Delaware Investments 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 Investments at 800-523-1918, and shareholders of the
Institutional Class should contact Delaware Investments at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company
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
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
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, 1998
PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 29, 1998
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 800-523-1918
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
Financial Statements
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, 1998 and the current
Prospectus for the Institutional Class dated September 29, 1998, 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.
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.
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.
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 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
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.
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.
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
noted below in Other Tax 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 (see Other Tax Requirements below) 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.
Other Tax Requirements
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
and it satisfies other requirements relating to the sources of its
income and diversification of its assets.
In order to qualify as a regulated investment company for federal
income tax purposes, the Fund must meet certain specific requirements,
including:
(i) The Fund must maintain a diversified portfolio of
securities, wherein no security (other than U.S. government securities
and securities of other regulated investment companies) can exceed 25%
of the Fund's total assets, and, with respect to 50% of the Fund's total
assets, no investment (other than cash and cash items, U.S. government
securities and securities of other regulated investment companies) can
exceed 5% of the Fund's total assets;
(ii) The Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and
gains from the sale or disposition of stock and securities or foreign
currencies, or other income derived with respect to its business of
investing in such stock, securities, or currencies;
(iii) The Fund must distribute to its shareholders at least 90%
of its investment company taxable income and net tax-exempt income for
each of its fiscal years, and
(iv) The Fund must realize less than 30% of its gross income
for each fiscal year from gains from the sale of securities and certain
other assets that have been held by the Fund for less than three months
("short-short income"). The Taxpayer Relief Act of 1997 (the "1997
Act") repealed the 30% short-short income test for tax years of
regulated investment companies beginning after August 5, 1997; however,
this rule may have continuing effect in some states for purposes of
classifying the Fund as a regulated investment company.
The Code requires the Fund to distribute at least 98% of its
taxable ordinary income earned during the calendar year and 98% of its
capital gain net income earned during the 12 month period ending October
31 (in addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to shareholders by December 31 of
each year in order to avoid federal excise taxes. The Fund intends as a
matter of policy to declare and pay sufficient dividends in December or
January (which are treated by shareholders as received in December) but
does not guarantee and can give no assurances that its distributions
will be sufficient to eliminate all such taxes.
The straddle rules of Section 1092 may apply. Generally, the
straddle provisions require the deferral of losses to the extent of
unrecognized gains related to the offsetting positions in the straddle.
Excess losses, if any, can be recognized in the year of loss. Deferred
losses will be carried forward and recognized in the year that
unrealized losses exceed unrealized gains or when the offsetting
position is sold.
The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions."
Under these rules, the Fund must recognize gain (but not loss) on any
constructive sale of an appreciated financial position in stock, a
partnership interest or certain debt instruments. The Fund will
generally be treated as making a constructive sale when it: 1) enters
into a short sale on the same or substantially identical property; 2)
enters into an offsetting notional principal contract; or 3) enters into
a futures or forward contract to deliver the same or substantially
identical property. Other transactions (including certain financial
instruments called collars) will be treated as constructive sales as
provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before
the end of the 30th day after the close of the taxable year.
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.
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.
Total return performance for each Class will be computed by adding
all reinvested income and realized securities profits distributions plus
the change in net asset value during a specific period and dividing by
the offering price at the beginning of the period. It will not reflect
any income taxes payable by shareholders on the reinvested distributions
included in the calculation. Because securities prices fluctuate, past
performance should not be considered as a representative of the results
which may be realized from an investment in the Fund in the future.
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.
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, 1998, 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 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
7/31/98 1.40% 6.50% 6.80%
3 years ended
7/31/98 5.05% 6.76% 7.07%
5 years ended
7/31/98 3.62% 4.63% 4.94%
10 years ended
7/31/98 6.75% 7.27% 7.57%
Period 8/16/85(2)
through 7/31/98 6.96% 7.37% 7.59%
(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,
1998. 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, 1998. 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, 1998 and therefore does not reflect the deduction
of a CDSC.
Average Annual Total Return
Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
1 year ended
7/31/98 1.78% 5.76%
3 years ended
7/31/98 5.14% 6.02%
Period 5/2/94(1)
through 7/31/98 5.18% 5.55%
(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
7/31/98 4.77% 5.76%
Period 11/29/95
through 7/31/98(1) 5.40% 5.40%
(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:
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, 1998
using this formula were 5.33%, 4.89%, 4.89% and 5.90%, 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, 1998 was
17.6 years for the Class A Shares, Class B Shares, Class C Shares and
the Institutional Class of the Fund.
From time to time, the Fund may also quote actual total return
and/or yield performance for its Classes in advertising and other types
of literature. This information may be compared to that of other mutual
funds with similar investment objectives and to stock, bond and other
relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of the Fund (or Fund Class)
may be compared to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. or to the performance of unmanaged indices compiled or
maintained by statistical research firms such as Lehman Brothers or
Salomon Brothers, Inc.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed
mutual funds. Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance. Rankings
that compare the Fund's performance to another fund in appropriate
categories over specific time periods also may be quoted in advertising
and other types of literature. The total return performance reported
for these indices will reflect the reinvestment of all distributions on
a quarterly basis and market price fluctuations. The indices do not
take into account any sales charge or other fees. A direct investment
in an unmanaged index is not possible.
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 securities in which the Fund may invest
and the assumptions that were used in calculating the blended
performance will be described.
Comparative information on the Consumer Price Index may also be
included in advertisements or other literature. 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.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the Consumer Price Index), and combinations of various capital markets.
The performance of these capital markets is based on the returns of
different indices. The Fund may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risks
associated with the security types in any capital market may or may not
correspond directly to those of the Fund. The Fund may also compare
performance to that of other compilations or indices that may be
developed and made available in the future.
The Fund may include discussions or illustrations of the
potential investment goals of a prospective investor (including
materials that describe general principles of investing, such as asset
allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile,
worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio
transfer, automatic account rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable investments),
economic and political conditions, the relationship between sectors of
the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature, communications to shareholders or
other materials may summarize the substance of information contained in
shareholder reports (including the investment composition of the Fund),
as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to
the Fund. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Fund may also
include in advertisements, sales literature, communications to
shareholders or other materials, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds,
treasury bills and shares of the Fund. In addition, advertisements,
sales literature, communications to shareholders or other materials may
include a discussion of certain attributes or benefits to be derived by
an investment in the Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on
financial management, tax and retirement planning (such as information
on Roth IRAs and Education IRAs) and investment alternative to
certificates of deposit and other financial instruments. Such sales
literature, communications to shareholders or other materials may
include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Fund and may
illustrate how to find the listings of the Fund in newspapers and
periodicals. Materials may also include discussions of other Funds,
products, and services.
The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these
measures to those of other funds. Measures of volatility seek to
compare the historical share price fluctuations or total returns to
those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. The
Fund may advertise its current interest rate sensitivity, duration,
weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include
information regarding the background and experience of its portfolio
managers.
The following tables are examples, for purposes of illustration
only, of cumulative total return performance for Class A Shares, Class B
Shares, Class C Shares and Institutional Class of the Fund through July
31, 1998. Pursuant to applicable regulation, total return shown for the
Institutional Class of the Fund for the periods prior to the
commencement of operations of such Institutional Class is calculated by
taking the performance of the respective 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 by the Class A Shares, and performance for the Institutional
Class would have been affected had such an adjustment been made. For
these purposes, the calculations assume the reinvestment of any realized
securities profits distributions and income dividends paid during the
indicated periods, but does not reflect any income taxes payable by
shareholders on the reinvested distributions. The performance of Class
A Shares reflects the maximum front-end sales charge paid on the
purchases of shares but may also be shown without reflecting the impact
of any front-end sales charge. The performance of Class B Shares and
Class C Shares is calculated both with the applicable CDSC included and
excluded. Past performance is no guarantee of future results.
Performance shown for short periods of time may not be representative of
longer term results.
The following tables are an example, for purposes of illustration
only, of cumulative total return performance for each Class through July
31, 1998.
Cumulative Total Return
Class A
Shares Institutional
(at Offer) Class(1)
3 months ended
7/31/98 (2.97%) 1.89%
6 months ended
7/31/98 (2.56%) 2.47%
9 months ended
7/31/98 (0.13%) 5.12%
1 year ended
7/31/98 1.40% 6.80%
3 years ended
7/31/98 15.93% 22.75%
5 years ended
7/31/98 19.46% 23.28%
10 years ended
7/31/98 92.18% 107.40%
Period 8/16/85(2)
through 7/31/98 139.11% 158.20%
(1) Date of initial public offering was June 1, 1992.
(2) Date of initial public offering of Class A Shares.
Cumulative Total Return
Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
3 months ended
7/31/98 (2.36%) 1.64%
6 months ended
7/31/98 (2.00%) 1.96%
9 months ended
7/31/98 0.36% 4.35%
1 year ended
7/31/98 1.78% 5.76%
3 years ended
7/31/98 16.22% 19.16%
Period 5/2/94(1)
through 7/31/98 23.94% 25.82%
(1) Date of initial public offering of Class B Shares.
Cumulative Total Return
Class C Shares Class C Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
3 months ended
7/31/98 0.64% 1.64%
6 months ended
7/31/98 0.97% 1.96%
9 months ended
7/31/98 3.36% 4.35%
1 year ended
7/31/98 4.77% 5.76%
Period 11/29/95(1)
through 7/31/98 15.10% 15.10%
(1) Date of initial public offering of Class C Shares.
Because every investor's goals and risk threshold are different,
the Distributor, as distributor for the Fund and other mutual funds in
the Delaware Investments family, 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 Investments funds', investment disciplines
employed in seeking the objectives of the Fund and other funds in the
Delaware Investments family. 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 Investments 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.
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 Investments family. Dollar-cost averaging can be appropriate
for investments in shares of funds that tend to fluctuate in value.
Please obtain the prospectus of any fund in the Delaware Investments
family in which you plan to invest through a dollar-cost averaging
program. The prospectus contains additional information, including
charges and expenses. Please read it carefully before you invest or
send money.
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. The Fund may include illustrations
showing the power of compounding in advertisements and other types of
literature.
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 past three fiscal years, 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, 1998, 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 Investments family. 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
Investments family 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, 1997 and 1998, the portfolio
turnover rates for the Fund were 63% and 118%, respectively.
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 fund in the Delaware Investments family,
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 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 its Conduct 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. Class A Shares are also subject to
annual 12b-1 Plan expenses for the life of the investment.
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; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. 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
Prospectus.
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, in the case of Class A Shares, 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 A Shares
Purchases of $100,000 or more of Class A Shares at the offering
price carry reduced front-end sales charges and may include a series of
purchases over a 13-month period under a Letter of Intention signed by
the purchaser. See Front-End Sales Charge Alternative-Class A Shares
in the Prospectus for the Fund Classes for a table illustrating reduced
front-end sales charges. See also 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.
Certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services
and who increase sales of funds in the Delaware Investments family 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
As described more fully in the Prospectus for the Fund Classes, 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. See Front-End Sales Charge
Alternative-Class A Shares in the Prospectus for the Fund Classes for
the applicable schedule and further details.
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.
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 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 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, 1998, payments from the Class A
Shares, Class B Shares and Class C Shares amounted to $410,056, $128,297
and $15,115, respectively. Such amounts were used for the following
purposes:
Class A Shares Class B Shares Class C Shares
Advertising $1,155 $214 ---
Annual/Semi-Annual
Reports $11,612 --- ---
Broker Trails $318,227 $31,709 $7,960
Broker Sales Charges --- $40,813 $4,872
Dealer Service Expenses $1,394 --- ---
Interest on Broker
Sales Charges --- $49,034 $1,212
Commissions to
Wholesalers $30,128 $6,157 $825
Promotional-Broker
Meetings $3,504 $370 $105
Promotional-Other $16,931 --- ---
Prospectus Printing $17,305 --- ---
Telephone $516 --- ---
Wholesaler Expenses $9,284 --- $141
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 funds in the
Delaware Investments family. 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 shares of funds in the Delaware Investments family.
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 Investments family, the
Manager, or any of the Manager's current affiliates and those that may
in the future be created, legal counsel to the funds and registered
representatives and employees of broker/dealers who have entered into
Dealer's Agreements with the Distributor may purchase Class A Shares and
any such class of shares of any of the funds in the Delaware Investments
family, including any fund that may be created, at the net asset value
per share. Family members (regardless of age) 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 Class A 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 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 funds in the Delaware
Investments family. 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 Investments 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 Investments
family 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 Retirement
Financial Services, Inc. ("RFS") proprietary record keeping system that
(i) has in excess of $500,000 of plan assets invested in Class A Shares
of funds in the Delaware Investments family and any stable value product
available through the Delaware Investments family, 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 fund in the
Delaware Investments family and such employer has properly represented
to RFS in writing that it has the requisite number of employees and has
received written confirmation back from RFS.
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 Investments fund 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 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
Investments family (except shares of any fund in the Delaware
Investments family 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
fund in the Delaware Investments family 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 Investments 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 funds in the
Delaware Investments family 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 funds in
the Delaware Investments family 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 funds in the Delaware Investments family (except shares of
any fund in the Delaware Investments family 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 fund in the Delaware Investments family which
carried a front-end sales charge, CDSC or Limited CDSC). In addition,
assets held by investment advisory clients of the Manager or its
affiliates in a stable value account may be combined with other Delaware
Investments 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).
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 funds in the Delaware Investments family which offer such classes
(except shares of any fund in the Delaware Investments family 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 fund in the Delaware
Investments family 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 Investments family 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 Investments family, 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 Investments family 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 the 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
Prospectus for the Fund Classes, based on total plan assets. If a
company has more than one plan investing in the Delaware Investments
family, then the total amount invested in all plans would be used in
determining the applicable front-end sales charge reduction upon each
purchase, both initial and subsequent, upon notification to the Fund at
the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan
account when determining the applicable front-end sales charge on
purchases to non-retirement Delaware Investments 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.
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 Class in which shares are being purchased. 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 Funds in the Delaware Investments
Family
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 Investments
family, 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 the 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 Investments family 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.
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.
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 Investments family. Shareholders of
the Fund Classes may also elect to invest in one or more of the other
mutual funds in the Delaware Investments family through the Wealth
Builder Option. See Wealth Builder Option and Redemption and Exchange
in the Prospectus for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated
from their account and invested automatically into other mutual funds in
the Delaware Investments family, 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.
Asset Planner
To invest in funds in the Delaware Investments family using the
Asset Planner asset allocation service, you should complete a Asset
Planner Account Registration Form, which is available only from a
financial adviser or investment dealer. Effective September 1, 1997,
the Asset Planner Service is only available to financial advisers or
investment dealers who have previously used this service. The Asset
Planner service offers a choice of four predesigned asset allocation
strategies (each with a different risk/reward profile) in predetermined
percentages in funds in the Delaware Investments family. 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 Investments 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
Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other funds in the Delaware
Investments family.
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.
Investors will receive a customized quarterly Strategy Report
summarizing all 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. Delaware Investments offers a full spectrum of
retirement plans, including the 401(k) deferred compensation plan,
Individual Retirement Account ("IRA") and the new Roth IRA and Education
IRA.
Among the retirement plans noted below, Class B Shares are
available for investment only by Individual Retirement Accounts, SIMPLE
IRAs, Simplified Employee Pension Plans, Roth IRAs, Education IRAs,
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 Institutional Class
shares. 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.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations.
These plans can be maintained as Section 401(k) profit sharing or money
purchase pension plans. Contributions may be invested only in Class A
Shares and Class C Shares.
Individual Retirement Account
A document is available for an individual who wants to establish an
IRA and make 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; however, participation may be restricted
based on certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that
can be utilized depending on the individual's circumstances. A new Roth
IRA and Education IRA are available in addition to the existing
deductible IRA and non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each
year. Contributions may or may not be deductible depending upon the
taxpayer's adjusted gross income ("AGI") and whether the taxpayer is an
active participant in an employer sponsored retirement plan. Even if a
taxpayer is an active participant in an employer sponsored retirement
plan, the full $2,000 is still available if the taxpayer's AGI is below
$30,000 ($50,000 for taxpayers filing joint returns) for years beginning
after December 31, 1997. A partial deduction is allowed for married
couples with income between $50,000 and $60,000, and for single
individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available
for contributions to IRAs by taxpayers whose AGI after IRA deductions
exceeds the maximum income limit established for each year and who are
active participants in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still
can make non-deductible IRA contributions of as much as $2,000 for each
working spouse and defer taxes on interest or other earnings from the
IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined
AGI is below $150,000. The maximum deductible IRA contribution for a
married individual who is not an active participant, but whose spouse
is, is phased out for combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive
eligible rollover distributions from an employer-sponsored retirement
plan or another IRA may rollover the distribution tax-free to a Conduit
IRA. The rollover of the eligible distribution must be completed by the
60th day after receipt of the distribution; however, if the rollover is
in the form of a direct trustee-to-trustee transfer without going
through the distributee's hand, the 60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if
it is made from a qualified retirement plan, a 403(b) plan or another
IRA and does not constitute one of the following:
(i) Substantially equal periodic payments over the employee's
life or life expectancy or the joint lives or life expectancies of the
employee and his/her designated beneficiary;
(ii) Substantially equal installment payments for a period
certain of 10 or more years;
(iii) A distribution, all of which represents a required
minimum distribution after attaining age 70 1/2;
(iv) A distribution due to a Qualified Domestic Relations Order
to an alternate payee who is not the spouse (or former spouse) of the
employee; and
(v) A distribution of after-tax contributions which is not
includable in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA.
As a result of the Internal Revenue Service Restructuring and Reform Act
of 1998 (the "1998 Act"), the $2,000 annual limit will not be reduced by
any contributions to a deductible or nondeductible IRA for the same
year. The maximum contribution that can be made to a Roth IRA is phased
out for single filers with AGI between $95,000 and $110,000, and for
couples filing jointly with AGI between $150,000 and $160,000.
Qualified distributions from a Roth IRA would be exempt from federal
taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which
a contribution was made to a Roth IRA and (2) that are (a) made on or
after the date on which the individual attains age 59 1/2, (b) made to a
beneficiary on or after the death of the individual, (c) attributed to
the individual being disabled, or (d) for a qualified special purpose
(e.g., first time homebuyer expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated
earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA.
Earnings and contributions from a deductible IRA are subject to a tax
upon conversion; however, no 10% excise tax for early withdrawal would
apply. If the conversion is done prior to January 1, 1999, then the
income from the conversion can be included in income ratably over a
four-year period beginning with the year of conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education
IRA has been created exclusively for the purpose of paying qualified
higher education expenses. Taxpayers can make non-deductible
contributions up to $500 per year per beneficiary. The $500 annual
limit is in addition to the $2,000 annual contribution limit applicable
to IRAs and Roth IRAs. Eligible contributions must be in cash and made
prior to the date the beneficiary reaches age 18. Similar to the Roth
IRA, earnings would accumulate tax-free. There is no requirement that
the contributor be related to the beneficiary, and there is no limit on
the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for
the same beneficiaries, however, the contribution limit of all
contributions for a single beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased
out ratably for single contributors with modified AGI between $95,000
and $110,000, and for couples filing jointly with modified AGI of
between $150,000 and $160,000. Individuals with modified AGI above the
phase-out range are not allowed to make contributions to an Education
IRA established on behalf of any other individual.
Distributions from an Education IRA are excludable from gross
income to the extent that the distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year
the distribution is made regardless of whether the beneficiary is
enrolled at an eligible educational institution on a full-time, half-
time, or less than half-time basis.
Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of
such a distribution will be includible in gross income of the
beneficiary and subject to an additional 10% penalty tax if the
distribution is not for qualified higher educations expenses. Tax-free
(and penalty-free) transfers and rollovers of account balances from one
Education IRA benefiting one beneficiary to another Education IRA
benefiting a different beneficiary (as well as redesignations of the
named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or
rollover is made before the time the old beneficiary reaches age 30 and
the new beneficiary reaches age 18.
A company or association may establish a Group IRA or Group Roth
IRA for employees or members who want to purchase shares of the Fund.
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 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. In addition, effective January
1, 1998, the new law allows for premature distribution without a 10%
penalty if (i) the amounts are used to pay qualified higher education
expenses (including graduate level courses) of the taxpayer, the
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer,
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse. A qualified first-time homebuyer is someone who has
had no ownership interest in a residence during the past two years. The
aggregate amount of distribution for first-time home purchases
cannot exceed a lifetime cap of $10,000.
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.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1,
1997, non-governmental tax-exempt organizations may establish 401(k)
plans. 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 Investments
family. 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 in the Prospectus for the Fund Classes.
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 shares of any of the Fund Classes in
conjunction with such an arrangement. 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 in the Prospectus
for the Fund Classes.
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 Investments 457 Deferred Compensation Plan.
Interested investors should contact the Distributor or their investment
dealers to obtain further information. 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 in the Prospectus
for the Fund Classes.
SIMPLE IRA
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. A SIMPLE IRA is available only to plan sponsors with 100
or fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is
available only to plan sponsors with 100 or fewer employees and, in
exchange for mandatory plan sponsor contributions, discrimination
testing is not required. Class B Shares are not available for purchase
by such plans.
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 certain other authorized persons. 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 certain other authorized persons.
See Distribution and Service under Investment Management Agreements.
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 days on which
the following holidays are observed: 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.
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. A signature guarantee can be obtained from a
commercial bank, a trust company or a member of a Securities Transfer
Association Medallion Program ("STAMP"). A signature guarantee cannot
be provided by a notary public. A signature guarantee is designed to
protect the shareholders, the Fund and its agents from fraud. The Fund
reserves the right to reject a signature guarantee supplied by an
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, its agent, or certain other
authorized persons (see Distribution and Service under Investment
Management Agreements), 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 Prospectuses 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; (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 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.
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 by the Fund or certain other authorized
persons (see Distribution and Service under Investment Management
Agreement; 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.
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 First Union National Bank.
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 First Union National Bank's rules and
regulations governing similar accounts. This service may be terminated
or suspended at any time by First Union National Bank, 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.
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
address of record. 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 First Union National Bank 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.
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 Investment 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.
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.
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
described below. 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, 1998, the Fund had a capital loss of
$259,155. The Fund had accumulated capital losses at July 31, 1998 of
$35,026,734, which may be carried forward and applied against future
capital gains. The capital loss carry forward expires as follows:
2001 -- $1,622,896; 2002 -- $17,400,711; 2003 -- $9,205,797; 2004 --
$4,166,601; 2005 -- $2,371,574; and 2006 -- $259,155.
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.
Under the Taxpayer Relief act of 1997 (the "1997 Act"), as revised
by the 1998 Act, the Fund is required to track its sales of portfolio
securities and to report its capital gain distributions to you according
to the following categories of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities
sold by the Fund after July 28, 1997 that were held more than
one year but not more than 18 months. These gains will be
taxable to individual investors at a maximum rate of 28%.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund after
July 28, 1997 that were held for more than 18 months. As revised by the
1998 Act, this rate applies to securities held for more than 12 months
for tax years beginning after December 31, 1997. These gains will be
taxable to individual investors at a maximum rate of 20% for investors
in the 28% or higher federal income tax brackets, and at a maximum rate
of 10% for investors in the 15% federal income tax bracket.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares (any loss is disallowed) in order to
qualify such shares as qualified 5-year property as though purchased
after December 31, 2000. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the 5 year holding
period.
Shareholders will be notified annually by Government Fund, Inc. as
to the federal income tax status of dividends and distributions paid by
the Fund.
See also Other Tax Requirements under Accounting and Tax Issues.
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 Investments family since 1938. On July 31, 1998, the
Manager and its affiliates within Delaware Investments, including
Delaware International Advisers Ltd., were managing in the aggregate
more than $43 billion in assets in the various institutional or
separately managed (approximately $25,873,990,000) and investment
company ($17,929,500,000) accounts.
The Investment Management Agreement for the Fund is dated April 3,
1995 and was approved by shareholders on March 29, 1995. The Agreement
had 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, 1998, the total net
assets of the Fund were $160,555,920. 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, 1996, 1997 and 1998 were
$1,205,666, $1,023,062 and $991,089, 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.
Distribution and Service
The Distributor, Delaware Distributors, L.P., 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. The
Distributor is an indirect, wholly owned subsidiary 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.
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such
brokers are authorized to designate other intermediaries to accept
purchase and redemption orders on the behalf of the Fund. For purposes
of pricing, the Fund will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Investors may be charged a fee
when effecting transactions through a broker or agent.
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
Investments family. On August 31, 1998, 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, 1998, management believes the following accounts
held 5% or more of the outstanding shares of a Class:
Class Name and Address of Account Share Amount Percentage
Class B
Shares MLPF&S for the sole benefit of
its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484 462,153.680(1) 20.54%
Class C
Shares MLPF&S for the sole benefit of
its customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484 103,601.920 29.90%
A.G. Peters & Son Inc.
Profit Sharing Trust DTD 12/1/84
1025 North Black Horse Pike
Runnemede, NJ 08078 39,591.040 11.42%
Mildred K. Robinson
290 Mar Vista Drive
Vista, CA 92083-7642 18,753.000 5.41%
A.G. Peters & Son Inc.
Cash Management Account
Attn: Diane L. Lansberry
1025 North Black Horse Pike
Runnemede, NJ 08078 18,342.740 5.29%
(1) Government Funds, Inc. believes that these shares are held of
record for the benefit of others.
Class Name and Address of Account Share Amount Percentage
Institutional Federated Life Insurance Co.
Separate Account A
Attn: Tom Koch
P.O. Box 328
Owatonna, MN 55060-0328 1,032,562.70 45.22%
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 662,646.700 29.02%
Amalgamated Bank of New York
Cust Local 917 Pension Fund
Amivest Corp. Discretionary
Fund Manager
11-15 Union Square
New York, NY 10003 162,988.800 7.13%
DMH Corp., Delvoy, Inc., Delaware Management Business Trust,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Management Company, Inc., Delaware Investment Advisers
(a series of Delaware Management Business Trust), 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. 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.
*Wayne A. Stork (61)
Chairman and Director and/or Trustee of Government Fund, Inc. and
33 other investment companies in the Delaware Investments family
and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH
Corp., Delaware Distributors, Inc. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment
Officer and Director/Trustee of Delaware Management Company, Inc.
and Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware
Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust)
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd., Delaware International Holdings Ltd.
and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
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.
* Jeffrey J. Nick (45)
President, Chief Executive Officer and Director and/or Trustee of
Government Fund, Inc. and 33 other investment companies in the
Delaware Investments family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.
President of Lincoln Funds Corporation
Director of Delaware International Advisers Ltd.
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.
Richard G. Unruh, Jr. (58)
Executive Vice President of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family,
Delaware Management Holdings, Inc., Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware Capital
Management, Inc.
President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President and Director/Trustee of Delaware
Management Company, Inc. and Delaware Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various
executive capacities at different times within the Delaware
organization.
______________________
* Director affiliated with the Fund's investment manager and
considered an "interested person" as defined in the 1940 Act.
Paul E. Suckow (51)
Executive Vice President/Chief Investment Officer, Fixed Income of
Government Fund, Inc. and 33 other investment companies in the
Delaware Investments family, Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments 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
Delaware Investments.
David K. Downes (58)
Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Government Fund, Inc. and 33 other investment companies
in the Delaware Investments family, Delaware Management Holdings,
Inc, Founders CBO Corporation, Delaware Capital Management, Inc.,
Delaware Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief
Administrative Officer and Trustee of Delaware Management Business
Trust
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
Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware
Management Trust Company and Delaware Investment & Retirement
Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various
executive capacities at different times within the Delaware
organization.
Walter P. Babich (70)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investment family
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.
John H. Durham (61)
Director and/or Trustee of Government Fund, Inc. and 18 other
investment companies in the Delaware Investments family
Partner, Complete Care Services
120 Gibraltar Road, Horsham, PA 19044
Mr. Durham served as Chairman of the Board of each fund in the
Delaware Investments family from 1986 to 1991; President of each
fund from 1977 to 1990; and Chief Executive Officer of each fund
from 1984 to 1990. Prior to 1992, with respect to Delaware
Management Holdings, Inc., Delaware Management Company, Delaware
Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham
served as a director and in various executive capacities at
different times.
Anthony D. Knerr (59)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family
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 (57)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family
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 (77)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman
Thomas F. Madison (62)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
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.
Charles E. Peck (72)
Director and/or Trustee of Government Fund, Inc. and 33 other
investment companies in the Delaware Investments family
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.
George M. Chamberlain, Jr. (51)
Senior Vice President, Secretary and General Counsel of Government
Fund, Inc. and 33 other investment companies in the Delaware
Investments family. Senior Vice President and Secretary
Delaware Distributors, L.P., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust)
and Delaware Management Holdings, Inc. Senior Vice President,
Secretary and Director/Trustee of DMH Corp., Delaware Management Company,
Inc., Delaware Distributors, Inc., Delaware Service Company, Inc.,
Founders Holdings, Inc., Delaware Investment & Retirement Services,
Inc., Delaware Capital Management, Inc., Delvoy, Inc. and Delaware
Management Business Trust, Executive Vice President, Secretary,
and Director of Delaware Management Trust Company
Senior Vice President and Director of Delaware International
Holdings Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware organization.
Joseph H. Hastings (48)
Senior Vice President/Corporate Controller of Government Fund, Inc.
and 33 other investment companies in the Delaware Investments
family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of
Delaware Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Delaware International Holdings Ltd.,
Delvoy, Inc. and Delaware Management Business Trust
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
Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various
executive capacities at different times within the Delaware
organization.
Michael P. Bishof (36)
Senior Vice President/Treasurer of Government Fund, Inc. and 33
other investment companies in the Delaware Investments family and
Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust) and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment
Accounting of Delaware Distributors, L.P. and Delaware Investment
Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
Senior Vice President and Assistant Treasurer of Founders CBO
Corporation
Before joining Delaware Investments 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 12
other investment companies in the Delaware Investments family.
Before joining Delaware Investments 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
investment companies in the Delaware Investments family for which he or
she serves as a director for the fiscal year ended July 31, 1998 and an
estimate of annual benefits to be received upon retirement under the
Delaware Investments Retirement Plan for Directors/Trustees as of July
31, 1998. Only the independent directors of Government Fund, Inc.
receive compensation from the Fund.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued Annual from all
Compensation as Part of Benefits Investment
from Government Government Fund, Upon Companies
Name Fund, Inc. Inc.Expenses Retirement(1) in Delaware
Investments(2)
<S> <C> <C> <C> <C>
John Durham(3) $ 433 None $31,000 $16,092
W. Thacher
Longstreth $1,161 None $38,500 $63,406
Ann R. Leven $1,223 None $38,500 $69,599
Walter P. Babich $1,212 None $38,500 $68,323
Anthony D. Knerr $1,212 None $38,500 $68,323
Thomas F. Madison $1,161 None $38,500 $63,406
Charles E. Peck $1,161 None $38,500 $63,406
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee 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 investment company in the Delaware
Investments family for which he or she serves as a director or trustee
for a period equal to the lesser of the number of years that such person
served as a director or trustee 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/trustees of each
investment company at the time of such person's retirement. If an
eligible director/trustee retired as of July 31, 1998, he or she would
be entitled to annual payments totaling the amount noted above, in the
aggregate, from all of the investment companies in the Delaware
Investments family for which he or she served as director or trustee,
based on the number of investment companies in the Delaware Investments
family as of that date.
(2) Each independent director/trustee (other than John H. Durham)
currently receives a total annual retainer fee of $38,500 for serving as
a director or trustee for all 34 investment companies in Delaware
Investments, plus $3,145 for each Board Meeting attended. John H.
Durham currently receives a total annual retainer fee of $31,000 for
serving as a director or trustee for 19 investment companies in Delaware
Investments, plus $1,757.50 for each Board Meeting attended. Ann R.
Leven, Walter P. Babich, Anthony D. Knerr and Thomas F. Madison serve on
the Fund's audit committee; Ms. Leven is the chairperson. Members of
the audit committee currently receive additional annual compensation of
$5,000 from all investment companies, in the aggregate, with the
exception of the chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors of the Fund and 18
other investment companies in Delaware Investments on April 16, 1998.
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes
and for shareholders of classes of other funds in the Delaware
Investments family 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 Investments family.
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 Investments family 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 Investments
family. 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 Investments family. 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.
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 funds in the Delaware Investments family 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; (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 funds in the Delaware
Investments family: (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 funds in the Delaware Investments
family are available for timed exchanges. Assets redeemed or exchanged
out of Timing Accounts in funds in the Delaware Investments family 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
funds in the Delaware Investments family:
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.
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. High-Yield Opportunities Fund seeks to provide investors
with total return and, as a secondary objective, high current income.
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.
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.
REIT Fund seeks to achieve maximum long-term total return with
capital appreciation as a secondary objective. It seeks to achieve its
objectives by investing in securities of companies primarily engaged in
the real estate industry.
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.
Foundation Funds are "fund of funds" which invest in other funds in
the Delaware Investments family (referred to as "Underlying Funds").
Foundation Funds Income Portfolio seeks a combination of current income
and preservation of capital with capital appreciation by investing
primarily in a mix of fixed income and domestic equity securities,
including fixed income and domestic equity Underlying Funds. Foundation
Funds Balanced Portfolio seeks capital appreciation with current income
as a secondary objective by investing primarily in domestic equity and
fixed income securities, including domestic equity and fixed income
Underlying Funds. Foundation Funds Growth Portfolio seeks long term
capital growth by investing primarily in equity securities, including
equity Underlying Funds, and, to a lesser extent, in fixed income
securities, including fixed-income Underlying Funds.
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 Equity Fund seeks to achieve long-term total
return by investing in global securities that provide the potential for
capital appreciation and income. 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 16 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. Small Cap Value Series seeks capital
appreciation by investing primarily in small- 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 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. Social Awareness
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. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in
securities of companies primarily engaged in the real estate industry.
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 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 funds in the
Delaware Investments family, 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).
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 Investments family. 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 mutual funds in the Delaware
Investments family available outside the annuity. See Delaware Group
Premium Fund, Inc., above.
Access persons and advisory persons of the funds in the Delaware
Investments family, 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 Investments family. The
Distributor 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 the Distributor
July 31, 1998 $190,148 $157,506 $32,642
July 31, 1997 144,773 120,230 24,543
July 31, 1996 303,067 252,496 50,571
The Distributor received in the aggregate Limited CDSC payments
with respect to Class A Shares as follows:
Fiscal Year Ended Limited CDSC Payments
July 31, 1998 $1,015
July 31, 1997 448
July 31, 1996 5,766
The Distributor received in the aggregate CDSC payments with
respect to Class B Shares as follows:
Fiscal Year Ended CDSC Payments
July 31, 1998 $73,001
July 31, 1997 39,019
July 31, 1996 38,778
The Distributor received CDSC payments with respect to Class C
Shares as follows:
Fiscal Year Ended CDSC Payments
July 31, 1998 $519
July 31, 1997 440
July 31, 1996(1) -$0-
(1)Date of initial public offering was November 29, 1995.
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 Investments family.
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 Investments family 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.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245, is custodian of the Fund's securities and cash. As custodian
for the Fund, Chase 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.
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.
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
Assets and Liabilities, Statement of Operations, Statements of Changes
in Net Assets, Financial Highlights and Notes to Financial Statements,
as well as the report of Ernst & Young LLP, independent auditors, for
the fiscal year ended July 31, 1998, are included in the Fund's Annual
Report to shareholders. The financial statements and financial
highlights, 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.
