for retirement plans. Purchases 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.
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.
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PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS
Prototype Plans are available for self-employed individuals, partnerships
and corporations. These plans can be maintained as Section 401(k) profit
sharing or money purchase pension plan provisions. Contributions may be
invested only in Class A and Class C Shares.
INDIVIDUAL RETIREMENT ACCOUNT
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, for years prior to
1997, elects to be treated as having no compensation for the year. Investments
in each of the Fund Classes are permissible.
An individual can contribute up to $2,000 to his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or
his or her spouse) is and active participant in an employer-sponsored retirement
plan, the full $2,000 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. No deductions are available 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 for years prior to 1997), 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.
Effective for tax years beginning after 1996, one-income couples can
contribute up to $2,000 to each spouse's IRA provided the combined compensation
of both spouses is at least equal to the total contributions for both spouses.
If the working spouse is an active participant in an employer-sponsored
retirement plan and earns over $40,000, the maximum deduction limit is reduced
in the same way that the limit is reduced for contributions to a non-spousal
IRA.
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 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
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<PAGE>
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.
Effective January 1, 1997, the 10% premature distribution penalty will not
apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks.
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")
Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may be maintained by employers having 25 or fewer employees. An
employer may elect to make additional contributions to such existing plans.
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.
SIMPLE IRA
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A SIMPLE IRA combines many of the features of an Individual Retirement
Account (IRA) and a 401(k) Plan but is easier to administer than a typical
401(k) Plan. It requires employers to make contributions on behalf of their
employees and also has a salary deferral feature that permits employees to defer
a portion of their salary into the plan on a pre-tax basis.
SIMPLE 401(K)
A SIMPLE 401(k) is like a regular 401(k) except that plan sponsors are
limited to 100 employees and, in exchange for mandatory plan sponsor
contributions, discrimination testing is no longer required. Class B Shares are
not available for purchase by such plans.
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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, its agent or designee.
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., its agent or designee. Selling
dealers are responsible for 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, Martin Luther King, Jr.'s Birthday, 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,
subject to 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, in the case of the Fund Classes, 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>
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 from Class A Shares, Class B Shares and Class C Shares.
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.
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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.
-45-
<PAGE>
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, 1997, the Fund had a capital loss of $2,450,793. The Fund had
accumulated capital losses at July 31, 1997 of $36,593,714, which may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 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.
-46-
<PAGE>
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, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $39 billion in assets in the various
institutional or separately managed (approximately $23,844,101,000) and
investment company ($15,869,009,000) 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) 0.60% of its average
daily net assets, less all directors' fees paid to the unaffiliated directors by
the Fund. On July 31, 1997, the total net assets of the Fund were $162,899,946.
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, 1995, 1996 and 1997 were
$1,338,755, $1,205,666 and $1,023,062, 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, 1997 for Class A Shares, Class B Shares, Class C Shares and
the Institutional Class were 1.16%, 1.86%, 1.86% and 0.86%, respectively. The
ratios for the Class A Shares, the Class B Shares and the Class C Shares reflect
the impact of their respective 12b-1 Plans.
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
-47-
<PAGE>
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
Fund Accounting Agreement. The Transfer Agent is also an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
-48-
<PAGE>
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, 1997
Government Fund, Inc.'s officers and directors owned less than 1% of the
outstanding shares of the Class A Shares, Class B Shares, Class C Shares and the
Institutional Class.
As of August 31, 1997, 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 MLPF&S for the sole benefit of
its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Fl.
Jacksonville, FL 32246-6484 977,834(1) 5.55%
Class B Shares MLPF&S for the sole benefit of
its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Fl.
Jacksonville, FL 32246-6484 262,319(1) 18.15%
Davi Vial Exec
Frank Pixxolato Attorney Estate
c/o Joseph N. Naccari
234 Loyola Ave, Ste. 616
New Orleans, LA 70112-7815 88,685 6.15%
Class C Shares A.G. Peters & Son Inc.
Profit Sharing Trust DTD 12/1/84
1025 North Black Horse Pike
Runnemede, NJ 08078 34,424 19.42%
MLPF&S for the sole benefit of
its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Fl.
Jacksonville, FL 32246-6484 28,330(1) 15.98%
</TABLE>
(1) Government Funds, Inc. believes that these shares are held of record for
the benefit of others.
-49-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Class C Shares DMTC Custodian for the IRA of
Edgar U. Peter
1428 Teasdale Ave.
Hudson, FL 34667-8583 17,347 9.78%
A.G. Peters & Son Inc.
Cash Management Account
Attn: Diane L. Lansberry
1025 North Black Horse Pike
Runnemede, NJ 08078 17,196 9.70%
Whitestone Logging Inc. 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638 9,788 5.52%
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 632,2562 40.91%
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 181,428 11.73%
Amalgamated Bank of New York
Cust Local 917 Pension Fund
Amivest Corp. Discretionary
Fund Manager
11-15 Union Square
New York, NY 10003 161,126 10.42%
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 118,973 7.69%
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Institutional Amalgamated Bank of New York
Cust Marble Industry Trust Fund
Amivest Corp Account
P.O. Box 370 Cooper Station
New York, NY 10276 97,321 6.29%
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 83,606 5.40%
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 80,815 5.22%
</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.
-51-
<PAGE>
*WAYNE A. STORK (60)
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER, DIRECTOR AND/OR TRUSTEE of
Government Fund, Inc., 32 other investment companies in the Delaware
Group, Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER, CHIEF INVESTMENT OFFICER AND
DIRECTOR of Delaware Management Company, Inc.
CHAIRMAN AND DIRECTOR of Delaware Distributors, Inc. and Delaware Capital
Management, Inc.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTOR of Delaware International
Advisers Ltd.
DIRECTOR of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.
RICHARD G. UNRUH, JR. (57)
EXECUTIVE VICE PRESIDENT of Government Fund, Inc., each of the other 32
investment companies in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc.
EXECUTIVE VICE PRESIDENT AND DIRECTOR of Delaware Management Company, 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.
PAUL E. SUCKOW (50)
EXECUTIVE VICE PRESIDENT/CHIEF INVESTMENT OFFICER, FIXED INCOME of
Government Fund, Inc., each of the other 32 investment companies in
the Delaware Group, Delaware Management Company, Inc. and Delaware
Management Holdings, Inc.
EXECUTIVE VICE PRESIDENT AND DIRECTOR of Founders Holdings, Inc.
EXECUTIVE VICE PRESIDENT of Delaware Capital Management, Inc.
DIRECTOR of Founders CBO Corporation.
DIRECTOR of HYPPCO Finance Company Ltd.
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.
- ----------------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-52-
<PAGE>
WALTER P. BABICH (69)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
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 (58)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
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 (56)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
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.
W. THACHER LONGSTRETH (76)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
PHILADELPHIA CITY COUNCILMAN.
THOMAS F. MADISON (61)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
investment companies in the Delaware Group.
PRESIDENT AND CHIEF EXECUTIVE OFFICER, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402.
Mr. Madison has also been Chairman of the Board of Communications Holdings,
Inc. since 1996. From February to September 1994, Mr. Madison served
as Vice Chairman--Office of the CEO of The Minnesota Mutual Life
Insurance Company and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
-53-
<PAGE>
* JEFFREY J. NICK (44)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and 32 other investment
companies in the Delaware Group.
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOr of Lincoln National
Investment Companies, Inc. From 1992 to 1996, Mr. Nick was Managing
Director of Lincoln National UK plc and from 1989 to 1992, he was
Senior Vice President responsible for corporate planning and
development for Lincoln National Corporation.
CHARLES E. PECK (71)
DIRECTOR AND/OR TRUSTEE of Government Fund, Inc. and each of the other 32
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 (57)
EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER/CHIEF FINANCIAL OFFICER of
Government Fund, Inc., each of the other 32 investment companies in
the Delaware Group, Delaware Management Holdings, Inc, Founders CBO
Corporation, Delaware Capital Management, Inc. and Delaware
Distributors, L.P.
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER, CHIEF FINANCIAL OFFICER
AND DIRECTOR of Delaware Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Founders Holdings, Inc. and Delaware International
Holdings Ltd.
PRESIDENT/CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER AND DIRECTOR of
Delaware Service Company, Inc.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTOR of Delaware Management Trust
Company and
Delaware Investment & Retirement Services, 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.
- ----------------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-54-
<PAGE>
GEORGE M. CHAMBERLAIN, JR. (50)
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL of Government Fund,
Inc., each of the other 32 investment companies in the Delaware Group,
Delaware Distributors, L.P. and Delaware Management Holdings, Inc.
SENIOR VICE PRESIDENT, SECRETARY, GENERAL COUNSEL 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.
EXECUTIVE VICE PRESIDENT, SECRETARY, GENERAL COUNSEL AND DIRECTOR of
Delaware Management Trust Company.
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.
JOSEPH H. HASTINGS (47)
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER of Government Fund, Inc., each
of the other 32 investment companies in the Delaware Group and
Founders Holdings, Inc.
SENIOR VICE PRESIDENT/CORPORATE CONTROLLER AND TREASURER of 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. 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.
SENIOR VICE PRESIDENT/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 (35)
SENIOR VICE PRESIDENT/TREASURER of the Government Fund, Inc., each of the
other 32 investment companies in the Delaware Group, Delaware
Distributors, Inc. and Founders Holdings, Inc.
SENIOR VICE PRESIDENT/INVESTMENT ACCOUNTING of Delaware Management Company,
Inc. and Delaware Service Company, Inc.
SENIOR VICE PRESIDENT AND TREASURER/MANAGER OF INVESTMENT ACCOUNTING of
Delaware Distributors, L.P.
SENIOR VICE PRESIDENT AND 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.
PAUL GRILLO (38)
VICE PRESIDENT/PORTFOLIO MANAGER of Government Fund, Inc. and each the tax-
exempt and fixed-income funds in the Delaware Group.
-55-
<PAGE>
Before joining the Delaware Group in 1993, Mr. Grillo served as a mortgage
strategist and trader at Dreyfus Corporation. He also served as a
mortgage strategist and portfolio manager for the Chemical Investment
Group and as a financial analyst at the Chemical Bank.
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, 1997 and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of July 31, 1997.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED ANNUAL FROM ALL 33
COMPENSATION AS PART OF BENEFITS DELAWARE
FROM GOVERNMENT GOVERNMENT FUND, UPON GROUP INVESTMENT
NAME FUND, INC. INC. EXPENSES RETIREMENT* COMPANIES
<S> <C> <C> <C> <C>
W. Thacher Longstreth $1,519 None $38,000 $53,598
Ann R. Leven $1,591 None $38,000 $58,557
Walter P. Babich $1,577 None $38,000 $57,557
Anthony D. Knerr $1,577 None $38,000 $57,557
Thomas F. Madison** $295 None $38,000 $15,123
Charles E. Peck $1,423 None $38,000 $50,412
</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, 1997, he or she would be entitled
to annual payments totaling $38,000, 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.
** Thomas F. Madison joined Government Funds, Inc.'s Board of Directors on
April 3, 1997.
-56-
<PAGE>
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.
-57-
<PAGE>
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 stocks issued by
emerging growth companies exhibiting strong capital appreciation potential.
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SMALL CAP 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. BLUE CHIP
FUND seeks to achieve long-term capital appreciation. Current income is a
secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. QUANTUM FUND seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.
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.
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 NEW JERSEY FUND seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. TAX-FREE OHIO FUND seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital. TAX-FREE PENNSYLVANIA FUND seeks a
high level of current interest income exempt from federal income tax and
Pennsylvania state and local taxes, consistent with the preservation of capital.
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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.
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. OVERSEAS
EQUITY 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.
DELAWARE GROUP PREMIUM FUND, INC. offers 15 funds available exclusively as
funding vehicles for certain insurance company separate accounts. DECATUR
TOTAL RETURN 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. DELCHESTER 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. CASH RESERVE SERIES seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. DELCAP SERIES seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. DELAWARE 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.
TREND 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 market place 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. STRATEGIC INCOME SERIES seeks high current income
and total return by using a multi-sector investment approach, investing
primarily 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. DEVON SERIES seeks
current income and capital appreciation by investing primarily in income-
producing common stocks, with a focus on common stocks that the investment
manager
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believes have the potential for above-average dividend increases over time.
EMERGING MARKETS SERIES seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries. CONVERTIBLE SECURITIES SERIES seeks a high level of total
return on its assets through a combination of capital appreciation and current
income by investing primarily in convertible securities. QUANTUM SERIES seeks
to achieve long-term capital appreciation by investing primarily in equity
securities of medium to large-sized companies expected to grow over time that
meet the Series' "Social Criteria" strategy.
DELAWARE-VOYAGEUR US GOVERNMENT SECURITIES FUND seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
DELAWARE-VOYAGEUR TAX-FREE ARIZONA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR
MINNESOTA INSURED FUND seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE MINNESOTA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE FLORIDA INSURED FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax. DELAWARE-
VOYAGEUR TAX-FREE FLORIDA FUND seeks to provide a high level of current income
exempt from federal income tax, consistent with the preservation of capital.
The Fund will seek to select investments that will enable its shares to be
exempt from the Florida intangible personal property tax. DELAWARE-VOYAGEUR
TAX-FREE KANSAS FUND seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE MISSOURI INSURED FUND seeks to provide a high level of current
income exempt from federal income tax and the Missouri personal income tax,
consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE NEW
MEXICO FUND seeks to provide a high level of current income exempt from federal
income tax and the New Mexico personal income tax, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE OREGON INSURED FUND seeks
to provide a high level of current income exempt from federal income tax and the
Oregon personal income tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE UTAH FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. DELAWARE-VOYAGEUR TAX-FREE WASHINGTON INSURED FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE FLORIDA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.
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DELAWARE-VOYAGEUR TAX-FREE ARIZONA FUND seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
CALIFORNIA FUND seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE IOWA FUND seeks to provide
a high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE IDAHO FUND seeks to provide a high level of current income
exempt from federal income tax and the Idaho personal income tax, consistent
with the preservation of capital. DELAWARE-VOYAGEUR MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND seeks to provide a high level of current income exempt from
federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. NATIONAL HIGH YIELD
MUNICIPAL FUND seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. DELAWARE-VOYAGEUR TAX-FREE NEW YORK FUND seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE WISCONSIN FUND seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE COLORADO FUND seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.
AGGRESSIVE GROWTH FUND seeks long-term capital appreciation, which the Fund
attempts to achieve by investing primarily in equity securities believed to have
the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
GROWTH STOCK FUND has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. TAX-EFFICIENT EQUITY FUND seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term after-
tax total return through managing its portfolio in a manner that will defer the
realization of accrued capital gains and minimize dividend income.
DELAWARE-VOYAGEUR TAX-FREE MINNESOTA FUND seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
NORTH DAKOTA FUND seeks to provide a high level of current income exempt from
federal income tax and the North Dakota personal income tax, consistent with the
preservation of capital.
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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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.
The Manager, or its affiliate, Delaware International, also manages the
investment options for Delaware Medallion(sm) III Variable Annuity. Medallion
is issued by Allmerica Financial Life Insurance and Annuity Company (First
Allmerica Financial Life Insurance Company in New York and Hawaii). Delaware
Medallion offers fifteen different investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an
investment strategy and discipline the same as or similar to one of the Delaware
Group mutual funds available outside the annuity. See DELAWARE GROUP PREMIUM
FUND, INC., above.
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
("DDLP")(for all periods beginning after January 3, 1995) and, in its capacity
as such, DDI (prior to January 3, 1995) received net commissions from the Fund
on behalf of Class A Shares after reallowances to dealers, as follows:
CLASS A SHARES
TOTAL AMOUNT AMOUNTS NET
OF UNDERWRITING REALLOWED COMMISSION
FISCAL YEAR ENDED COMMISSION TO DEALERS TO DDLP/DDI
---------------- ---------- ---------- -----------
July 31, 1997 $144,773 $120,230 $24,543
July 31, 1996 303,067 252,496 50,571
July 31, 1995 421,205 352,504 68,701
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The Distributor and, in its capacity as such, DDI received in the aggregate
Limited CDSC payments with respect to Class A Shares as follows:
FISCAL YEAR ENDED LIMITED CDSC PAYMENTS
----------------- ---------------------
July 31, 1997 $ 448
July 31, 1996 5,766
July 31, 1995 5,405
The Distributor and, in its capacity as such, DDI received in the aggregate
CDSC payments with respect to Class B Shares as follows:
FISCAL YEAR ENDED CDSC PAYMENTS
----------------- -------------
July 31, 1997 $39,019
July 31, 1996 38,778
July 31, 1995 21,099
The Distributor received CDSC payments with respect to Class C Shares as
follows:
FISCAL YEAR ENDED CDSC PAYMENTS
----------------- -------------
July 31, 1997 $440
July 31, 1996* - $0 -
*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.
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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.
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.
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APPENDIX A--IRA INFORMATION
An individual can contribute up to $2,000 to his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or
his or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 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. No deductions are available 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 for years prior to 1997), 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.
Effective tax years beginning after 1996, one-income couples can contribute
up to $2,000 to each spouse's IRA provided the combined compensation of both
spouses is at least equal to the total contributions for both spouses. If the
working spouse is an active participant in an employer-sponsored retirement plan
and earns over $40,000, the maximum deduction limit is reduced in the same way
that the limit is reduced for contributions to a non-spousal IRA.
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.
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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 - $24,650
Joint -- $0 - $41,200
HOW MUCH
CUMULATIVE HOW MUCH YOU HAVE
END OF INVESTMENT YOU HAVE WITH FULL
YEAR AMOUNT WITHOUT IRA IRA DEDUCTION
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
[Without IRA-investment of $1,700 ($2,000 less 15%) earning 7.65% (9% less 15%)]
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28% Tax Bracket Single -- $24,651 - $59,750
Joint -- $41,201 - $99,600
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH
END OF INVESTMENT WITHOUT NO FULL IRA
YEAR AMOUNT IRA DEDUCTION DEDUCTION
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
[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 -- $59,751 - $124,650
Joint -- $99,601 - $151,750
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH
END OF INVESTMENT WITHOUT NO FULL IRA
YEAR AMOUNT IRA DEDUCTION DEDUCTION
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
[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%]
-68-
<PAGE>
36% Tax Bracket* Single -- $124,651 - $271,050
Joint -- $151,751 - $271,050
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH
END OF INVESTMENT WITHOUT NO FULL IRA
YEAR AMOUNT IRA DEDUCTION DEDUCTION
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
[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 $271,050
Joint -- over $271,050
HOW MUCH HOW MUCH YOU HAVE
CUMULATIVE YOU HAVE WITH
END OF INVESTMENT WITHOUT NO FULL IRA
YEAR AMOUNT IRA DEDUCTION DEDUCTION
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
[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 $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-69-
<PAGE>
$2,000 SINGLE INVESTMENT AT A RETURN OF 9%
COMPOUNDED MONTHLY
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- -------------------------------------------------------------------------------
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
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- --------------------------------------------------------------------------------
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
$2,000 INVESTED ANNUALLY AT A RETURN OF 9%
COMPOUNDED MONTHLY
TAXABLE-- TAXABLE-- TAXABLE--
YEARS 39.6%* 36%* 31%
- --------------------------------------------------------------------------------
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
TAXABLE-- TAXABLE-- TAX
YEARS 28% 15% DEFERRED
- --------------------------------------------------------------------------------
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
- -------------------------
-70-
<PAGE>
* 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 $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-71-
<PAGE>
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.
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
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!
8% 10%
10 years $ 31,828 $ 36,018
30 years 259,288 397,466
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.
-72-
<PAGE>
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, 1997, 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.
-73-
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-exempt
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
- ------------------------------------------------------------------
U.S. GOVERNMENT FUND
- ------------------------------------------------------------------
A CLASS
- ------------------------------------------------------------------
B CLASS
- ------------------------------------------------------------------
C CLASS
- ------------------------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------------------
CLASSES OF DELAWARE GROUP
- ------------------------------------------------------------------
GOVERNMENT FUND, INC.
- ------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- ------------------------------------------------------------------
SEPTEMBER 29, 1997
DELAWARE
GROUP
-----------
<PAGE>
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, 1997.
(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) incorporated into this filing by reference
to Post-Effective No. 18 filed September 27, 1996.
(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>
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) incorporated into this filing by
reference to Post-Effective Amendment No. 18 filed
September 27, 1996.
(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.
<PAGE>
PART C - Other Information
(Continued)
(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) (Module)
incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed September
27, 1996.
(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) (Module) incorporated into this filing by
reference to Post-Effective Amendment No. 18 filed
September 27, 1996.
(8) CUSTODIAN AGREEMENT.
(a) Form of Custodian Agreement (1996) between the
Registrant and Bankers Trust Company incorporated
into this filing by reference to Post-Effective
Amendment No. 18 filed September 27, 1996.
(b) Form of Securities Lending Agreement (1996)
between the Registrant and Bankers Trust Company
incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed September
27, 1996.
(9) OTHER MATERIAL CONTRACTS.
(a) Shareholders Services Agreement between Delaware
Service Company, Inc. and the Registrant dated
June 29, 1988 incorporated into this filing by
reference to Post-Effective Amendment No. 18 filed
September 27, 1996.
(b) Executed Delaware Group of Funds Fund Accounting
Agreement between Delaware Service Company, Inc.
and the Registrant (August 19, 1996) incorporated
into this filing by reference to Post-Effective
Amendment No. 18 filed September 27, 1996.
<PAGE>
PART C - Other Information
(Continued)
(i) Amendment No. 1 (September 30, 1996) to Schedule A
to Delaware Group of Funds
Fund Accounting Agreement attached as Exhibit.
(ii) Amendment No. 2 (November 29, 1996) to Schedule A
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iii) Amendment No. 3 (December 27, 1996) to Schedule A
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iv) Amendment No. 4 (February 24, 1997) to Schedule A
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(v) Amendment No. 4A (April 14, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(vi) Amendment No. 5 (May 1, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(vii) Amendment No. 6 (July 21, 1997) 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 September 29, 1997.
(11) CONSENT AND REPORT 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>
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, 1995 and Post-Effective Amendment
No. 18 filed September 27, 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.
DIRECTORS' POWER OF ATTORNEY. Power of Attorney
for Thomas F. Madison and Jeffrey J. Nick attached
as Exhibit.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None.
** Relates only to U.S. Government Fund A Class, U.S. Government Fund B
Class and U.S. Government Fund C Class.
<PAGE>
PART C - Other Information
(Continued)
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
Delaware Group Government Fund, Inc.'s:
U.S. Government Fund A Class
Common Stock Par Value 6,923 Accounts as of
$.01 Per Share August 31, 1997
U.S. Government Fund B Class
Common Stock Par Value 461 Accounts as of
$.01 Per Share August 31, 1997
U.S. Government Fund C Class
Common Stock Par Value 91 Accounts as of
$.01 Per Share August 31, 1997
U.S. Government Fund Institutional Class
Common Stock Par Value 25 Accounts as of
$.01 Per Share August 31, 1997
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.
<PAGE>
PART C - Other Information
(Continued)
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 of the other funds in the Delaware Group (Delaware Group Equity Funds I,
Inc., Delaware Group Equity Funds II, Inc., Delaware Group Equity Funds III,
Inc., Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc.,
Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash Reserve,
Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group State Tax-Free Income
Trust, 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., Delaware Group Global Dividend and Income Fund, Inc., Voyageur
Tax-Free Funds, Inc., Voyageur Intermediate Tax-Free Funds, Inc., Voyageur
Insured Funds, Inc., Voyageur Funds, Inc., Voyageur Investment Trust, Voyageur
Investment Trust II, Voyageur Mutual Funds, Inc., Voyageur Mutual Funds II,
Inc., Voyageur Mutual Funds III, Inc., Voyageur Arizona Municipal Income Fund,
Inc., Voyageur Colorado Insured Municipal Income Fund, Inc., Voyageur Florida
Insured Municipal Income Fund, Voyageur Minnesota Municipal Fund, Inc., Voyageur
Minnesota Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund III,
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 services, dividend disbursing, accounting servicing and
transfer agent for all of the mutual funds in the Delaware Group.
<PAGE>
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:
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Wayne A. Stork Chairman of the Board, President, Chief Executive
Officer, Chief Investment Officer and Director of
Delaware Management Company, Inc.; Chairman of the
Board, President, Chief Executive Officer and Director
of the Registrant, 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 Distributors, Inc. and Delaware
Capital Management, Inc.; Director of Delaware Service
Company, Inc. and Delaware Investment & Retirement
Services, Inc.; and Chairman, Chief Executive Officer
and Director of Delaware International Advisers Ltd.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware
Management Company, Inc.; Executive Vice President of
the Registrant, each of the other funds in the Delaware
Group, Delaware Management Holdings, Inc. and Delaware
Capital Management, 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, AAA Mid Atlantic, Inc. since
1989, 2040 Market Street, Philadelphia, PA; Board of
Directors, Metron, Inc. since 1995, 11911 Freedom
Drive, Reston, VA
Paul E. Suckow Executive Vice President/Chief Investment Officer,
Fixed Income of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware
Group and Delaware Management Holdings, Inc.; Executive
Vice President and Director of Founders Holdings, Inc.;
Executive Vice President of Delaware Capital
Management, Inc.; and Director of Founders CBO
Corporation
Director, HYPPCO Finance Company Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
David K. Downes Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director of Delaware
Management Company, Inc., DMH Corp, Delaware
Distributors, Inc., Founders Holdings, Inc. and
Delaware International Holdings Ltd.; Executive Vice
President, Chief Operating Officer and Chief Financial
Officer of the Registrant and each of the other funds
in the Delaware Group, Delaware Management Holdings,
Inc., Founders CBO Corporation, Delaware Capital
Management, Inc. and Delaware Distributors, L.P.;
President, Chief Executive Officer, Chief Financial
Officer and Director of Delaware Service Company, Inc.;
Chairman, Chief Executive Officer and Director of
Delaware Investment & Retirement Services, Inc.;
Chairman and Director of Delaware Management Trust
Company; and Director of Delaware International
Advisers Ltd.
Chief Executive Officer and Director of Forewarn, Inc.
since 1993, 8 Clayton Place, Newtown Square, PA
George M. Senior Vice President, General Counsel, Secretary and
Chamberlain, Jr. 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,
Secretary and General Counsel 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, General
Counsel and Director of Delaware Management Trust
Company; Secretary and Director of Delaware
International Holdings Ltd.; and Director of Delaware
International Advisers Ltd.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Richard J. Flannery Senior Vice President/Corporate and International
Affairs of the Registrant, each of the other funds in
the Delaware Group, Delaware Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Distributors, L.P.,
Delaware Management Trust Company, Delaware Capital
Management, Inc., Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.;
Senior Vice President/ Corporate and International
Affairs and Director of Founders Holdings, Inc. and
Delaware International Holdings Ltd.; Senior Vice
President of Founders CBO Corporation; and Director of
Delaware International Advisers Ltd.
Director, HYPPCO Finance Company 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 Senior Vice President and Treasurer of the Registrant,
each of the other funds in the Delaware Group, Delaware
Distributors, Inc. and Founders Holdings, Inc.; Senior
Vice President/Investment Accounting of Delaware
Management Company, Inc. and Delaware Service Company,
Inc.; Senior Vice President and Treasurer/ Manager,
Investment Accounting of Delaware Distributors, L.P.;
Assistant Treasurer of Founders CBO Corporation; and
Senior Vice President and Manager of Investment
Accounting of Delaware International Holdings Ltd.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc.,
Delaware Distributors, L.P., Delaware Service Company,
Inc. and Delaware International Holdings Ltd.; Senior
Vice President/Corporate Controller of the Registrant,
each of the other funds in the Delaware Group and
Founders Holdings, Inc.; 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 Senior Vice President/Assistant Treasurer of
Founders CBO Corporation
Michael T. Taggart Senior Vice President/Facilities Management and
Administrative Services of Delaware Management Company,
Inc.
Douglas L. Anderson Senior Vice President/Operations of Delaware Management
Company, Inc., Delaware Investment and Retirement
Services, Inc. and Delaware Service Company, Inc.;
Senior Vice President/ Operations and Director of
Delaware Management Trust Company
James L. Shields Senior Vice President/Chief Information Officer of
Delaware Management Company, Inc., Delaware Service
Company, Inc. and Delaware Investment & Retirement
Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy General
Counsel of the Registrant and each of the other funds
in the Delaware Group, 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 Holdings, Inc.,
Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
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.
Partner of Tri-R Associates since 1989, 10001 Sandmeyer
Lane, Philadelphia, PA
Richard Salus(1) Vice President/Assistant Controller of Delaware
Management Company, Inc. and Delaware Management Trust
Company
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of
Delaware Management Company, Inc., the Registrant, each
of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Trust Company and Delaware Investment &
Retirement Services, Inc.
Steven T. Lampe(2) 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.
Christopher Adams(3) Vice President/Strategic Planning of Delaware
Management Company, Inc. and Delaware Service Company,
Inc.
Susan L. Hanson Vice President/Strategic Planning of Delaware
Management Company, Inc. and Delaware Service Company,
Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Dennis J. Mara(4) Vice President/Acquisitions of Delaware Management
Company, Inc.
Scott Metzger Vice President/Business Development of Delaware
Management Company, Inc. and Delaware Service Company,
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 Registrations of Delaware
Management Company, Inc., the Registrant, each of the
other funds in the Delaware Group, Delaware
Distributors, L.P. and Delaware Distributors, 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
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.
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.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
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 and Delaware Capital Management, Inc.
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
Mitchell L. Conery(5) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., the Registrant and each of
the tax-exempt and fixed income funds in the Delaware
Group
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. and each of the equity funds
in the Delaware Group and Delaware Capital Management,
Inc.
Gerald S. Frey(6) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and each of the equity funds
in the Delaware Group
Christopher Beck Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and each of the equity funds
in the Delaware Group
Elizabeth H. Howell(7) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and the Delaware-Voyageur
Tax-Free Minnesota Intermediate, Delaware-Voyageur
Minnesota Insured, Delaware-Voyageur Tax-Free
Minnesota, Delaware-Voyageur Tax-Free Idaho,
Delaware-Voyageur Tax-Free Kansas, Delaware-Voyageur
Tax-Free Missouri, Delaware-Voyageur Tax-Free Oregon,
Delaware-Voyageur Tax-Free Washington,
Delaware-Voyageur Tax-Free Iowa and Delaware-Voyageur
Tax-Free Wisconin Funds.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
Andrew M. McCullagh(8) Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc. and the Delaware-Voyageur
Tax-Free Arizona Insured, Delaware-Voyageur Tax-Free
Arizona, Delaware-Voyageur Tax-Free California Insured,
Delaware-Voyageur Tax-Free Colorado, Delaware-Voyageur
Tax-Free New Mexico, Delaware-Voyageur Tax-Free North
Dakota and Delaware-Voyageur Tax-Free Utah Funds.
Paul Grillo Vice President/Portfolio Manager of Delaware Management
Company, Inc., the Registrant and each of the
tax-exempt and fixed income funds in the Delaware Group
William H. Miller Vice President/Assistant Portfolio Manager of Delaware
Management Company, Inc.
(1) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(2) TAX MANAGER, Price Waterhouse LLP prior to October 1995.
(3) SENIOR ASSOCIATE, FAS, Coopers & Lybrand LLP prior to October 1995.
(4) CORPORATE CONTROLLER, IIS prior to July 1997 and DIRECTOR, FINANCIAL
PLANNING, Decision One prior to March 1996.
(5) INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
(6) SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
(7) SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
(8) SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset Management
LLC prior to May 1997.
<PAGE>
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
Bruce D. Barton President and Chief Executive None
Officer
David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer
George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel
Terrence P. Cunningham Senior Vice President/ Financial None
Institutions
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Dana B. Hall Senior Vice President/ None
Key Accounts
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
William F. Hostler Senior Vice President/ None
Marketing Services
J. Chris Meyer Senior Vice President/ None
Director Product Management
Stephen H. Slack Senior Vice President/Wholesaler None
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and
International Affairs
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager - Wire/
Regional Channel
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice
Manager, Investment Accounting President/Treasurer
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Eric E. Miller Vice President/Assistant Secretary/ Vice President/
Deputy General Counsel Assistant Secretary/
Deputy General Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
Lisa O. Brinkley Vice President/Compliance Vice President/
Compliance
Rosemary E. Milner Vice President/Legal Registrations Vice President/Legal
Registrations
Daniel H. Carlson Vice President/Strategic Marketing None
Diane M. Anderson Vice President/Plan Record Keeping None
and Administration
Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory
Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Julia R. Vander Els Vice President/Participant Services None
Jerome J. Alrutz Vice President/Retail Sales None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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/New Business None
Development
Scott Metzger Vice President/Business Development Vice President/Business
Development
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/ National Accounts None
Christopher H. Price Vice President/Manager, Insurance None
Stephen J. DeAngelis Vice President/Product Development None
Zina DeVassal Vice President/Financial Institutions None
Andrew W. Whitaker Vice President/Financial Institutions None
Jesse Emery Vice President/ Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Susan T. Friestedt Vice President/Client Service None
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/ UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Dale L. Kurtz Vice President/Marketing Support None
Holly W. Reimel Vice President/Manager, Key Accounts None
David P. Anderson Vice President/Wholesaler None
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/ Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Roger J. Miller Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
John A. Wells Vice President/Marketing Technology None
Scott Whitehouse Vice President/Wholesaler None
(c) Not Applicable.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
PART C - Other Information
(Continued)
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>
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 29th day of September, 1997.
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> <C>
Chairman of the Board, President,
/s/ Wayne A. Stork Chief Executive Officer and Director September 29, 1997
- --------------------------
Wayne A. Stork
Executive Vice President/Chief Operating
Officer/Chief Financial Officer
(Principal Financial Officer and
/s/David K. Downes Principal Accounting Officer) September 29, 1997
- --------------------------
David K. Downes
/s/Walter P. Babich * Director September 29, 1997
- --------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director September 29, 1997
- --------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director September 29, 1997
- --------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director September 29, 1997
- --------------------------
W. Thacher Longstreth
/s/ Thomas F. Madison * Director September 29, 1997
- --------------------------
Thomas F. Madison
/s/ Jeffrey J. Nick * Director September 29, 1997
- --------------------------
Jeffrey J. Nick
/s/Charles E. Peck * Director September 29, 1997
- --------------------------
Charles E. Peck
*By /s/Wayne A. Stork
------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B9BI Amendment No. 1 (September 30, 1996) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BII Amendment No. 2 (November 30, 1996) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BIII Amendment No. 3 (December 27, 1996) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BIV Amendment No. 4 (February 24, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BV Amendment No. 4A (April 14, 1997) to Schedule A to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9BVI Amendment No. 5 (May 1, 1997) to Schedule A to Delaware
Group of Funds Fund Accounting Agreement
EX-99.B9BVII Amendment No. 6 (July 21, 1997) to Schedule A 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-99.B19 Powers of Attorney for Thomas F. Madison and Jeffrey J. Nick
EX-27 Financial Data Schedules
<PAGE>
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)
DMC Tax-Free Income Trust - Pennsylvania
*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.
<PAGE>
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.
<PAGE>
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
-3-
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By:/s/ David K. Downes
-------------------
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:/s/ Wayne A. Stork
------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By:/s/Wayne A. Stork
-----------------
Wayne A. Stork
Chairman
-4-
<PAGE>
AMENDMENT NO. 2 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
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 Equity Funds IV, Inc.
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund (New)
Value Fund
*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.
1
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Government Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Emerging Growth Series
Equity/Income Series
Global Bond Series (New)
Growth Series
High Yield Series
International Equity Series
Money Market Series
Multiple Strategy Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
2
<PAGE>
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
DMC Tax-Free Income Trust - Pennsylvania
Dated as of: NOVEMBER 29, 1996
3
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
------------------
David K. Downes
Senior Vice President/
Chief Administrative Officer/
Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
By: /s/ Wayne A. Stork
------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ WAYNE A. STORK
------------------
Wayne A. Stork
Chairman
4
<PAGE>
AMENDMENT NO.3 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.
1
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Value Fund
Retirement Income Fund (New)
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Multi-Cap Equity Fund (New)
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)
2
<PAGE>
Delaware Group Government Fund, Inc.
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: December 27, 1996
3
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
------------------
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: /s/Wayne A. Stork
--------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/Wayne A. Stork
--------------------
Wayne A. Stork
Chairman
4
<PAGE>
AMENDMENT NO. 4 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds II, Inc.
Decatur Income Fund
Decatur Total Return Fund
Blue Chip Fund (New)
Quantum Fund (New)
Delaware Group Equity Funds I, 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
High-Yield Opportunities 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.
DMC Tax-Free Income Trust - Pennsylvania
1
<PAGE>
Delaware Group Equity Funds V, Inc.
Value Fund
Retirement Income Fund
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio
The Defensive Equity Utility Portfolio
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio
The Global Fixed Income Portfolio
The International Fixed Income Portfolio
The High-Yield Bond Portfolio
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
Delaware Group Government Fund, Inc.
2
<PAGE>
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: FEBRUARY 24, 1997
-----------------
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
---------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS I, 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 EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/ Wayne A. Stork
-------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
-------------------------------
Wayne A. Stork
Chairman
3
<PAGE>
AMENDMENT NO. 4A
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
- -------------------------
*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.
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Decatur Total Return Series
Delaware Series
Delchester Series
DelCap Series
Global Bond Series (New)
International Equity Series
Trend Series
Value Series
2
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
DMC Tax-Free Income Trust - Pennsylvania (doing business as Tax-Free
Pennsylvania Fund)
Dated as of: April 14, 1997
--------------
3
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
-------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
By: /s/ Wayne A. Stork
------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
------------------
Wayne A. Stork
President and
Chief Executive Officer
4
<PAGE>
AMENDMENT NO. 5
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
- -------------------------
*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.
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series
2
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
DMC Tax-Free Income Trust-Pennsylvania (doing business as Tax-Free Pennsylvania
Fund)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
3
<PAGE>
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of May 1, 1997
4
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
----------------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED -TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By: /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
5
<PAGE>
AMENDMENT NO. 6
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
- -------------------------
*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.
<PAGE>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
2
<PAGE>
Trend Series
Value Series
Delaware Group State Tax-Free Income Trust
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Tax-Free Pennsylvania Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
3
<PAGE>
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of July 21, 1997
4
<PAGE>
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
-----------------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED -TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By: /s/ Wayne A. Stork
-----------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
5
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this Post-
Effective Amendment Number 19 to the Registration Statement (Form N-1A)
(No. 2-97889) of Delaware Group Government Fund, Inc. of our report dated
September 5, 1997, included in the 1997 Annual Report to shareholders.
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 25, 1997
<PAGE>
[LOGO] [LETTERHEAD]
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,
1997 and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
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 and financial highlights. Our procedures included confirmation of
securities owned as of July 31, 1997, by correspondence with the Fund's
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,
1997, 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 periods indicated therein, in conformity with
generally accepted accounting principles.
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
September 5, 1997
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS B
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITHOUT CDSC)
THREE YEARS ENDED 7/31/97
- --------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
- -----
3
$1000(1 + T) = $1,195.23
T = 6.12%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
THREE YEARS ENDED 7/31/97
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.00
Initial Shares 125.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------------------
1995 125.000 $0.601 9.960 134.960
1996 134.960 $0.533 9.496 144.456
1997 144.456 $0.490 9.568 154.024
Ending Shares 154.024
Ending NAV x $7.76
----------
Investment Return $1,195.23
Total Return Performance
- ------------------------
Investment Return $1,195.23
Less Initial Investment $1,000.00
----------
$195.23 / $1,000.00 x 100
Total Return: 19.52%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS B
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITH CDSC)
THREE YEARS ENDED 7/31/97
- --------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
- -----
3
$1000(1 + T) = $1,166.13
T = 5.26%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS B
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
THREE YEARS ENDED 7/31/97
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $8.00
Initial Shares 125.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------------------
1995 125.000 $0.601 9.960 134.960
1996 134.960 $0.533 9.496 144.456
1997 144.456 $0.490 9.568 154.024
Ending Shares 154.024
Ending NAV x $7.76
----------
$1,195.23
Less CDSC $29.10
----------
Investment Return $1,166.13
Total Return Performance
- ------------------------
Investment Return $1,166.13
Less Initial Investment $1,000.00
----------
$166.13 / $1,000.00 x 100
Total Return: 16.61%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS C
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITHOUT CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------
n
P(1 + T) = ERV
THREE
YEARS
- -----
1
$1000(1 + T) = $1,090.13
T = 9.01%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITHOUT CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $7.59
Initial Shares 131.752
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------------------
1997 131.752 $0.490 8.729 140.481
Ending Shares 140.481
Ending NAV x $7.76
----------
Investment Return $1,090.13
Total Return Performance
- ------------------------
Investment Return $1,090.13
Less Initial Investment $1,000.00
----------
$90.13 / $1,000.00 x 100
Total Return: 9.01%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS C
TOTAL RETURN PERFORMANCE
AVERAGE ANNUAL COMPOUNDED RATE OF RETURN (WITH CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------
n
P(1 + T) = ERV
ONE
YEAR
- -----
1
$1000(1 + T) = $1,080.13
T = 8.01%
<PAGE>
DELAWARE GROUP GOVERNMENT FUND- CLASS C
TOTAL RETURN PERFORMANCE
CUMULATIVE TOTAL RETURN (WITH CDSC)
ONE YEAR ENDED 7/31/97
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning NAV $7.59
Initial Shares 131.752
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -----------------------------------------------------------------------
1997 131.752 $0.490 8.729 140.481
Ending Shares 140.481
Ending NAV x $7.76
----------
$1,090.13
Less CDSC $10.00
-----------
Investment Return $1,080.13
Total Return Performance
- ------------------------
Investment Return $1,080.13
Less Initial Investment $1,000.00
-----------
$80.13 / $1,000.00 x 100
Total Return: 8.01%
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/Thomas F. Madison
- -------------------------
Thomas F. Madison
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<PAGE>
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/Jeffrey J. Nick
- -------------------------
Jeffrey J. Nick
<PAGE>
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<TABLE> <S> <C>
<PAGE>
<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-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 158,531,776
<INVESTMENTS-AT-VALUE> 161,157,795
<RECEIVABLES> 2,457,057
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 69,372
<TOTAL-ASSETS> 163,684,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 784,277
<TOTAL-LIABILITIES> 784,277
<SENIOR-EQUITY> 209,874
<PAID-IN-CAPITAL-COMMON> 196,552,306
<SHARES-COMMON-STOCK> 17,888,130
<SHARES-COMMON-PRIOR> 21,633,510
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,593,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,731,175
<NET-ASSETS> 138,844,285
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,303,129
<OTHER-INCOME> 0
<EXPENSES-NET> 2,063,876
<NET-INVESTMENT-INCOME> 12,239,253
<REALIZED-GAINS-CURRENT> (2,452,434)
<APPREC-INCREASE-CURRENT> 6,199,411
<NET-CHANGE-FROM-OPS> 15,986,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,751,487
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,302,403
<NUMBER-OF-SHARES-REDEEMED> 5,834,137
<SHARES-REINVESTED> 786,354
<NET-CHANGE-IN-ASSETS> (22,819,124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (36,743,179)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,023,062
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,063,876
<AVERAGE-NET-ASSETS> 150,742,516
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> 0.544
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.544
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.76
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 158,531,776
<INVESTMENTS-AT-VALUE> 161,157,795
<RECEIVABLES> 2,457,057
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 69,372
<TOTAL-ASSETS> 163,684,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 784,277
<TOTAL-LIABILITIES> 784,277
<SENIOR-EQUITY> 209,874
<PAID-IN-CAPITAL-COMMON> 196,552,306
<SHARES-COMMON-STOCK> 1,377,863
<SHARES-COMMON-PRIOR> 940,568
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,593,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,731,175
<NET-ASSETS> 10,694,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,303,129
<OTHER-INCOME> 0
<EXPENSES-NET> 2,063,876
<NET-INVESTMENT-INCOME> 12,239,253
<REALIZED-GAINS-CURRENT> (2,452,434)
<APPREC-INCREASE-CURRENT> 6,199,411
<NET-CHANGE-FROM-OPS> 15,986,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 662,604
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 573,254
<NUMBER-OF-SHARES-REDEEMED> 515,167
<SHARES-REINVESTED> 34,398
<NET-CHANGE-IN-ASSETS> (22,819,124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (36,743,179)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,023,062
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,063,876
<AVERAGE-NET-ASSETS> 10,350,263
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.490
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.76
<EXPENSE-RATIO> 1.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 158,531,776
<INVESTMENTS-AT-VALUE> 161,157,795
<RECEIVABLES> 2,457,057
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 69,372
<TOTAL-ASSETS> 163,684,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 784,277
<TOTAL-LIABILITIES> 784,277
<SENIOR-EQUITY> 209,874
<PAID-IN-CAPITAL-COMMON> 196,552,306
<SHARES-COMMON-STOCK> 168,575
<SHARES-COMMON-PRIOR> 135,664
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,593,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,731,175
<NET-ASSETS> 1,308,447
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,303,129
<OTHER-INCOME> 0
<EXPENSES-NET> 2,063,876
<NET-INVESTMENT-INCOME> 12,239,253
<REALIZED-GAINS-CURRENT> (2,452,434)
<APPREC-INCREASE-CURRENT> 6,199,411
<NET-CHANGE-FROM-OPS> 15,986,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 73,758
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57,039
<NUMBER-OF-SHARES-REDEEMED> 32,585
<SHARES-REINVESTED> 8,457
<NET-CHANGE-IN-ASSETS> (22,819,124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (36,743,179)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,023,062
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,063,876
<AVERAGE-NET-ASSETS> 1,148,859
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.490
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.76
<EXPENSE-RATIO> 1.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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-31-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 158,531,776
<INVESTMENTS-AT-VALUE> 161,157,795
<RECEIVABLES> 2,457,057
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 69,372
<TOTAL-ASSETS> 163,684,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 784,277
<TOTAL-LIABILITIES> 784,277
<SENIOR-EQUITY> 209,874
<PAID-IN-CAPITAL-COMMON> 196,552,306
<SHARES-COMMON-STOCK> 1,552,796
<SHARES-COMMON-PRIOR> 1,057,903
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,593,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,731,175
<NET-ASSETS> 12,052,502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,303,129
<OTHER-INCOME> 0
<EXPENSES-NET> 2,063,876
<NET-INVESTMENT-INCOME> 12,239,253
<REALIZED-GAINS-CURRENT> (2,452,434)
<APPREC-INCREASE-CURRENT> 6,199,411
<NET-CHANGE-FROM-OPS> 15,986,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 745,296
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 840,271
<NUMBER-OF-SHARES-REDEEMED> 799,492
<SHARES-REINVESTED> 91,360
<NET-CHANGE-IN-ASSETS> (22,819,124)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (36,743,179)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,023,062
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,063,876
<AVERAGE-NET-ASSETS> 10,047,792
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> 0.567
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.567
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.76
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
