SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-97889
File No. 811-4304
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
____
Post-Effective Amendment No. 20 X
____
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20
DELAWARE GROUP GOVERNMENT FUND, INC.
_______________________________________________________________________
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
_______________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
__________________
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
_______________________________________________________________________
(Name and Address of Agent for Service)
Approximate Date of Public Offering: September 29, 1998
__________________
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
X on September 29, 1998 pursuant to paragraph (b)
_____
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485.
Title of Securities Being Registered
------------------------------------
U.S. Government Fund A Class
U.S. Government Fund B Class
U.S. Government Fund C Class
U.S. Government Fund Institutional Class
--- C O N T E N T S ---
This Post-Effective Amendment No. 20 to Registration File No.
2-97889 includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
CROSS-REFERENCE SHEET*
----------------------
PART A
------
Location in
Item No. Description Prospectuses
- -------- --------------- ------------
A Class/ Institutional
B Class/ Class
C Class
1 Cover Page Cover Cover
2 Synopsis Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses
3 Condensed
Financial Information Financial Financial
Highlights Highlights
4 General Description
of Registrant Investment Investment
Objective and Objective and
Policies; Policies;
Shares; Shares;
Additional Additional
Investment Investment
Policies and Policies and
Risk Risk
Considerations Considerations
5 Management of the Fund Management of Management of
the Fund the Fund
6 Capital Stock and Other
Securities Delaware Dividends
Difference; and
Dividends and Distributions;
Distributions; Taxes;
Taxes; Shares
Shares
7 Purchase of Securities
Being Offered Cover; Cover;
How to Buy How to Buy
Shares; Shares;
Calculation Calculation
of Offering Price of Net Asset
and Net Asset Value Per
Value Per Share; Share;
Management of Management
the Fund of the Fund
8 Redemption or
Repurchase Redemption and Redemption
Exchange; and
How to Buy Exchange;
Shares How to
Buy Shares
9 Pending Legal Proceedings None None
*This filing relates to Registrant's U.S. Government Fund A
Class, U.S. Government Fund B Class and U.S. Government Fund C
Class which are combined in one prospectus, and U.S. Government
Fund Institutional Class, which has its own prospectus. The
four classes have a common Part B and Part C.
CROSS-REFERENCE SHEET
----------------------
PART B
-------
Location in Statement
Item No. Description of Additional Information
- -------- ----------- -------------------------
10 Cover Page Cover
11 Table of Contents Table of Contents
12 General Information and History General Information
13 Investment Objectives and Policies Investment Policies
14 Management of the Registrant Officers and Directors
15 Control Persons and Principal
Holders of Securities Officers and Directors
16 Investment Advisory and Other
Services Plans Under Rule 12b-1
for the Fund Classes
(under Purchasing
Shares); Investment
Management Agreement;
Officers and Directors;
General Information;
Financial Statements
17 Brokerage Allocation Trading Practices
and Brokerage
18 Capital Stock and Other Securities Capitalization and
Noncumulative Voting
(under General
Information)
19 Purchase, Redemption and Pricing
of Securities Being Offered Purchasing Shares;
Determining Offering
Price and Net Asset Value;
Redemption and Repurchase;
Exchange Privilege
20 Tax Status Accounting and Tax Issues;
Taxes
21 Underwriters Purchasing Shares
22 Calculation of Performance Data Performance Information
23 Financial Statements Financial Statements
CROSS-REFERENCE SHEET
----------------------
PART C
-------
Location in
Item No. Description Part C
- -------- ----------- -----------
24 Financial Statements and Exhibits Item 24
25 Persons Controlled by or under Common
Control with Registrant Item 25
26 Number of Holders of Securities Item 26
27 Indemnification Item 27
28 Business and Other Connections of
Investment Adviser Item 28
29 Principal Underwriters Item 29
30 Location of Accounts and Records Item 30
31 Management Services Item 31
32 Undertakings Item 32
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
DELAWARE INVESTMENTS
A Class
B Class
C Class
U.S. GOVERNMENT FUND
PROSPECTUS
SEPTEMBER 29, 1998
[GRAPHIC OMITTED: ILLUSTRATION OF TWO MEN AND A WOMAN GARDENING]
Table of
Contents
COVER PAGE
SYNOPSIS
SUMMARY OF EXPENSES
FINANCIAL HIGHLIGHTS
INVESTMENT OBJECTIVE AND POLICIES
Suitability
Investment Strategy
THE DELAWARE DIFFERENCE
Plans and Services
Shareholder Phone Directory
CLASSES OF SHARES
HOW TO BUY SHARES
REDEMPTION AND EXCHANGE
DIVIDENDS AND DISTRIBUTIONS
TAXES
CALCULATION OF OFFERING PRICE AND
NET ASSET VALUE PER SHARE
MANAGEMENT OF THE FUND
ADDITIONAL INFORMATION ON
INVESTMENT POLICIES AND
RISK CONSIDERATIONS
U.S. Government Fund
A Class/B Class/C Class Prospectus
September 29, 1998
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-1918
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes the Government Income Series (the "Fund")
of Delaware Group Government Fund, Inc. ("Government Fund, Inc."), a
professionally-managed mutual fund of the series type. The objective of
the Fund is high current income consistent with safety of principal by
investing primarily in debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
The Fund currently offers three retail classes of shares: U.S.
Government Fund A Class ("Class A Shares"), U.S. Government Fund B Class
("Class B Shares") and U.S. Government Fund C Class ("Class C Shares")
(individually, a "Class" and collectively, the "Classes").
This Prospectus relates only to the Classes listed above and sets
forth information that you should read and consider before you invest.
Please retain it for future reference. The Fund's Statement of
Additional Information ("Part B" of Government Fund Inc.'s registration
statement), dated September 29, 1998, as it may be amended from time to
time, contains additional information about the Fund and has been filed
with the Securities and Exchange Commission ("SEC"). Part B is
incorporated by reference into this Prospectus and is available, without
charge, by writing to Delaware Distributors, L.P. at the above address
or by calling the above numbers. The Fund's financial statements appear
in its Annual Report, which will accompany any response to requests for
Part B. The SEC also maintains a Web site (http://www.sec.gov) that
contains Part B, material we incorporated by reference and other
information regarding registrants that electronically file with the SEC.
The Fund also offers the U.S. Government Fund Institutional Class,
which is available for purchase only by certain investors. A prospectus
for the U.S. Government Fund Institutional Class can be obtained by
writing to Delaware Distributors, L.P. at the above address or by
calling the above number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS.
MUTUAL FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER,
SHARES OF THE FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY
ANY BANK OR ANY CREDIT UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY
CREDIT UNION, AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS
OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUND ARE NOT BANK OR
CREDIT UNION DEPOSITS.
Synopsis
Investment Objective
The investment objective of the Fund is to seek high current income
consistent with safety of principal by investing primarily in debt
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. For further details, see Investment Objective and
Policies and Additional Information on Investment Policies and Risk
Considerations.
Risk Factors and Special Considerations
The Fund may invest up to 20% of its assets in corporate notes and
bonds, certificates of deposit and obligations of both U.S. and foreign
banks, commercial paper and asset-backed securities. See Investment
Strategy under Investment Objective and Policies and Additional
Information on Investment Policies and Risk Considerations.
The Fund may also enter into options and futures transactions for
hedging purposes to counterbalance portfolio volatility. While the Fund
does not engage in options and futures for speculative purposes, there
are risks which result from use of these instruments by the Fund, and
the investor should review the descriptions of such in this Prospectus.
Certain options and futures transactions may be considered to be
derivative securities. See Options and Futures under Additional
Information on Investment Policies and Risk Considerations.
Investment Manager, Distributor and
Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and
direction of Government Fund, Inc.'s Board of Directors. The Manager
also provides investment management services to certain of the other
funds in the Delaware Investments family. Delaware Distributors, L.P.
(the "Distributor") is the national distributor for the Fund and for all
of the other mutual funds in the Delaware Investments family. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder
servicing, dividend disbursing, accounting services and transfer agent
for the Fund and for all of the other mutual funds in the Delaware
Investments family. See Summary of Expenses and Management of the Fund
for further information regarding the Manager and the fees payable under
the Fund's Investment Management Agreement.
Sales Charges
The price of Class A Shares includes a maximum front-end sales
charge of 4.75% of the offering price. The front-end sales charge is
reduced on certain transactions of at least $100,000 but under
$1,000,000. For purchases of $1,000,000 or more, the front-end sales
charge is eliminated; if a dealer's commission is paid in connection
with those purchases, a contingent deferred sales charge ("Limited
CDSC") of 1% will be imposed if shares are redeemed during the first
year after the purchase and 0.50% will be imposed if shares are redeemed
during the second year after the purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange. Class A Shares are also subject to
annual 12b-1 Plan expenses for the life of the investment.
The price of Class B Shares is equal to the net asset value per
share. Class B Shares are subject to a CDSC of: (i) 4% if shares are
redeemed within two years of purchase; (ii) 3% if shares are redeemed
during the third or fourth year following purchase; (iii) 2% if shares
are redeemed during the fifth year following purchase; (iv) 1% if shares
are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B Shares are subject to annual 12b-1 Plan expenses for
approximately eight years after purchase. See Deferred Sales Charge --
Class B Shares and Automatic Conversion of Class B Shares under Classes
of Shares.
The price of Class C Shares is equal to the net asset value per
share. Class C Shares are subject to a CDSC of 1% if shares are redeemed
within 12 months of purchase. Class C Shares are subject to annual 12b-1
Plan expenses for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an
amount that is less than $1,000,000. An investor may exceed these
maximum purchase limitations for Class B Shares and Class C Shares by
making cumulative purchases over a period of time. An investor should
keep in mind, however, that reduced front-end sales charges apply to
investments of $100,000 or more in Class A Shares, and that Class A
Shares are subject to lower annual 12b-1 Plan expenses than Class B and
Class C Shares and generally are not subject to a CDSC. The minimum and
maximum purchase amounts for retirement plans may vary. See How to Buy
Shares.
Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange
request. Neither the Fund nor the Distributor assesses a charge for
redemptions or exchanges of Class A Shares, except for certain
redemptions of shares purchased at net asset value, which may be subject
to a CDSC if a dealer's commission was paid in connection with such
purchases. See Front-End Sales Charge Alternative -- Class A Shares
under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at
the net asset value calculated after receipt of the redemption or
exchange request subject, in the case of redemptions, to any applicable
CDSC. Neither the Fund nor the Distributor assesses any charges other
than the CDSC for redemptions or exchanges of Class B or Class C Shares.
There are certain limitations on an investor's ability to exchange
shares between the various classes of shares that are offered. See
Redemption and Exchange.
Open-End Investment Company
Government Fund, Inc., which was organized as a Maryland
corporation in 1985, is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the Investment
Company Act of 1940 (the "1940 Act"). See Shares under Management of the
Fund.
<TABLE>
<CAPTION>
Summary of
Expenses
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows.
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 4.75% None None
Maximum Sales Charge Imposed
on Reinvested Dividends (as a
percentage of offering price) None None None
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) None(1) 4.00%(2) 1.00%(3)
Redemption Fees None(4) None(4) None(4)
<CAPTION>
Annual Operating Expenses
(as a percentage of Class A Class B Class C
average daily net assets) Shares Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.59%(5) 0.59%(5) 0.59%(5)
12b-1 Expenses (including service fees) 0.30%(6/7) 1.00%(6) 1.00%(6)
Other Operating Expenses 0.31% 0.31% 0.31%
-------- -------- --------
Total Operating Expenses 1.20%(6) 1.90% 1.90%
======== ======== ========
</TABLE>
1 Class A purchases of $1 million or more may be made at net asset
value. However, if in connection with any such purchase a dealer
commission is paid to the financial adviser through whom such purchase
is effected, a Limited CDSC of 1% will be imposed on certain
redemptions made during the first year after the purchase and 0.50%
will be imposed on certain redemptions made during the second year
after the purchase. Additional Class A purchase options involving the
imposition of a CDSC may be permitted as described in this Prospectus
from time to time. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
2 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. See Deferred Sales Charge Alternative -- Class B Shares
and Contingent Deferred Sales Charge -- Class B Shares and Class C
Shares under Classes of Shares.
3 Class C Shares are subject to a CDSC of 1% if the shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative --
Class C Shares and Contingent Deferred Sales Charge -- Class B Shares
and Class C Shares under Classes of Shares.
4 First Union National Bank currently charges $7.50 per redemption for
redemptions payable by wire.
5 The management fee is equal to, on an annual basis, 0.60% of the
Fund's average daily net assets, less a proportionate share of all
directors' fees paid to the unaffiliated directors by the Fund.
6 Class A Shares, Class B Shares and Class C Shares are subject
to separate 12b-1 Plans. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
by rules of the National Association of Securities Dealers, Inc. (the
"NASD"). See Distribution (12b-1) and Service under Management of the
Fund and Part B.
7 The actual 12b-1 Plan expenses to be paid and, consequently, the Total
Operating Expenses of the Class A Shares, may vary because of the
formula adopted by the Board of Directors for use in calculating the
12b-1 Plan expenses for this Class beginning June 1, 1992, but the
12b-1 Plan expenses will not be more than 0.30% nor less than 0.10%.
See Distribution (12b-1) and Service under Management of the Fund and
Part B.
Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per Strategy.
However, effective November 1, 1996, the annual maintenance fee is
waived until further notice. Investors who utilize the Asset Planner
for an Individual Retirement Account ("IRA") will pay an annual IRA
fee of $15 per Social Security number. See Asset Planner in Part B.
For expense information about the U.S. Government Fund
Institutional Class, see the separate prospectus relating to that
class.
The following example illustrates the expenses that an investor
would pay on a $1,000 investment over various time periods, assuming
(1) a 5% annual rate of return, (2) redemption and no redemption at the
end of each time period and (3) for Class B Shares and Class C Shares,
payment of a CDSC at the time of redemption, if applicable.
<TABLE>
<CAPTION>
Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $59(1) $84 $110 $186 $59 $84 $110 $186
Class B Shares $59 $90 $123 $204(2) $19 $60 $103 $204(2)
Class C Shares $29 $60 $103 $222 $19 $60 $103 $222
1 Generally, no redemption charge is assessed upon redemption of Class A Shares.
Under certain circumstances, however, a Limited CDSC, which has not been reflected
in this calculation, may be imposed on certain redemptions within 24 months after
a purchase. See Contingent Deferred Sales Charge for Certain Redemptions of Class
A Shares Purchased at Net Asset Value under Redemption and Exchange.
2 At the end of approximately eight years after purchase, Class B Shares will be
automatically converted into Class A Shares. The example above assumes conversion
of Class B Shares at the end of the eighth year. However, the conversion may occur
as late as three months after the eighth anniversary of purchase, during which
time the higher 12b-1 Plan fees payable by Class B Shares will continue to be
assessed. The ten-year expense numbers for Class B Shares reflect the expenses of
Class B Shares for years one through eight and the expenses for Class A Shares for
years nine and ten. See Automatic Conversion of Class B Shares under Classes of
Shares for a description of the automatic conversion feature.
This example should not be considered a representation of past or future expenses or
performance. Actual expenses may be greater or less than those shown.
The purpose of the above tables is to assist investors in understanding the
various costs and expenses that they will bear directly or indirectly in owning
shares of the Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial
Highlights
The following financial highlights are derived from the financial statements of
Delaware Group Government Fund, Inc. --Government Income Series and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes, and the report of Ernst &
Young LLP, all of which are incorporated by reference into Part B. Further
information about the Fund's performance is contained in its Annual Report to
shareholders. A copy of the Fund's Annual Report (including the report of Ernst &
Young LLP) may be obtained from Government Fund, Inc. upon request at no charge.
Class A Shares
------------------------------------------------------------------------
Year Ended
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.760 $7.590 $7.860 $8.000 $9.010
Income From
Investment Operations
Net Investment Income 0.528 0.544 0.588 0.656 0.714
Net Gains (Losses) on
Securities
(both realized and
unrealized) (0.040) 0.170 (0.270) (0.140) (1.010)
-------- -------- -------- -------- --------
Total from Investment
Operations 0.488 0.714 0.318 0.516 (0.296)
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income (0.528) (0.544) (0.588) (0.656) (0.714)
Distributions from
Capital Gains none none none none none
-------- -------- -------- -------- --------
Total Distributions (0.528) (0.544) (0.588) (0.656) (0.714)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $7.720 $7.760 $7.590 $7.860 $8.000
======== ======== ======== ======== ========
Total Return(1) 6.50% 9.77% 4.09% 6.82% (3.51%)
Ratios and Supplemental
Data
Net Assets,
End of Period
(000's omitted) $127,001 $138,844 $164,156 $206,083 $222,555
Ratio of Expenses
to Average Daily
Net Assets 1.20% 1.16% 1.20% 1.24% 1.23%
Ratio of Net
Investment Income
to Average Daily
Net Assets 6.80% 7.13% 7.55% 8.40% 8.31%
Portfolio Turnover Rate 118% 63% 81% 70% 309%
<CAPTION>
Class A Shares
------------------------------------------------------------------------
Year Ended
7/31/93 7/31/92 7/31/91 7/31/90 7/31/89
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.020 $8.700 $8.590 $8.750 $8.650
Income From
Investment Operations
Net Investment Income 0.763 0.769 0.753 0.749 0.772
Net Gains (Losses) on
Securities
(both realized and
unrealized) (0.010) 0.320 0.110 (0.160) 0.100
-------- -------- -------- -------- --------
Total from Investment
Operations 0.753 1.089 0.863 0.589 0.872
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net
Investment Income (0.763) (0.769) (0.753) (0.749) (0.772)
Distributions from
Capital Gains none none none none none
-------- -------- -------- -------- --------
Total Distributions (0.763) (0.769) (0.753) (0.749) (0.772)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $9.010 $9.020 $8.700 $8.590 $8.750
======== ======== ======== ======== ========
Total Return(1) 8.70% 12.98% 10.48% 7.14% 10.65%
Ratios and Supplemental
Data
Net Assets,
End of Period
(000's omitted) $223,416 $184,401 $150,491 $140,772 $138,904
Ratio of Expenses
to Average Daily
Net Assets 1.26% 1.17% 1.13% 1.14% 1.22%
Ratio of Net
Investment Income
to Average Daily
Net Assets 8.45% 8.60% 8.74% 8.75% 9.01%
Portfolio Turnover Rate 285% 196% 149% 127% 172%
- ------------------
1 Does not reflect the maximum front-end sales charge of 4.75% nor the Limited
CDSC that varies from 0.50%-1% depending on the holding period for Class A Shares,
applicable to certain redemptions made within two years after purchase. See
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
-----------------------------------------------
Period
5/2/94(1)
Year Ended through
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.760 $7.590 $7.860 $8.000 $8.190
Income from Investment
Operations
Net Investment Income 0.474 0.490 0.533 0.601 0.151
Net Gains (Loses) on
Securities
(both realized and
unrealized) (0.040) 0.170 (0.270) (0.140) (0.190)
-------- -------- -------- -------- --------
Total from Investment
Operations 0.434 0.660 0.263 0.461 (0.039)
Less Distributions
Dividends from Net
Investment Income (0.474) (0.490) (0.533) (0.601) (0.151)
Distribution from
Capital Gains none none none none none
-------- -------- -------- -------- --------
Total Distributions (0.474) (0.490) (0.533) (0.601) (0.151)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period $7.720 $7.760 $7.590 $7.860 $8.000
======== ======== ======== ======== ========
Total Return(2) 5.76% 9.01% 3.36% 6.08% (0.46%)(1)
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $13,642 $10,695 $9,754 $7,394 $2,215
Ratio of Expenses to
Average Daily Net
Assets 1.90% 1.86% 1.90% 1.94% 1.94%(1)
Ratio of Net Investment
Income to Average
Daily Net Assets 6.10% 6.43% 6.85% 7.66% 7.60%(1)
Portfolio Turnover Rate 118% 63% 81% 70% 309%
<CAPTION>
Class C Shares
-----------------------------
Period
Year Year 11/29/95(1)
Ended Ended through
7/31/98 7/31/97 7/31/96
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.760 $7.590 $7.950
Income from Investment
Operations
Net Investment Income 0.474 0.491 0.348
Net Gains (Loses) on
Securities
(both realized and
unrealized) (0.040) 0.170 (0.360)
-------- -------- --------
Total from Investment
Operations 0.434 0.661 (0.012)
Less Distributions
Dividends from Net
Investment Income (0.474) (0.491) (0.348)
Distribution from
Capital Gains none none none
-------- -------- --------
Total Distributions (0.474) (0.491) (0.348)
-------- -------- --------
Net Asset Value,
End of Period $7.720 $7.760 $7.5901
======== ======== ========
Total Return(2) 5.76% 9.01% (0.17%)(1)
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $2,047 $1,308 $1,029
Ratio of Expenses to
Average Daily Net
Assets 1.90% 1.86% 1.90%(1)
Ratio of Net Investment
Income to Average
Daily Net Assets 6.10% 6.43% 6.85%(1)
Portfolio Turnover Rate 118% 63% 81%
- ------------------
1 Date of initial public offering; ratios have been annualized but total return has
not been annualized. Total return for this short of a time period may not be
representative of longer term results.
2 Total return does not reflect any applicable CDSC. See Contingent Deferred Sales
Charge -- Class B Shares and Class C Shares under Classes of Shares.
</TABLE>
Investment Objective
and Policies
SUITABILITY
The Fund may be suitable for individuals who want a stable and high
income flow, the security associated with investments focused
principally on U.S. government-backed instruments and the convenience
and liquidity of mutual funds. However, investors should consider asset
value fluctuation as well as income potential in making an investment
decision.
Because the Fund invests in longer term securities, the value of
shares will fluctuate. When interest rates rise, the share value will
tend to fall, and when interest rates fall, the share value will tend to
rise.
Ownership of Fund shares can reduce the bookkeeping and
administrative inconveniences which is typically connected with direct
purchase of the types of securities in which the Fund invests.
Investors should not consider a purchase of shares of the Fund as
equivalent to a complete investment program. Delaware Investments offers
funds, generally available through registered dealers, which may be used
together to create a more complete investment program.
INVESTMENT STRATEGY
The investment objective of the Fund described below is a matter of
fundamental policy and may not be changed without shareholder approval.
The objective of the Fund is high current income consistent with
safety of principal by investing primarily in debt obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
These include securities issued or backed by U.S. government agencies
and government-sponsored corporations which may not be backed by the
full faith and credit of the U.S. government, such as the Export-Import
Bank, Federal Housing Authority, Federal National Mortgage Association
and Federal Home Loan Banks and mortgage-backed securities issued by
non-government entities but collateralized by securities of the U.S.
government, its agencies and instrumentalities. The weighted average
maturity will be approximately 10 years. Although these securities are
guaranteed as to principal and interest by the U.S. government or its
instrumentalities, the market value of these securities, upon which
daily net asset value is based, may fluctuate and is not guaranteed.
U.S. government securities include U.S. Treasury securities
consisting of Treasury Bills, Treasury Notes and Treasury bonds. Some of
the other government securities in which the Fund may invest include
securities of the Federal Housing Administration, the Government
National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration,
the General Services Administration, the Maritime Administration and the
Small Business Administration. The maturities of such securities usually
range from three months to 30 years.
The Fund may also invest up to 20% of its assets in: (1) corporate
notes and bonds rated A or above by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"); (2) certificates
of deposit and obligations of both U.S. and foreign banks if they have
assets of at least one billion dollars; (3) commercial paper rated P-1
by Moody's and/or A-1 by S&P; and (4) asset-backed securities rated Aaa
by Moody's or AAA by S&P.
Investment Techniques
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. The Fund may also invest in securities issued by certain
private, non-government corporations, such as financial institutions, if
the securities are fully collateralized at the time of issuance by
securities or certificates issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Two principal types of mortgage-
backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
The Fund may invest in securities which are backed by assets such
as receivables on home equity and credit loans, receivables regarding
automobile, mobile home and recreational vehicle loans, wholesale dealer
floor plans and leases or other loans or financial receivables currently
available or which may be developed in the future. All such securities
must be rated in the highest rating category by a reputable credit
rating agency (e.g., AAA by S&P or Aaa by Moody's).
The Fund may use repurchase agreements which are at least 100%
collateralized by securities in which the Fund can invest directly.
Repurchase agreements help the Fund to invest cash on a temporary basis.
The Fund may purchase put options, write secured put options, write
covered call options, purchase call options and enter into closing
transactions. The Fund may invest in futures contracts and options on
such futures contracts subject to certain limitations.
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule
144A Securities") under the Securities Act of 1933. Rule 144A permits
many privately placed and legally restricted securities to be freely
traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 10% of the value of its net assets in illiquid
securities.
The Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
For a further discussion of the investment techniques described
above, see Additional Information on Investment Policies and Risk
Considerations.
Other Restrictions
The Fund may borrow from banks. No investment securities will be
purchased while the Fund has an outstanding borrowing. Part B sets forth
other risk factors and more specific investment restrictions, some of
which limit the percentage of assets of the Fund which may be invested
in certain types of securities. A brief discussion of those factors that
materially affected the Fund's performance during its most recently
completed fiscal year appears in the Fund's Annual Report.
Portfolio Turnover
The Fund may experience a high rate of portfolio turnover, which is
not expected to exceed 400%. High portfolio turnover rates may occur,
for example, if the Fund writes a substantial number of covered call
options and the market prices of the underlying securities appreciate. A
100% turnover rate would occur if all of the securities in the portfolio
were sold and replaced within one year. The rate of portfolio turnover
is not a limiting factor when the Manager deems it desirable to purchase
or sell securities or to engage in options transactions. High portfolio
turnover involves correspondingly greater brokerage commissions and
other transaction costs and may affect taxes payable by the Fund's
shareholders. The turnover rate may also be affected by cash
requirements from redemptions and repurchases of the Fund's shares.
The Delaware
Difference
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with
superior information and quality service on your investments in the
Delaware Investments family of funds.
SHAREHOLDER PHONE DIRECTORY
Shareholder Service Center and Investor Information Center
800-523-1918
Information on Existing Regular Investment Accounts and Retirement
Plan Accounts; Wire Investments; Wire Liquidations; Telephone
Liquidations and Telephone Exchanges; Fund Information; Literature;
Price; Yield and Performance Figures
Delaphone
800-362-FUND (800-362-3863)
Performance Information
During business hours, you can call the Investor Information Center
for current yield information. Current yield and total return
information may also be included in advertisements and information given
to shareholders. Yields are computed on an annualized basis over a
30-day period.
Shareholder Services
During business hours, you can call the Delaware Investments'
Shareholder Service Center. Our representatives can answer any questions
about your account, the Fund, various service features and other funds
in the Delaware Investments family.
Delaphone Service
Delaphone is an account inquiry service for investors with Touch-
Tone(registered trademark) phone service. It enables you to get
information on your account faster than the mailed statements and
confirmations. Delaphone also provides current performance information
on the Fund, as well as other funds in the Delaware Investments family.
Delaphone is available seven days a week, 24 hours a day.
Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash.
You may also elect to have the dividends earned in one fund
automatically invested in another Delaware Investments fund with a
different investment objective, subject to certain exceptions and
limitations. For more information, see Additional Methods of Adding to
Your Investment -- Dividend Reinvestment Plan under How to Buy Shares or
call the Shareholder Service Center.
Retirement Planning
An investment in the Fund may be a suitable investment option for
tax-deferred retirement plans. Delaware Investments offers a full
spectrum of qualified and non-qualified retirement plans, including the
popular 401(k) Deferred Compensation Plan, IRA, and the new Roth IRA.
Please call Delaware Investments at 800-523-1918 for more information.
MoneyLine(SM) Services
Delaware Investments offers the following services for fast and
convenient transfer of funds between your personal bank account and your
Delaware Investments fund account.
1. MoneyLine(SM) Direct Deposit Service
If you elect to have your dividends and distributions paid in
cash and such dividends and distributions are in an amount of $25 or
more, you may choose the MoneyLine(SM) Direct Deposit Service and have
such payments transferred from your Fund account to your predesignated
bank account. See Dividends and Distributions. In addition, you may
elect to have your Systematic Withdrawal Plan payments transferred from
your Fund account to your predesignated bank account through this
service. See Systematic Withdrawal Plans under Redemption and Exchange.
This service is not available for certain retirement plans.
2. MoneyLine(SM) On Demand
You or your investment dealer may request purchases and
redemptions of Fund shares by using MoneyLine(SM) On Demand. When you
authorize the Fund to accept such requests from you or your investment
dealer, funds will be withdrawn from (for share purchases) or deposited
to (for share redemptions) your predesignated bank account. Your request
will be processed the same day if you call prior to 4 p.m., Eastern
time. There is a $25 minimum and a $50,000 maximum limit for MoneyLine(SM)
On Demand transactions. This service is not available for retirement
plans, except for purchases of shares by IRAs.
For each MoneyLine(SM) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not
identical to the name and address on your Fund account, you must have
your signature guaranteed. The Fund does not charge a fee for any
MoneyLine(SM) Service; however, your bank may change a fee. Please call
the Shareholder Service Center for additional information about these
services.
Statements and Confirmations
You will receive quarterly statements of your account summarizing
all transactions during the period. A confirmation statement will be
sent following all transactions other than those involving a
reinvestment of dividends. You should examine statements and
confirmations immediately and promptly report any discrepancy by calling
the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or
her. This makes it easier for your adviser to help you manage your
investments.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A
Shares, Class B Shares and Class C Shares of the Fund with the dollar
amount of new purchases of Class A Shares of the Fund to qualify for a
reduced front-end sales charge on such purchases of Class A Shares.
Under the Combined Purchases Privilege, you may also include certain
shares that you own in other funds in the Delaware Investments family.
See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating
certain of your purchases of shares of funds in the Delaware Investments
family over a 13-month period. See Classes of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest
proceeds from a redemption of Class A Shares, within one year of the
date of the redemption, without paying a front-end sales charge. See
Part B.
Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of the other funds in the Delaware Investments
family, subject to certain exceptions and limitations. For additional
information on exchanges, see Investing by Exchange under How to Buy
Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in the Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Investments
family. Investments under this feature are exchanges and are therefore
subject to the same conditions and limitations as other exchanges of
Class A, Class B and Class C Shares. See Additional Methods of Adding to
Your Investment -- Wealth Builder Option and Investing by Exchange under
How to Buy Shares, and Redemption and Exchange.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information
about the Fund's investments and performance. Government Fund, Inc.'s
fiscal year ends on July 31.
Classes
of Shares
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed,
at the election of the purchaser, at the time of the purchase for Class
A Shares ("front-end sales charge alternative"), or on a contingent
deferred basis for Class B Shares ("deferred sales charge alternative")
or Class C Shares ("level sales charge alternative").
Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when
they are purchased, but generally are not subject to any sales charge
when they are redeemed. Class A Shares are subject to annual 12b-1 Plan
expenses of up to a maximum of 0.30% of average daily net assets of such
shares. Certain purchases of Class A Shares qualify for reduced front-
end sales charges. See Front-End Sales Charge Alternative -- Class A
Shares, below. See also Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange and Distribution (12b-1) and Service under
Management of the Fund.
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end
sales charge when they are purchased, but are subject to a contingent
deferred sales charge if they are redeemed within six years of purchase.
Class B Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 1% (0.25% of which are service fees to be paid to the
Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of such
shares for approximately eight years after purchase. Class B Shares
permit all of the investor's dollars to work from the time the
investment is made. The higher 12b-1 Plan expenses paid by Class B
Shares will cause such shares to have a higher expense ratio and to pay
lower dividends than Class A Shares. At the end of approximately eight
years after purchase, the Class B Shares will automatically be converted
into Class A Shares, and, therefore, for the remainder of the life of
the investment, the annual 12b-1 Plan fee of up to 0.30% for the Class A
Shares will apply. See Automatic Conversion of Class B Shares, below.
Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end
sales charge when they are purchased, but are subject to a contingent
deferred sales charge if they are redeemed within 12 months of purchase.
Class C Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 1% (0.25% of which are service fees to be paid to the
Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of such
shares for the life of the investment. The higher 12b-1 Plan expenses
paid by Class C Shares will cause such shares to have a higher expense
ratio and to pay lower dividends than Class A Shares. Unlike Class B
Shares, Class C Shares do not convert to another class.
The alternative purchase arrangements described above permit
investors to choose the method of purchasing shares that is most
suitable given the amount of their purchase, the length of time they
expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is
more advantageous to purchase Class A Shares and incur a front-end sales
charge, purchase Class B Shares and have the entire initial purchase
amount invested in the Fund with their investment being subject to a
CDSC if they redeem shares within six years of purchase, or purchase
Class C Shares and have the entire initial purchase amount invested in
the Fund with their investment being subject to a CDSC if they redeem
shares within 12 months of purchase. In addition, investors should
consider the level of annual 12b-1 Plan expenses applicable to each
Class. The higher 12b-1 Plan expenses on Class B Shares and Class C
Shares will be offset to the extent a return is realized on the
additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will
be realized on such additional money and the effect of earning a return
on such additional money will diminish over time. In comparing Class B
Shares to Class C Shares, investors should also consider the
desirability of an automatic conversion feature, which is available only
for Class B Shares.
For the distribution and related services provided to, and the
expenses borne on behalf of, the Fund, the Distributor and others will
be paid, in the case of the Class A Shares, from the proceeds of the
front-end sales charge and 12b-1 Plan fees and, in the case of the Class
B Shares and the Class C Shares, from the proceeds of the 12b-1 Plan
fees and, if applicable, the CDSC incurred upon redemption. Financial
advisers may receive different compensation for selling Class A, Class B
and Class C Shares. Investors should understand that the purpose and
function of the respective 12b-1 Plans and the CDSCs applicable to Class
B Shares and Class C Shares are the same as those of the 12b-1 Plan and
the front-end sales charge applicable to Class A Shares in that such
fees and charges are used to finance the distribution of the respective
Classes. See 12b-1 Distribution Plans -- Class A, Class B and Class C
Shares.
Dividends, if any, paid on Class A, Class B and Class C Shares, to
the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same
amount, except that the additional amount of 12b-1 Plan expenses
relating to Class B Shares and Class C Shares will be borne exclusively
by such shares. See Calculation of Offering Price and Net Asset Value
Per Share.
The NASD has adopted certain rules relating to investment company
sales charges. Government Fund, Inc. and the Distributor intend to
operate in compliance with these rules.
Front-End Sales Charge Alternative --
Class A Shares
Class A Shares may be purchased at the offering price, which
reflects a maximum front-end sales charge of 4.75%. See Calculation of
Offering Price and Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
U.S. Government Fund A Class
Front-End Sales Dealer's
Charge as % of Commission(3)
Amount of Purchase Offering Amount as % of
Price Invested(2) Offering Price
-------- -------- --------------
Less than $100,000 4.75% 4.92% 4.00%
$100,000 but under $250,000 3.75 3.89 3.00
$250,000 but under $500,000 2.50 2.59 2.00
$500,000 but under $1,000,000(1) 2.00 2.07 1.60
1 There is no front-end sales charge on purchases of Class A Shares of
$1 million or more but, under certain limited circumstances, a Limited
CDSC of 1% may apply upon redemption of such shares made during the
first year after purchase and 0.50% may apply upon redemption of such
shares made during the second year after purchase.
2 Based on the net asset value per share of the respective Class A
Shares as of the end of Government Fund, Inc.'s most recent fiscal year.
3 Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- ------------------------------------------------------------------------
The Fund must be notified when a sale takes place which would qualify
for the reduced front-end sales charge on the basis of previous or
current purchases. The reduced front-end sales charge will be granted
upon confirmation of the shareholder's holdings by the Fund. Such
reduced front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers who
enter into an agreement to provide extra training and information on
Delaware 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. Dealers who receive 90%
or more of the sales charge may be deemed to be underwriters under the
Securities Act of 1933.
- ------------------------------------------------------------------------
Beginning July 1, 1998, for initial purchases of Class A Shares of
$1,000,000 or more, a dealer's commission may be paid by the Distributor
to financial advisers through whom such purchases are made in accordance
with the following schedule:
Dealer's Commission
Amount of Purchase (as a percentage of amount purchased)
- ------------------ -------------------------------------
Up to $5 million 1.00%
Next $20 million up to $25 million 0.50
Amount over $25 million 0.25
Such Class A Shares are subject to a Limited CDSC of 1% if shares
are redeemed during the first year after purchase and 0.50% if shares
are redeemed during the second year after purchase.
For accounts with assets over $1 million, the dealer commission
resets annually to the highest incremental commission rate on the
anniversary of the first purchase. In determining a financial adviser's
eligibility for the dealer's commission, purchases of Class A Shares of
other funds in the Delaware Investments family as to which a Limited
CDSC applies may be aggregated with those of the Class A Shares of the
Fund. Financial advisers also may be eligible for a dealer's commission
in connection with certain purchases made under a Letter of Intention or
pursuant to an investor's Right of Accumulation. Financial advisers
should contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of combined
purchases.
An exchange from other funds in the Delaware Investments family
will not qualify for payment of the dealer's commission, unless a
dealer's commission or similar payment has not been previously paid on
the assets being exchanged. The schedule and program for payment of the
dealer's commission are subject to change or termination at any time by
the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC if the dealer's commission
described above was paid in connection with the purchase of those
shares. See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value under Redemption and
Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other
funds in the Delaware Investments family, except those noted below, you
can reduce the front-end sales charges on any additional purchases of
Class A Shares. Shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with ownership of variable insurance products may be
combined with other Delaware Investments fund holdings. In addition,
assets held by investment advisory clients of the Manager or its
affiliates in a stable value account may be combined with other fund
holdings in the Delaware Investments family. Shares of other funds that
do not carry a front-end sales charge or CDSC may not be included unless
they were acquired through an exchange from a Delaware Investments fund
that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings
with those of your spouse, your children under 21 and any trust,
fiduciary or retirement account for the benefit of such family members.
This privilege also permits you to use these combinations under a
Letter of Intention. A Letter of Intention allows you to make purchases
over a 13-month period and qualify the entire purchase for a reduction
in front-end sales charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain
purchases made at net asset value pursuant to a Right of Accumulation or
under a Letter of Intention, may result in the payment of a dealer's
commission and the applicability of a Limited CDSC. Investors should
consult their financial advisers or the Shareholder Service Center about
the operation of these features. See Front-End Sales Charge Alternative
- -- Class A Shares, above.
Allied Plans
Class A Shares are available for purchase by participants in
certain 401(k) Defined Contribution Plans ("Allied Plans") which are
made available under a joint venture agreement between the Distributor
and another institution through which mutual funds are marketed and
which allow investments in Class A Shares of designated Delaware
Investments funds ("eligible Delaware Investments fund shares"), as well
as shares of designated classes of non-Delaware Investments funds
("eligible non-Delaware Investments fund shares"). Class B Shares and
Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan,
the value of eligible Delaware Investments and eligible non-Delaware
Investments fund shares held by the Allied Plan may be combined with the
dollar amount of new purchases by that Allied Plan to obtain a reduced
front-end sales charge on additional purchases of eligible Delaware
Investments fund shares.
Participants in Allied Plans may exchange all or part of their
eligible Delaware Investments fund shares for other eligible Delaware
Investments fund shares or for eligible non-Delaware Investments fund
shares at net asset value without payment of a front-end sales charge.
However, exchanges of eligible fund shares, both Delaware Investments
and non-Delaware Investments, which were not subject to a front-end
sales charge, will be subject to the applicable sales charge if
exchanged for eligible Delaware Investments fund shares to which a sales
charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on
which a sales charge was already paid or through the reinvestment of
dividends. See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible
Delaware Investments fund shares under an Allied Plan. In determining a
financial adviser's eligibility for a dealer's commission on net asset
value purchases of eligible Delaware Investments fund shares in
connection with Allied Plans, all participant holdings in the Allied
Plan will be aggregated.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been
paid. Waivers of the Limited CDSC, as described under Waiver of Limited
Contingent Deferred Sales Charge -- Class A Shares under Redemption and
Exchange, apply to redemptions by participants in Allied Plans except in
the case of exchanges between eligible Delaware Investments and non-
Delaware Investments fund shares. When eligible Delaware Investments
fund shares are exchanged into eligible non-Delaware Investments fund
shares, the Limited CDSC will be imposed at the time of the exchange,
unless the joint venture agreement specifies that the amount of the
Limited CDSC will be paid by the financial adviser or selling dealer.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value
under the Delaware Investments Dividend Reinvestment Plan and, under
certain circumstances, the Exchange Privilege and the 12-Month
Reinvestment Privilege. See The Delaware Difference and Redemption and
Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by
current and former officers, directors and employees (and members of
their families) of the Manager, any affiliate, any of the funds in the
Delaware Investments family, certain of their agents and registered
representatives and employees of authorized investment dealers and by
employee benefit plans for such entities. Individual purchases,
including those in retirement accounts, must be for accounts in the name
of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net
asset value within 12 months after the registered representative changes
employment, if the purchase is funded by proceeds from an investment
where a front-end sales charge, contingent deferred sales charge or
other sales charge has been assessed. Purchases of Class A Shares may
also be made at net asset value by bank employees who provide services
in connection with agreements between the bank and unaffiliated brokers
or dealers concerning sales of shares of 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. Investors may be charged
a fee when effecting transactions in Class A Shares through a broker or
agent that offers these special investment products.
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. (formerly named Delaware Investment &
Retirement Services, Inc.) proprietary record keeping system that (i)
has in excess of $500,000 of plan assets invested in Class A Shares of
Delaware Investments funds and any stable value account available to
investment advisory clients of the Manager or its affiliates, or (ii) is
sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a
Delaware Investments fund and such employer has properly represented to
Retirement Financial Services, Inc. in writing that it has the requisite
number of employees and has received written confirmation back from
Retirement Financial Services, Inc. See Group Investment Plans for
information regarding the applicability of the Limited CDSC.
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 account in connection with loans originated
from accounts previously maintained by another investment firm will also
be invested at net asset value.
Class A Shares of the Fund may be purchased at net asset value by
any investor within 90 days after a redemption of shares from a fund
outside of funds in the Delaware Investments family provided that: 1)
the redeemed shares were purchased no more than five years before the
proposed purchase of Class A Shares of the Fund; and 2) a front-end
sales charge was paid in connection with the purchase of the redeemed
shares or a contingent-deferred sales charge was paid upon their
redemption.
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.
The Fund must be notified in advance that an investment qualifies
for purchase at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE
401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, and 403(b)(7) and 457 Deferred Compensation Plans)
may benefit from the reduced front-end sales charges available on Class
A Shares based on total plan assets. If a company has more than one plan
investing in the Delaware Investments family of funds, then the total
amount invested in all plans will be aggregated to determine the
applicable front-end sales charge reduction on each purchase, both
initial and subsequent, if, at the time of each such purchase, the
company notifies the Fund that it qualifies for the reduction. Employees
participating in such Group Investment Plans may also combine the
investments held in their plan account to determine the front-end sales
charge applicable to purchases in non-retirement investment accounts in
the Delaware Investments family if, at the time of each such purchase,
they notify the Fund that they are eligible to combine purchase amounts
held in their plan account.
The Limited CDSC is applicable to any redemptions of net asset
value purchases made on behalf of any group retirement plan on which a
dealer's commission has been paid only if such redemption is made
pursuant to a withdrawal of the entire plan from a fund in the Delaware
Investments family. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
For additional information on retirement plans, including plan
forms, applications, minimum investments and any applicable account
maintenance fees, contact your investment dealer or the Distributor.
For other retirement plans and special services, call the
Shareholder Service Center.
Deferred Sales Charge Alternative --
Class B Shares
Class B Shares may be purchased at net asset value without a front-
end sales charge and, as a result, the full amount of the investor's
purchase payment will be invested in Fund shares. The Distributor
currently compensates dealers or brokers for selling Class B Shares at
the time of purchase from its own assets in an amount equal to no more
than 4% of the dollar amount purchased. In addition, from time to time,
upon written notice to all of its dealers, the Distributor may hold
special promotions for specified periods during which the Distributor
may pay additional compensation to dealers or brokers for selling Class
B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within
six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related
services, and bearing related expenses, in connection with the sale of
Class B Shares. These payments support the compensation paid to dealers
or brokers for selling Class B Shares. Payments to the Distributor and
others under the Class B 12b-1 Plan may be in an amount equal to no more
than 1% annually. The combination of the CDSC and the proceeds of the
12b-1 Plan fees makes it possible for the Fund to sell Class B Shares
without deducting a front-end sales charge at the time of purchase.
Holders of Class B Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the
Class B Shares described in this Prospectus, even after the exchange.
Such CDSC schedule may be higher than the CDSC schedule for the Class B
Shares acquired as a result of the exchange. See Redemption and
Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for
automatic conversion into Class A Shares. Conversions of Class B Shares
into Class A Shares will occur only four times in any calendar year, on
the last business day of the second full week of March, June, September
and December (each, a "Conversion Date"). If the eighth anniversary
after a purchase of Class B Shares falls on a Conversion Date, an
investor's Class B Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's Class B
Shares will be converted on the next Conversion Date after such
anniversary. Consequently, if a shareholder's eighth anniversary falls
on the day after a Conversion Date, that shareholder will have to hold
Class B Shares for as long as three additional months after the eighth
anniversary of purchase before the shares will automatically convert
into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of
dividends will convert to the corresponding Class A Shares of that fund
(or, in the case of Delaware Group Cash Reserve, Inc., the Delaware Cash
Reserve Consultant Class) pro-rata with Class B Shares of that fund not
acquired through dividend reinvestment.
All such automatic conversions of Class B Shares will constitute tax-
free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative --
Class C Shares
Class C Shares may be purchased at net asset value without a front-
end sales charge and, as a result, the full amount of the investor's
purchase payment will be invested in Fund shares. The Distributor
currently compensates dealers or brokers for selling Class C Shares at
the time of purchase from its own assets in an amount equal to no more
than 1% of the dollar amount purchased. As discussed below, however,
Class C Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to
the Distributor and others for providing distribution and related
services, and bearing related expenses, in connection with the sale of
Class C Shares. These payments support the compensation paid to dealers
or brokers for selling Class C Shares. Payments to the Distributor and
others under the Class C 12b-1 Plan may be in an amount equal to no more
than 1% annually.
Holders of Class C Shares who exercise the exchange privilege
described below will continue to be subject to the CDSC schedule for the
Class C Shares as described in this Prospectus. See Redemption and
Exchange.
Contingent Deferred Sales Charge --
Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject
to a CDSC at the rates set forth below and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are
charged as a percentage of the dollar amount subject to the CDSC. The
charge will be assessed on an amount equal to the lesser of the net
asset value at the time of purchase of the shares being redeemed or the
net asset value of those shares at the time of redemption. No CDSC will
be imposed on increases in net asset value above the initial purchase
price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase"
will be the net asset value at purchase of the Class B Shares or the
Class C Shares of the Fund, even if those shares are later exchanged for
shares of another Delaware Investments fund. In the event of an exchange
of the shares, the "net asset value of such shares at the time of
redemption" will be the net asset value of the shares that were acquired
in the exchange.
The following table sets forth the rates of the CDSC for the Class
B Shares of the Fund:
Contingent Deferred
Sales Charge
(as a Percentage of
Year After Dollar Amount
Purchase Made Subject to Charge)
-------------------- --------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until
converted automatically into Class A Shares, Class B Shares will still
be subject to the annual 12b-1 Plan expenses of up to 1% of average
daily net assets of those shares. See Automatic Conversion of Class B
Shares, above. Investors are reminded that the Class A Shares into which
the Class B Shares will convert are subject to ongoing annual 12b-1 Plan
expenses of up to a maximum of 0.30% of average daily net assets of such
shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are
redeemed first, followed by shares acquired through the reinvestment of
dividends or distributions, and finally by shares held longest during
the six-year period. With respect to Class C Shares, it will be assumed
that shares held for more than 12 months are redeemed first followed by
shares acquired through the reinvestment of dividends or distributions,
and finally by shares held for 12 months or less.
All investments made during a calendar month, regardless of what
day of the month the investment occurred, will age one month on the last
day of that month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge -- Class B Shares
and Class C Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A,
Class B and Class C Shares
From time to time at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of the Classes exceed
certain limits, as set by the Distributor, may receive from the
Distributor an additional payment of up to 0.25% of the dollar amount of
such sales. The Distributor may also provide additional promotional
incentives or payments to dealers that sell shares of 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.
Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of shares of funds in the Delaware
Investments family, the Distributor may, from time to time, pay to
participate in dealer-sponsored seminars and conferences, reimburse
dealers for expenses incurred in connection with preapproved seminars,
conferences and advertising and may, from time to time, pay or allow
additional promotional incentives to dealers, which shall include non-
cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as
part of preapproved sales contests. Payment of non-cash compensation to
dealers is currently under review by the NASD and the SEC. It is likely
that the NASD's Conduct Rules will be amended such that the ability of
the Distributor to pay non-cash compensation as described above will be
restricted in some fashion. The Distributor intends to comply with the
NASD's Conduct Rules as they may be amended.
U.S. Government Fund Institutional Class
In addition to offering the Class A, Class B and Class C Shares,
the Fund also offers the U.S. Government Fund Institutional Class, which
is described in a separate prospectus and is available for purchase only
by certain investors. U.S. Government Fund Institutional Class shares
generally are distributed directly by the Distributor and do not have a
front-end sales charge, a CDSC or a Limited CDSC, and are not subject to
12b-1 Plan distribution expenses. To obtain the prospectus that
describes the U.S. Government Fund Institutional Class, contact the
Distributor by writing to the address or by calling the telephone number
listed on the back cover of this Prospectus.
How to
Buy Shares
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of
shares of any Class generally must be $100 or more. For purchases under
a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act or
through an Automatic Investing Plan, there is a minimum initial purchase
of $250 and a minimum subsequent purchase of $25. Minimum purchase
requirements do not apply to retirement plans other than IRAs for which
there is a minimum initial purchase of $250, and a minimum subsequent
purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each purchase
of Class B Shares. For Class C Shares, each purchase must be in an
amount that is less than $1,000,000. An investor may exceed these
maximum purchase limitations by making cumulative purchases over a
period of time. In doing so, an investor should keep in mind that
reduced front-end sales charges are available on investments of $100,000
or more in Class A Shares, and that Class A Shares (i) are subject to
lower annual 12b-1 Plan expenses than Class B Shares and Class C Shares
and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class
B Shares or Class C Shares by the plan.
The Fund makes it easy to invest by arrangement with your
investment dealer, by mail and by wire.
Investing through Your Investment Dealer
You can make a purchase of shares of the Fund through most
investment dealers who, as part of the service they provide, must
transmit orders promptly. They may charge for this service. If you want
a dealer but do not have one, Delaware Investments can refer you to one.
Investing by Mail
1. Initial Purchases -- An Investment Application or, in the case of a
retirement plan account, an appropriate retirement plan application,
must be completed, signed and sent with a check payable to U.S.
Government Fund A Class, U.S. Government Fund B Class or U.S. Government
Fund C Class, to Delaware Investments at 1818 Market Street,
Philadelphia, PA 19103.
2. Subsequent Purchases -- Additional purchases may be made at any time
by mailing a check payable to the specific Class selected. Your check
should be identified with your name(s) and account number. An investment
slip (similar to a deposit slip) is provided at the bottom of
transaction confirmations and dividend statements that you will receive
from Government Fund, Inc. Use of this investment slip can help expedite
processing of your check when making additional purchases. Your
investment may be delayed if you send additional purchases by certified
mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit funds
by wire to First Union National Bank (include your name(s) and your
account number for the Class in which you are investing).
1. Initial Purchases -- Before you invest, telephone the Shareholder
Service Center to get an account number. If you do not call first,
processing of your investment may be delayed. In addition, you must
promptly send your Investment Application or, in the case of a
retirement account, an appropriate retirement plan application, to the
specific Class selected, to Delaware Investments at 1818 Market Street,
Philadelphia, PA 19103.
2. Subsequent Purchases -- You may make additional investments anytime
by wiring funds to First Union National Bank, as described above. You
should advise the Shareholder Service Center by telephone of each
wire you send.
If you want to wire investments to a retirement plan account, call
the Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or
all of your investment into shares of the Fund. If you wish to open an
account by exchange, call the Shareholder Service Center for more
information. All exchanges are subject to the eligibility and minimum
purchase requirements set forth in each fund's prospectus. See
Redemption and Exchange for more complete information concerning your
exchange privileges.
Holders of Class A Shares may exchange all or part of their shares
for certain of the shares of other funds in the Delaware Investments
family, including other Class A Shares, but may not exchange their Class
A Shares for Class B Shares or Class C Shares of the Fund or of any
other fund in the Delaware Investments family. Holders of Class B Shares
of the Fund are permitted to exchange all or part of their Class B
Shares only into Class B Shares of other funds in the Delaware
Investments family. Similarly, holders of Class C Shares of the Fund are
permitted to exchange all or part of their Class C Shares only into
Class C Shares of other Delaware Investments funds. Class B Shares of
the Fund and Class C Shares of the Fund acquired by exchange will
continue to carry the CDSC and, in the case of Class B Shares, the
automatic conversion schedule of the fund from which the exchange is
made. The holding period of the Class B Shares of the Fund acquired by
exchange will be added to that of the shares that were exchanged for
purposes of determining the time of the automatic conversion into Class
A Shares of the Fund.
Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that
were not previously subject to a front-end sales charge (unless such
shares were acquired through the reinvestment of dividends). Permissible
exchanges into Class B Shares or Class C Shares of the Fund will be made
without the imposition of a CDSC by the fund from which the exchange is
being made at the time of the exchange.
See Allied Plans under Classes of Shares for information on
exchanges by participants in an Allied Plan.
Additional Methods of Adding
to Your Investment
Call the Shareholder Service Center for more information if you
wish to use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize
Government Fund, Inc. to transfer a designated amount monthly from your
checking account to your Fund account. Many shareholders use this as an
automatic savings plan. Shareholders should allow a reasonable amount of
time for initial purchases and changes to these plans to become
effective.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or
403(b)(7) or 457 Deferred Compensation Plans.
2. Direct Deposit
You may have your employer or bank make regular investments
directly to your Fund account for you (for example: payroll deduction,
pay by phone, annuity payments). The Fund also accepts preauthorized
recurring government and private payments by Electronic Fund Transfer,
which avoids mail time and check clearing holds on payments such as
social security, federal salaries, Railroad Retirement benefits, etc.
* * *
Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Government Fund, Inc.
has the right to liquidate your shares to reimburse the government or
transmitting bank. If there are insufficient funds in your account, you
are obligated to reimburse the Fund.
3. MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you
or your investment dealer may call a Fund to request a transfer of
funds from your predesignated bank account to your Fund account. See
MoneyLine(SM) Services under The Delaware Difference for additional
information about this service.
4. Wealth Builder Option
You can use our Wealth Builder Option to invest in the Fund through
regular liquidations of shares in your accounts in other funds in the
Delaware Investments family. You may also elect to invest in other
mutual funds in the Delaware Investments family through the Wealth
Builder Option through regular liquidations of shares in your Fund
account.
Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your
account in one or more funds in the Delaware Investments family and
invested automatically into any other account in a mutual fund in the
Delaware Investments family that you may specify. If in connection with
the election of the Wealth Builder Option, you wish to open a new
account to receive the automatic investment, such new account must meet
the minimum initial purchase requirements described in the prospectus of
the fund that you select. All investments under this option are
exchanges and are therefore subject to the same conditions and
limitations as other exchanges noted above. You can terminate your
participation in WealthBuilder at any time by giving written notice to
the fund from which the exchanges are made. See Redemption and Exchange.
This option is not available to participants in the following
plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or
403(b)(7) or 457 Deferred Compensation Plans.
5. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or
dividend income) paid to you by check or reinvested in your Fund
account. Or, you may invest your distributions in certain other funds in
the Delaware Investments family, subject to the exceptions noted below
as well as the eligibility and minimum purchase requirements set forth
in each fund's prospectus.
Reinvestments of distributions into Class A Shares of the Fund or
of other funds in the Delaware Investments family are made without a
front-end sales charge. Reinvestments of distributions into Class B
Shares of the Fund or of other funds in the Delaware Investments family
or into Class C Shares of the Fund or of other funds in the Delaware
Investments family are also made without any sales charge and will not
be subject to a CDSC if later redeemed. See Automatic Conversion of
Class B Shares under Classes of Shares for information concerning the
automatic conversion of Class B Shares acquired by reinvesting
dividends.
Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the
Delaware Investments family. Holders of Class B Shares of the Fund may
reinvest their distributions only into Class B Shares of the funds in
the Delaware Investments family which offer that class of shares (the
"Class B Funds"). Similarly, holders of Class C Shares of the Fund may
reinvest their distributions only into Class C Shares of the funds in
the Delaware Investments family which offer that class of shares (the
"Class C Funds").
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same
Delaware Investments fund in which their investments are held: SAR/SEP,
SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457
Deferred Compensation Plans.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class B and
Class C Shares are determined as of the close of regular trading on the
New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when
the Exchange is open.
The effective date of a purchase is the date the order is received
by the Fund, its agent or designee. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received,
unless it is received after the time the offering price or net asset
value of shares is determined, as noted above. Purchase orders received
after such time will be effective the next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are
responsible for any loss incurred. The Fund can redeem shares from your
account(s) to reimburse itself for any loss, and you may be restricted
from making future purchases in any of the funds in the Delaware
Investments family. The Fund reserves the right to reject purchase
orders paid by third-party checks or checks that are not drawn on a
domestic branch of a United States financial institution. If a check
drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
The Fund also reserves the right, following shareholder
notification, to charge a service fee on non-retirement accounts that,
as a result of a redemption, have remained below the minimum stated
account balance for a period of three or more consecutive months.
Holders of such accounts may be notified of their insufficient account
balance and advised that they have until the end of the current calendar
quarter to raise their balance to the stated minimum. If the account has
not reached the minimum balance requirement by that time, the Fund will
charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee
will be deducted from the account during the first week of each calendar
quarter for the previous quarter, and will be used to help defray the
cost of maintaining low-balance accounts. No fees will be charged
without proper notice, and no CDSC will apply to such assessments.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial
purchase amount as a result of redemptions. An investor making the
minimum initial investment may be subject to involuntary redemption
without the imposition of a CDSC or Limited CDSC if he or she redeems
any portion of his or her account.
Redemption
and Exchange
You can redeem or exchange your shares in a number of different
ways. The exchange service is useful if your investment requirements
change and you want an easy way to invest in other bond funds, equity
funds, tax-advantaged funds or money market funds. Exchanges are subject
to the requirements of each fund and all exchanges of shares constitute
taxable events. See Taxes. Further, in order for an exchange to be
processed, shares of the fund being acquired must be registered in the
state where the acquiring shareholder resides. You may want to consult
your financial adviser or investment dealer to discuss which funds in
the Delaware Investments family will best meet your changing objectives,
and the consequences of any exchange transaction. You may also call
Delaware Investments directly for fund information.
All exchanges involve a purchase of shares of the fund into which
the exchange is made. As with any purchase, an investor should obtain
and carefully read that fund's prospectus before buying shares in an
exchange. The prospectus contains more complete information about the
fund, including charges and expenses.
Your shares will be redeemed or exchanged at a price based on the
net asset value next determined after the Fund receives your request in
good order, subject, in the case of a redemption, to any applicable CDSC
or Limited CDSC. For example, redemption or exchange requests received
in good order after the time the offering price and net asset value of
shares are determined, as noted above, will be processed on the next
business day. See Purchase Price and Effective Date under How to Buy
Shares. A shareholder submitting a redemption request may indicate that
he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, and in the case of certain
redemptions from retirement plan accounts, the Fund will redeem the
number of shares necessary to deduct the applicable CDSC in the case of
Class B and Class C Shares, and, if applicable, the Limited CDSC in the
case of Class A Shares and tender to the shareholder the requested
amount, assuming the shareholder holds enough shares in his or her
account for the redemption to be processed in this manner. Otherwise,
the amount tendered to the shareholder upon redemption will be reduced
by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later
than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good
order," you must provide your account number, account registration, and
the total number of shares or dollar amount of the transaction. For
exchange requests, you must also provide the name of the fund in which
you want to invest the proceeds. Exchange instructions and redemption
requests must be signed by the record owner(s) exactly as the shares are
registered. You may request a redemption or an exchange by calling the
Shareholder Service Center at 800-523-1918. The Fund may suspend,
terminate, or amend the terms of the exchange privilege upon 60 days'
written notice to shareholders.
The Fund will process written and telephone redemption requests to
the extent that the purchase orders for the shares being redeemed have
already settled. The Fund will honor redemption requests as to shares
for which a check was tendered as payment, but the Fund will not mail or
wire the proceeds until it is reasonably satisfied that the check has
cleared, which may take up to 15 days from the purchase date. You can
avoid this potential delay if you purchase shares by wiring Federal
Funds. The Fund reserves the right to reject a written or telephone
redemption request or delay payment of redemption proceeds if there has
been a recent change to the shareholder's address of record.
There is no front-end sales charge or fee for exchanges made
between shares of funds which both carry a front-end sales charge. Any
applicable front-end sales charge will apply to exchanges from shares of
funds not subject to a front-end sales charge, except for exchanges
involving assets that were previously invested in a fund with a front-
end sales charge and/or exchanges involving the reinvestment of
dividends.
Holders of Class B Shares or Class C Shares that exchange their
shares ("Original Shares") for shares of other funds in the Delaware
Investments family (in each case, "New Shares") in a permitted exchange,
will not be subject to a CDSC that might otherwise be due upon
redemption of the Original Shares. However, such shareholders will
continue to be subject to the CDSC and, in the case of Class B Shares,
the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by
the fund from which the Original Shares were exchanged. In an exchange
of Class B Shares from the Fund, the Fund's CDSC schedule may be higher
than the CDSC schedule relating to the New Shares acquired as a result
of the exchange. For purposes of computing the CDSC that may be payable
upon a disposition of the New Shares, the period of time that an
investor held the Original Shares is added to the period of time that an
investor held the New Shares. With respect to Class B Shares, the
automatic conversion schedule of the Original Shares may be longer than
that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to
Class B Shares of the Fund for a longer period of time than if the
investment in New Shares were made directly.
Various redemption and exchange methods are outlined below. Except
for the CDSC applicable to certain redemptions of Class B and Class C
Shares and the Limited CDSC applicable to certain redemptions of Class A
Shares purchased at net asset value, there is no fee charged by the Fund
or the Distributor for redeeming or exchanging your shares, but such
fees could be charged in the future. You may have your investment dealer
arrange to have your shares redeemed or exchanged. Your investment
dealer may charge for this service.
All authorizations given by shareholders, including selection of
any of the features described below, shall continue in effect until such
time as a written revocation or modification has been received by the
Fund or its agent.
Checkwriting Feature
You can request special checks by marking the box on the Investment
Application.
Checks must be drawn for $500 or more and, unless otherwise
indicated on the Investment Application or your checkwriting
authorization form, must be signed by all owners of the account.
Because the value of shares fluctuates, you cannot use checks to
close your account. The Checkwriting Feature is not available for Class
B Shares or Class C Shares, or for retirement plan accounts regardless
of class. See Part B for additional information.
Written Redemption
You can write to the Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed
by all owners of the account or your investment dealer of record. For
redemptions of more than $50,000, or when the proceeds are not sent to
the shareholder(s) at the address of record, the Fund requires a
signature by all owners of the account and a signature guarantee for
each owner. 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 require further documentation from
corporations, executors, retirement plans, administrators, trustees or
guardians.
Payment is normally mailed the next business day, but no later than
seven days, after receipt of your redemption request. If your Class A
Shares are in certificate form, the certificate(s) must accompany your
request and also be in good order. Certificates are issued for Class A
Shares only if a shareholder submits a specific request. Certificates
are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to the Fund (at 1818 Market Street,
Philadelphia, PA 19103) to request an exchange of any or all of your
shares into another mutual fund in the Delaware Investments family,
subject to the same conditions and limitations as other exchanges noted
above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and
exchange methods, you must have the Transfer Agent hold your shares
(without charge) for you. If you choose to have your Class A Shares in
certificate form, you may redeem or exchange only by written request and
you must return your certificate(s).
The Telephone Redemption -- Check to Your Address of Record service
and the Telephone Exchange service, both of which are described below,
are automatically provided unless you notify the Fund in writing that
you do not wish to have such services available with respect to your
account. The Fund reserves the right to modify, terminate or suspend
these procedures upon 60 days' written notice to shareholders. It may be
difficult to reach the Fund by telephone during periods when market or
economic conditions lead to an unusually large volume of telephone
requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine. With respect to such telephone
transactions, the Fund will follow reasonable procedures to confirm that
instructions communicated by telephone are genuine (including
verification of a form of personal identification) as, if it does not,
the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by
telephone are generally tape recorded, and a written confirmation will
be provided for all purchase, exchange and redemption transactions
initiated by telephone. By exchanging shares by telephone, you are
acknowledging prior receipt of a prospectus for the fund into which your
shares are being exchanged.
Telephone Redemption -- Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to
redeem shares. You or your investment dealer of record can have
redemption proceeds of $50,000 or less mailed to you at your address of
record. Checks will be payable to the shareholder(s) of record. Payment
is normally mailed the next business day after receipt of the redemption
request. This service is only available to individual, joint and
individual fiduciary-type accounts.
Telephone Redemption -- Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize
this service when you open your account. If you change your
predesignated bank account, you must complete an Authorization Form and
have your signature guaranteed. For your protection, your authorization
must be on file. If you request a wire, your funds will normally be sent
the next business day. First Union National Bank's fee (currently $7.50)
will be deducted from your redemption proceeds. If you ask for a check,
it will normally be mailed the next business day after receipt of your
redemption request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may delay
getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value
are determined, as noted above.
MoneyLine(SM) On Demand
Through the MoneyLine(SM) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund
account to your predesignated bank account. See MoneyLine(SM) Services
under The Delaware Difference for additional information about this
service.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and
investment objectives change. You or your investment dealer of record
can exchange your shares into other funds in the Delaware Investments
family under the same registration, subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly (or
quarterly) payment. This is particularly useful to shareholders living
on fixed incomes, since it can provide them with a stable supplemental
amount. With accounts of at least $5,000, you may elect monthly
withdrawals of $25 (quarterly $75) or more. The Fund does not recommend
any particular monthly amount, as each shareholder's situation and needs
vary. Payments are normally made by check. In the alternative, you may
elect to have your payments transferred from your Fund account to your
predesignated bank account through the MoneyLine(SM) Direct Deposit
Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees
for this redemption method. See MoneyLine(SM) Services under The Delaware
Difference for more information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement plan to
receive benefits in periodic payments, the Systematic Withdrawal Plan
provides you with maximum flexibility. A number of formulas are
available for calculating your withdrawals depending upon whether the
distributions are required or optional. Withdrawals must be for $25 or
more; however, no minimum account balance is required. The MoneyLineSM
Direct Deposit Service described above is not available for certain
retirement plans.
* * *
Shareholders should not purchase additional shares while
participating in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may
be subject to a Limited CDSC if the original purchase was made at net
asset value within the 12 months prior to the withdrawal and a dealer's
commission was paid on that purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed
via a Systematic Withdrawal Plan will be waived if, on the date that the
Plan is established, the annual amount selected to be withdrawn is less
than 12% of the account balance. If the annual amount selected to be
withdrawn exceeds 12% of the account balance on the date that the
Systematic Withdrawal Plan is established, all redemptions under the
Plan will be subject to the applicable CDSC. Whether a waiver of the
CDSC is available or not, the first shares to be redeemed for each
Systematic Withdrawal Plan payment will be those not subject to a CDSC
because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit
will be reset on the date that any Systematic Withdrawal Plan is
modified (for example, a change in the amount selected to be withdrawn
or the frequency or date of withdrawals), based on the balance in the
account on that date. See Waiver of Contingent Deferred Sales Charge --
Class B and Class C Shares, below.
For more information on Systematic Withdrawal Plans, call the
Shareholder Service Center.
Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1 million or more made on or after July 1, 1998,
a Limited CDSC will be imposed on certain redemptions of Class A Shares
(or shares into which such Class A Shares are exchanged) made according
to the following schedule: (1) 1.00% if shares are redeemed during the
first year after the purchase; and (2) 0.50% if shares are redeemed
during the second year after the purchase, if such purchases were made
at net asset value and triggered the payment by the Distributor of the
dealer's commission previously described. See Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be
assessed on an amount equal to the lesser of: (1) the net asset value at
the time of purchase of the Class A Shares being redeemed; or (2) the
net asset value of such Class A Shares at the time of redemption. For
purposes of this formula, the "net asset value at the time of purchase"
will be the net asset value at purchase of the Class A Shares even if
those shares are later exchanged for shares of another Delaware
Investments fund and, in the event of an exchange of Class A Shares, the
"net asset value of such shares at the time of redemption" will be the
net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years
will not be subjected to the Limited CDSC and an exchange of such Class
A Shares into another fund in the Delaware Investments family will not
trigger the imposition of the Limited CDSC at the time of such exchange.
The period a shareholder owns shares into which Class A Shares are
exchanged will count towards satisfying the two-year holding period. The
Limited CDSC is assessed if such two-year period is not satisfied
irrespective of whether the redemption triggering its payment is of
Class A Shares of the Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be
assumed that shares not subject to the Limited CDSC are the first
redeemed followed by other shares held for the longest period of time.
The Limited CDSC will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation. All investments made during a calendar
month, regardless of what day of the month the investment occurred,
will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred
Sales Charge -- Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in the following instances: (i) redemptions
that result from the Fund's right to liquidate a shareholder's account
if the aggregate net asset value of the shares held in the account is
less than the then-effective minimum account size; (ii) distributions to
participants from a retirement plan qualified under section 401(a) or
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), or
due to death of a participant in such a plan; (iii) redemptions pursuant
to the direction of a participant or beneficiary of a retirement plan
qualified under section 401(a) or 401(k) of the Code with respect to
that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death,
disability, or attainment of age 59 1/2, and IRA distributions
qualifying under Section 72(t) of the Internal Revenue Code; (v) returns
of excess contributions to an IRA; (vi) distributions by other employee
benefit plans to pay benefits; (vii) distributions described in (ii),
(iv), and (vi) above pursuant to a systematic withdrawal plan; and
(viii) redemptions by the classes of shareholders who are permitted to
purchase shares at net asset value, regardless of the size of the
purchase (see Buying Class A Shares at Net Asset Value under Classes of
Shares).
Waiver of Contingent Deferred Sales Charge --
Class B and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the shares held in the account is less than
the then-effective minimum account size; (ii) returns of excess
contributions to an IRA, SIMPLE IRA, SEP/IRA or 403(b)(7) or 457
Deferred Compensation Plan, (iii) periodic distributions from an IRA,
SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457 Deferred Compensation
Plans due to death, disability or attainment of age 59 1/2, and IRA
distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results
from the death of all registered owners of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the
death of all beneficial owners) or a total and permanent disability (as
defined in Section 72 of the Code) of all registered owners occurring
after the purchase of the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the
following redemptions: (i) redemptions that result from the Fund's right
to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE
IRA, 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing Plan,
Money Purchase Pension Plan, or 401(k) Defined Contribution Plan; (iii)
periodic distributions from a 403(b)(7) or 457 Deferred Compensation
Plan upon attainment of age 59 1/2, Profit Sharing Plan, Money Purchase
Pension Plan, or 401(k) Defined Contribution Plans upon attainment of
age 70 1/2, and IRA distributions qualifying under Section 72(t) of the
Internal Revenue Code; (iv) distributions from a 403(b)(7) Deferred
Compensation Plan, 457 Deferred Compensation Plan, Profit Sharing Plan,
or 401(k) Defined Contribution Plan, under hardship provisions of the
plan; (v) distributions from a 403(b)(7) Deferred Compensation Plan, 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension
Plan or a 401(k) Defined Contribution Plan upon attainment of normal
retirement age under the plan or upon separation from service; (vi)
periodic distributions from an IRA or SIMPLE IRA on or after attainment
of age 59 1/2; and (vii) distributions from an account if the redemption
results from the death of all registered owners of the account (in the
case of accounts established under the Uniform Gifts to Minors or
Uniform Transfers to Minors Acts or trust accounts, the waiver applies
upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered
owners occurring after the purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of
the value of the account on the date that the Systematic Withdrawal Plan
was established or modified.
Dividends and
Distributions
Government Fund, Inc. declares a dividend to all shareholders of
record at the time the offering price of shares is determined. See
Purchase Price and Effective Date under How to Buy Shares. Thus, when
redeeming shares, dividends continue to be credited up to and including
the date of redemption.
The Fund's dividends are declared daily and paid monthly. Payment
by check of cash dividends will ordinarily be mailed within three
business days after the payable date. Any net short-term capital gains
after deducting any net long-term capital losses (including
carryforwards) and, pursuant to an Exemptive Order under Section 19(b)
of the Investment Company Act, any long-term gains that would have been
short-term gains except for 60/40 treatment under Section 1256(a) of the
Code may be distributed quarterly, but in the discretion of the Fund's
Board of Directors, may be distributed less frequently. Any distribution
from net long-term realized securities profits will be made twice a
year. The first payment normally would be made during the first quarter
of the next fiscal year. The second payment would be made near the end
of the calendar year to comply with certain requirements of the Code.
Purchases by wire of the shares begin earning dividends when
converted into Federal Funds and available for investment, normally the
next business day after receipt. However, if the Fund is given prior
notice of Federal Funds wire and an acceptable written guarantee of
timely receipt from an investor satisfying the Fund's credit policies,
the purchase will start earning dividends on the date the wire is
received. Purchases by check earn dividends upon conversion to Federal
Funds, normally one business day after receipt.
Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the per share dividends
from net investment income on the Class A Shares, the Class B Shares and
the Class C Shares will vary due to the expenses under the 12b-1 Plan
applicable to each Class. Generally, the dividends per share on Class B
Shares and Class C Shares can be expected to be lower than the dividends
per share on Class A Shares because the expenses under the 12b-1 Plans
relating to Class B and Class C Shares will be higher than the expenses
under the 12b-1 Plan relating to Class A Shares. See Distribution (12b-
1) and Service under Management of the Fund.
Both dividends and distributions, if any, are reinvested in your
account at net asset value unless you elect otherwise. Any check in
payment of dividends or other distributions which cannot be delivered
by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in your account at the
then-current net asset value and the dividend option may be changed
from cash to reinvest. If you elect to take your dividends and
distributions in cash and such dividends and distributions are in an
amount of $25 or more, you may choose the MoneyLine(SM) Direct Deposit
Service and have such payments transferred from your Fund account to
your predesignated bank account. This service is not available for
retirement plans. See MoneyLine(SM) Services under The Delaware
Difference for more information about this service.
Taxes
The tax discussion set forth below is included for general
information only. Investors should consult their own tax advisers
concerning the federal, state, local or foreign tax consequences of an
investment in the Fund.
The Fund has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. As such,
the Fund will not be subject to federal income tax, or to any excise
tax, to the extent its earnings are distributed as provided in the Code
and it satisfies certain other requirements relating to the sources of
its income and diversification of its assets.
On August 5, 1997, President Clinton signed into law the Taxpayer
Relief Act of 1997 (the "1997 Act"). This new law makes sweeping changes
in the Code. Because many of these changes are complex, and only
indirectly affect the Fund and its distributions to you, they are
discussed in Part B. Changes in the treatment of capital gains, however,
are discussed in this section.
The Fund intends to distribute substantially all of its net
investment income and net capital gains, if any. Dividends, if any, from
net investment income or net short-term capital gains will be taxable to
investors who are subject to income taxes as ordinary income, whether
received in cash or in additional shares. No portion of the Fund's
distributions will be eligible for the dividends-received deduction for
corporations.
Distributions paid by the Fund from long-term capital gains,
whether received in cash or in additional shares, are taxable to those
investors who are subject to income taxes as long-term capital gains,
regardless of the length of time an investor has owned shares in the
Fund. The Fund does not seek to realize any particular amount of capital
gains during a year; rather, realized gains are a by-product of Fund
management activities. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, for those
investors subject to tax, if purchases of shares in the Fund are made
shortly before the record date for a dividend or capital gains
distribution, a portion of the investment will be returned as a taxable
distribution.
The Treatment of Capital Gain Distributions
under the Taxpayer Relief Act of 1997
The 1997 Act creates a category of long-term capital gain for
individuals who will be taxed at new lower tax rates. For investors who
are in the 28% or higher federal income tax brackets, these gains will
be taxed at a maximum rate of 20%. For investors who are in the 15%
federal income tax bracket, these gains will be taxed at a maximum rate
of 10%. Capital gain distributions will qualify for these new maximum
tax rates, depending on when a Fund's securities were sold and how long
they were held by the Fund before they were sold. The holding periods
for which the new rates apply were revised by the Internal Revenue
Service Restructuring and Reform Act of 1998. Investors who want more
information on holding periods and other qualifying rules relating to
these new rates should review the expanded discussion in Part B, or
should contact their own tax advisers.
Government Fund, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain
distributions which will qualify for these maximum federal tax rates.
Dividends which are declared in October, November or December to
shareholders of record on a specified date in one of those months, but
which, for operational reasons, may not be paid to the shareholder until
the following January, will be treated for tax purposes as if paid by
the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
The sale of shares of the Fund is a taxable event and may result in
a capital gain or loss to shareholders subject to tax. Capital gain or
loss may be realized from an ordinary redemption of shares or an
exchange of shares between the Fund and any other fund in the Delaware
Investments family. Any loss incurred on a sale or exchange of Fund
shares that had been held for six months or less will be treated as a
long-term capital loss to the extent of capital gain dividends received
with respect to such shares. All or a portion of the sales charge
incurred in acquiring Fund shares will be excluded from the federal tax
basis of any of such shares sold or exchanged within 90 days of their
purchase (for purposes of determining gain or loss upon the sale of such
shares) if the sale proceeds are reinvested in the Fund or in another
fund in the Delaware Investments family and a sales charge that would
otherwise apply to the reinvestment is reduced or eliminated. Any
portion of such sales charge excluded from the tax basis of the shares
sold will be added to the tax basis of the shares acquired in the
reinvestment.
The automatic conversion of Class B Shares into Class A Shares at
the end of approximately eight years after purchase will be tax-free for
federal tax purposes. See Automatic Conversion of Class B Shares under
Classes of Shares.
In addition to the federal taxes described above, shareholders may
or may not be subject to various state and local taxes on distributions.
For example, distributions of interest income and capital gains realized
from certain types of U.S. government securities may be exempt from
state personal income taxes. Shares of the Fund are exempt from
Pennsylvania county personal property taxes. Because investors' state
and local taxes may be different from the federal taxes described above,
investors should consult their own tax advisers.
Each year, Government Fund, Inc. will mail to you information on
the tax status of the Fund's dividends and distributions. Shareholders
will also receive each year information as to the portion of dividend
income that is derived from U.S. government securities that are exempt
from state income tax. Of course, shareholders who are not subject to
tax on their income would not be required to pay tax on amounts
distributed to them by the Fund.
Government Fund, Inc. is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer identification
regulations. You may avoid this withholding requirement by certifying on
your Investment Application your proper Taxpayer Identification Number
and by certifying that you are not subject to backup withholding.
See Accounting and Tax Issues and Taxes in Part B for additional
information on tax matters relating to the Fund and its shareholders.
Calculation of
Offering Price and
Net Asset Value Per Share
The net asset value ("NAV") per share is computed by adding the
value of all securities and other assets in the portfolio, deducting any
liabilities (expenses and fees are accrued daily) and dividing by the
number of shares outstanding. U.S. government securities are valued at
the mean between the bid and asked prices. Options are valued at the
last reported sale price or, if no sales are reported, at the mean
between the last reported bid and asked prices. Any short-term
investments having a maturity of less than 60 days are valued at
amortized cost, which approximates market value. Non-Exchange-traded
options are valued at fair value using a mathematical model. All other
securities are valued at their fair value by an independent pricing
service using methods approved by Government Fund, Inc.'s Board of
Directors.
Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share.
The offering price per share of Class A Shares consists of the NAV per
share next computed after the order is received, plus any applicable
front-end sales charges.
The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.
The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in the Fund represented by the
value of shares of that class. All income earned and expenses incurred
by the Fund will be borne on a pro-rata basis by each outstanding share
of a class, based on each class' percentage in the Fund represented by
the value of shares of such classes, except that the U.S. Government
Fund Institutional Class will not incur any of the expenses under the
Fund's 12b-1 Plans and the Class A, Class B and Class C Shares alone
will bear the 12b-1 Plan expenses payable under their respective Plans.
Due to the specific distribution expenses and other costs that will be
allocable to each class, the dividends paid to each class of the Fund
may vary. However, the NAV per share of each class is expected to be
equivalent.
Management of
the Fund
Directors
The business and affairs of Government Fund, Inc. are managed under
the direction of its Board of Directors. Part B contains additional
information regarding the directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in
the Delaware 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 (approximately $17,929,500,000) accounts.
The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a
business trust on March 1, 1998. The Manager is an indirect, wholly
owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). On April
3, 1995, a merger between DMH and a wholly owned subsidiary of Lincoln
National Corporation ("Lincoln National") was completed. DMH and the
Manager are now indirect, wholly owned subsidiaries, and subject to the
ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management.
The Manager manages the Fund's portfolio and makes investment
decisions which are implemented by Government Fund, Inc.'s Trading
Department. The Manager also administers Government Fund, Inc.'s affairs
and pays the salaries of all the directors, officers and employees of
Government Fund, Inc. who are affiliated with the Manager. For these
services, the annual compensation paid to the Manager is equal to 0.60%
of the Fund's average daily net assets, less a proportionate share of
all directors' fees paid to the unaffiliated directors by the Fund.
Investment management fees paid by the Fund for the fiscal year ended
July 31, 1998 were 0.59% of its average daily net assets. The directors
of Government Fund, Inc. annually review fees paid to the Manager.
Paul Grillo, Vice President/Portfolio Manager of the Government
Fund, Inc., has primary responsibility for making day-to-day investment
decisions for the Fund. Mr. Grillo assumed such responsibility on
February 21, 1997. Mr. Grillo holds a BA in Business Management from
North Carolina State University and an MBA in Finance from Pace
University. Prior to joining Delaware Investments in 1993, Mr. Grillo
served as mortgage strategist and trader at the Dreyfus Corporation. He
also served as a mortgage strategist and portfolio manager for the
Chemical Investment Group and as financial analyst at Chemical Bank. Mr.
Grillo is a CFA charterholder.
In making investment decisions for the Fund, Mr. Grillo consults
regularly with Paul E. Suckow and Roger A. Early. Mr. Suckow is
Executive Vice President/Chief Investment Officer, Fixed-Income of the
Fund. He is a CFA charterholder and a graduate of Bradley University
with an MBA from Western Illinois University. Mr. Suckow was a fixed-
income portfolio manager at Delaware Investments from 1981 to 1985. He
returned to Delaware Investments in 1993 after eight years with
Oppenheimer Management Corporation where he served as Executive Vice
President and Director of Fixed Income. Mr. Early was the Fund's
Portfolio Manager from July 18, 1994 to February 21, 1997. While
continuing in the capacity as a consultant to the Fund, going forward,
Mr. Early will be devoting more of his time to other advisory tasks on
behalf of Delaware Management Company, Inc. Mr. Early has an
undergraduate degree in economics from the University of Pennsylvania's
Wharton School and an MBA in finance and accounting from the University
of Pittsburgh. He is also a CPA and a CFA charterholder. Prior to
joining Delaware Investments, Mr. Early was a portfolio manager for
Federated Investment Counseling's fixed-income group, with over $1
billion in assets.
Portfolio Trading Practices
Portfolio trades are generally made on a net basis without
brokerage commissions. However, the price may include a mark-up or mark-
down. Banks, brokers or dealers are selected by the Manager to execute
the Fund's portfolio transactions.
The Fund uses its best efforts to obtain the best available price
and most favorable execution for portfolio transactions. Orders may be
placed with brokers or dealers who provide brokerage and research
services to the Manager or its advisory clients. These services may be
used by the Manager in servicing any of its accounts. Subject to best
price and execution, the Fund may consider a broker/dealer's sales of
shares of funds in the Delaware Investments family in placing portfolio
orders and may place orders with broker/dealers that have agreed to
defray certain expenses of such funds, such as custodian fees.
Performance Information
From time to time, the Fund may quote yield or total return
performance of the Classes in advertising and other types of literature.
The current yield for each of the Classes will be calculated by
dividing the annualized net investment income earned by that Class
during a recent 30-day period by the maximum offering price per share on
the last day of the period. The yield formula provides for semi-annual
compounding, which assumes that net investment income is earned and
reinvested at a constant rate and annualized at the end of a six-month
period.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and:
(i) in the case of Class A Shares, the impact of the maximum front-end
sales charge at the beginning of each specified period; and (ii) in the
case of Class B Shares and Class C Shares, the deduction of any
applicable CDSC at the end of the relevant period. Each presentation
will include the average annual total return for one-, five- and ten-
year or life-of-fund periods, as relevant. The Fund may also advertise
aggregate and average total return information concerning a Class over
additional periods of time. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum
front-end sales charge or any applicable CDSC. In this case, such total
return information would be more favorable than total return information
that includes deductions of the maximum front-end sales charge or any
applicable CDSC.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not a guarantee of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the
national distributor for the Fund under a Distribution Agreement dated
April 3, 1995, as amended on November 29, 1995.
Government Fund, Inc. has adopted a separate distribution plan
under Rule 12b-1 for each of the Class A Shares, Class B Shares and
Class C Shares (the "Plans"). The Plans permit the Fund to pay the
Distributor from the assets of the respective Classes a monthly fee for
the Distributor's services and expenses in distributing and promoting
sales of shares. These expenses include, among other things, preparing
and distributing advertisements, sales literature, and prospectuses and
reports used for sales purposes, compensating sales and marketing
personnel, holding special promotions for specified periods of time, and
paying distribution and maintenance fees to brokers, dealers and others.
In connection with the promotion of Class A, Class B and Class C Shares,
the Distributor may, from time to time, pay to participate in dealer-
sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and
advertising. The Distributor may pay or allow additional promotional
incentives to dealers as part of preapproved sales contests and/or to
dealers who provide extra training and information concerning a Class
and who increase sales of the Class. In addition, the Fund may make
payments from the assets of the respective Class directly to others,
such as banks, who aid in the distribution of its shares or provide
services in respect of the shares, pursuant to service agreements with
Government Fund, Inc.
The 12b-1 Plan expenses relating to each of the Class B Shares and
the Class C Shares are also used to pay the Distributor for advancing
the commission costs to dealers with respect to the initial sale of such
shares.
The aggregate fees paid by the Fund from the assets of the
respective Classes to the Distributor and others under the Plans may not
exceed 0.30% of the Class A Shares' average daily net assets in any
year, and 1% (0.25% of which are service fees to be paid to the
Distributor, dealers and others for providing personal service and/or
maintaining shareholder accounts) of each of the Class B Shares' and the
Class C Shares' average daily net assets in any year. The actual 12b-1
expenses assessed against the Class A Shares may be less than 0.30%, but
may not be less than 0.10%, because of the formula for calculating the
fee adopted by the Fund's Board of Directors. See Part B. The Fund's
Class A, Class B and Class C Shares will not incur any distribution
expenses beyond these limits, which may not be increased without
shareholder approval.
While payments pursuant to the Plans may not exceed 0.30% annually
with respect to the Class A Shares, and 1% annually with respect to each
of the Class B Shares and the Class C Shares, the Plans do not limit
fees to amounts actually expended by the Distributor. It is therefore
possible that the Distributor may realize a profit in any particular
year. However, the Distributor currently expects that its distribution
expenses will likely equal or exceed payments to it under the Plans. The
Distributor may, however, incur such additional expenses and make
additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the
Distributor are subject to the review and approval of Government Fund,
Inc.'s unaffiliated directors, who may reduce the fees or terminate the
Plans at any time.
Government Fund, Inc.'s Plans do not apply to the U.S. Government
Fund Institutional Class of shares. Those shares are not included in
calculating the Plans' fees, and the Plans are not used to assist in the
distribution and marketing of U.S. Government Fund Institutional Class
shares.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the
Fund under an Agreement dated June 29, 1988. The Transfer Agent also
provides accounting services to the Fund pursuant to the terms of a
separate Fund Accounting Agreement.
The directors annually review fees paid to the Distributor and the
Transfer Agent. The Distributor and the Transfer Agent are also
indirect, wholly owned subsidiaries of DMH.
* * *
As with other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected
if the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." Government
Fund, Inc. is taking steps to obtain satisfactory assurances that the
Fund's major service providers are taking steps reasonably designed to
address the Year 2000 Problem with respect to the computer systems that
such service providers use. There can be no assurances that these steps
will be sufficient to avoid any adverse impact on the business of the
Fund.
Expenses
The Fund is responsible for all of its own expenses other than
those borne by the Manager under the Investment Management Agreement and
those borne by the Distributor under the Distribution Agreement. For the
fiscal year ended July 31, 1998, the ratios of expenses to average daily
net assets for the Class A Shares, the Class B Shares and the Class C
Shares were 1.20%, 1.90% and 1.90%, respectively.
Shares
Government Fund, Inc. is an open-end management investment company
currently offering one series of shares. The Fund's portfolio of assets
is diversified as defined by the 1940 Act. Commonly known as a mutual
fund, Government Fund, Inc. was organized as a Maryland corporation on
April 23, 1985.
Fund shares have a par value of $.01, equal voting rights, except
as noted below, and are equal in all other respects. All shares have
noncumulative voting rights which means that the holders of more than
50% of Government Fund, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Government Fund, Inc. is not required, and does not
intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act.
In addition to Class A Shares, Class B Shares and Class C Shares,
the Fund also offers the U.S. Government Fund Institutional Class shares.
Shares of each class represent proportionate interests in the assets of
the Fund and have the same voting and other rights and preferences as
the other class of shares of the Fund, except that shares of the U.S.
Government Fund Institutional Class are not subject to, and may not vote
on matters affecting, the Distribution Plans under Rule 12b-1 relating
to the Class A, Class B and Class C Shares. Similarly, as a general
matter, shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to
the class of shares that they hold. However, the Class B Shares may vote
on any proposal to increase materially the fees to be paid by the Fund
under the Rule 12b-1 Plan relating to the Class A Shares.
Additional Information
on Investment Policies
and Risk Considerations
GNMA Securities
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. Each Certificate evidences an interest in a specific pool of
mortgages insured by the Federal Housing Administration or the Farmers
Home Administration or guaranteed by the Veterans Administration.
Scheduled payments of principal and interest are made to the registered
holders of GNMA Certificates. The GNMA Certificates in which the Fund
will invest are of the modified pass-through type. GNMA guarantees the
timely payment of monthly installments of principal and interest on
modified pass-through Certificates at the time such payments are due,
whether or not such amounts are collected by the issuer on the
underlying mortgages. The National Housing Act provides that the full
faith and credit of the United States is pledged to the timely payment
of principal and interest by GNMA of amounts due on these GNMA
Certificates.
The average life of GNMA Certificates varies with the maturities of
the underlying mortgage instruments with maximum maturities of 30 years.
The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result
of prepayments of refinancing of such mortgages or foreclosure. Such
prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest, and have the effect of
reducing future payments. Due to the GNMA guarantee, foreclosures impose
no risk to principal investments.
The average life of pass-through pools varies with the maturities
of the underlying mortgage instruments. In addition, a pool's term may
be shortened by unscheduled or early payments of principal and interest
on the underlying mortgages. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and other
social and demographic conditions. As prepayment rates vary widely, it
is not possible to accurately predict the average life of a particular
pool. However, statistics indicate that the average life of the type of
mortgages backing the majority of GNMA Certificates is approximately 12
years. For this reason, it is standard practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in
the twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The
assumed average life of pools of mortgages having terms of less than 30
years is less than 12 years, but typically not less than five years.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the Certificates, but only by the amount of the fees paid to
GNMA and the issuer. Such fees in the aggregate usually amount to
approximately 1/2 of 1%.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. In periods of
falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of a pool of mortgage-related
securities. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Prepayments generally occur when interest rates have
fallen. Reinvestments of prepayments will be at lower rates.
Historically, actual average life has been consistent with the 12-year
assumption referred to above. The actual yield of each GNMA Certificate
is influenced by the prepayment experience of the mortgage pool
underlying the Certificates and may differ from the yield based on the
assumed average life. Interest on GNMA Certificates is paid monthly
rather than semi-annually as for traditional bonds.
Mortgage-Backed Securities
Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs). CMOs are debt securities issued by U.S.
government agencies or by financial institutions and other mortgage
lenders and collateralized by a pool of mortgages held under an
indenture. CMOs are issued in a number of classes or series with
different maturities. The classes or series are retired in sequence as
the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any
has been paid. Certain of these securities may have variable or floating
interest rates and others may be stripped (securities which provide only
the principal or interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities.
CMOs and REMICs issued by private entities are not Government
securities and are not directly guaranteed by any Government agency.
They are secured by the underlying collateral of the private issuer. The
Fund will invest in such private-backed securities only if they are 100%
collateralized at the time of issuance by securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
The Fund currently invests in privately-issued CMOs and REMICs only if
they are rated at the time of purchase in the two highest grades by a
nationally-recognized rating agency.
Asset-Backed Securities
As noted and subject to the limitations set forth in Investment
Strategy, the Fund may invest in securities which are backed by assets
such as receivables on home equity and credit loans, receivables
regarding automobile, mobile home and recreational vehicle loans,
wholesale dealer floor plans and leases or other loans or financial
receivables currently available or which may be developed in the future.
Such receivables are securitized in either a pass-through or a pay-
through structure. Pass-through securities provide investors with an
income stream consisting of both principal and interest payments in
respect of the receivables in the underlying pool. Pay-through asset-
backed securities are debt obligations issued usually by a special
purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to
pay the debt service on the debt obligations issued.
The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying
assets. Such rate of payments may be affected by economic and various
other factors such as changes in interest rates or the concentration of
collateral in a particular geographic area. Therefore, the yield may be
difficult to predict and actual yield to maturity may be more or less
than the anticipated yield to maturity. Due to the shorter maturity of
the collateral backing such securities, there tends to be less of a risk
of substantial prepayment than with mortgage-backed securities but the
risk of such a prepayment does exist. Such asset-backed securities do,
however, involve certain risks not associated with mortgage-backed
securities, including the risk that security interests cannot be
adequately or in many cases ever established, and other risks which may
be peculiar to particular classes of collateral. For example, with
respect to credit card receivables, a number of state and federal
consumer credit laws give debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the outstanding balance. In
the case of automobile receivables, there is a risk that the holders may
not have either a proper or first security interest in all of the
obligations backing such receivables due to the large number of vehicles
involved in a typical issuance and technical requirements under state
laws. Therefore, recoveries on repossessed collateral may not always be
available to support payments on the securities. For further discussion
concerning the risks of investing in such asset-backed securities, see
Part B.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a
temporary defensive posture, the Fund may enter into repurchase
agreements with banks or broker/dealers deemed to be creditworthy by the
Manager, under guidelines approved by the Board of Directors. A
repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than
one week but on occasion for longer periods. Not more than 10% of the
Fund's assets may be invested in illiquid securities, including
repurchase agreements of over seven-days' maturity. Should an issuer of
a repurchase agreement fail to repurchase the underlying security, the
loss to the Fund, if any, would be the difference between the repurchase
price and the market value of the security. The Fund will limit its
investments in repurchase agreements to those which the Manager under
the guidelines of the Board of Directors determines to present minimal
credit risks and which are of high quality. In addition, the Fund must
have collateral of at least 102% of the repurchase price, including the
portion representing the Fund's yield under such agreements which is
monitored on a daily basis. Such collateral is held by Bankers Trust
Company ("Custodian") in book entry form. Such agreements may be
considered loans under the 1940 Act, but the Fund considers repurchase
agreements contracts for the purchase and sale of securities, and it
seeks to perfect a security interest in the collateral securities so
that it has the right to keep and dispose of the underlying collateral
in the event of default.
The funds in the Delaware Investments family have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of
the 1940 Act to allow funds in the Delaware Investments family jointly
to invest cash balances. The Fund may invest cash balances in a joint
repurchase agreement in accordance with the terms of the Order and
subject generally to the conditions described above.
Options
The Fund may write put and call options on a covered basis only,
and will not engage in option writing strategies for speculative
purposes. The Fund may write covered call options and secured put
options from time to time on such portion of its portfolio, without
limit, as the Manager determines is appropriate in seeking to obtain the
Fund's investment objective. The Fund may also purchase (i) call options
to the extent that premiums paid for such options do not exceed 2% of
the Fund's total assets and (ii) put options to the extent that premiums
paid for such options do not exceed 2% of the Fund's total assets.
A. Covered Call Writing -- A call option gives the purchaser of
such option the right to buy, and the writer, in this case the Fund, has
the obligation to sell the underlying security at the exercise price
during the option period. There is no percentage limitation on writing
covered call options.
The advantage to the Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that
if the security rises in value the Fund will lose the appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option
was sold requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the
writer effects a closing purchase transaction. A closing purchase
transaction cannot be effected with respect to an option once the option
writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying
security or to enable the Fund to write another call option on the
underlying security with either a different exercise price or expiration
date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in
a closing purchase transaction may be partially or entirely offset by
the premium received from a sale of a different call option on the same
underlying security. Such a loss may also be wholly or partially offset
by unrealized appreciation in the market value of the underlying
security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option less
the commission paid. Such a gain, however, may be offset by depreciation
in the market value of the underlying security during the option period.
If a call option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security equal to the difference between the
cost of the underlying security and the proceeds of the sale of the
security plus the amount of the premium on the option less the
commission paid.
The market value of a call option generally reflects the market
price of the underlying security. Other principal factors affecting
market value include supply and demand, interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
Call options will be written only on a covered basis, which means
that the Fund will own the underlying security subject to a call option
at all times during the option period. Unless a closing purchase
transaction is effected, the Fund would be required to continue to hold
a security which it might otherwise wish to sell. Options written by the
Fund will normally have expiration dates between three and nine months
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at
the time the option is written.
B. Purchasing Call Options -- The Fund may purchase call options to
the extent that premiums paid by the Fund do not aggregate more than 2%
of the Fund's total assets. When the Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the
Fund obtains the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium upon writing the
option, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. The advantage
is that the Fund may hedge against an increase in the price of
securities which it ultimately wishes to buy. However, the premium paid
for the call option plus any transaction costs will reduce the benefit,
if any, realized by the Fund upon exercise of the option.
The Fund may, following the purchase of a call option, liquidate
its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option
previously purchased. The Fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the
premium paid to purchase the original call option; the Fund will realize
a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call
option.
Although the Fund will generally purchase only those call options
for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an Exchange will exist for
any particular option, or at any particular time, and for some options
no secondary market on an Exchange may exist. In such event, it may not
be possible to effect closing transactions in particular options, with
the result that the Fund would be required to exercise its options in
order to realize any profit and would incur brokerage commissions upon
the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options.
Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any
value to the Fund.
C. Secured Put Writing -- A put option gives the purchaser of the
option the right to sell, and the writer, in this case the Fund, the
obligation to buy the underlying security at the exercise price during
the option period. During the option period, the writer of a put option
may be assigned an exercise notice by the broker/dealer through whom the
option was sold requiring the writer to make payment of the exercise
price against delivery of the underlying security. In this event, the
exercise price will usually exceed the then market value of the
underlying security. This obligation terminates upon expiration of the
put option or at such earlier time at which the writer effects a closing
purchase transaction. The operation of put options in other respects is
substantially identical to that of call options. Premiums on outstanding
put options written or purchased by the Fund may not exceed 2% of its
total assets.
The advantage to the Fund of writing such options is that it
receives premium income. The disadvantage is that the Fund may have to
purchase securities at higher prices than the current market price if
the put is exercised.
Put options will be written only on a secured basis, which means
that the Fund will maintain in a segregated account with its Custodian
cash or U.S. government securities in an amount not less than the
exercise price of the option at all times during the option period. The
amount of cash or U.S. government securities held in the segregated
account will be adjusted on a daily basis to reflect changes in the
market value of the securities covered by the put option written by the
Fund. Secured put options will generally be written in circumstances
where the Manager wishes to purchase the underlying security for the
Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund would write a secured put option at an
exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay.
D. Purchasing Put Options -- The Fund may purchase put options to
the extent that premiums paid for such options do not exceed 2% of the
Fund's total assets. The Fund will, at all times during which it holds a
put option, own the security covered by such option.
The Fund intends to purchase put options in order to protect
against a decline in the market value of the underlying security below
the exercise price less the premium paid for the option ("protective
puts"). The ability to purchase put options will allow the Fund to
protect unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund will
continue to receive interest income on the security. If the security
does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such sales
will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.
Futures
The Fund may invest in futures contracts and options on such
futures contracts subject to certain limitations. Futures contracts are
agreements for the purchase or sale for future delivery of securities.
When a futures contract is sold, the Fund incurs a contractual
obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A
purchase of a futures contract means the acquisition of a contractual
right to obtain delivery to the Fund of the securities called for by the
contract at a specified price during a specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by
entering into an offsetting transaction. When the Fund enters into a
futures transaction, it must deliver to the futures commission merchant
selected by the Fund an amount referred to as "initial margin." This
amount is maintained by the futures commission merchant in an account at
the Fund's Custodian bank. Thereafter, a "variation margin" may be paid
by the Fund to, or drawn by the Fund from, such account in accordance
with controls set for such account, depending upon changes in the price
of the underlying securities subject to the futures contract.
The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities
except that options on futures give the purchaser the right, in return
for the premium paid, to assume a position in a futures contract, rather
than actually to purchase or sell the futures contract, at a specified
exercise price at any time during the period of the option.
The purpose of the purchase or sale of futures contracts for the
Fund, which consists of a substantial number of government securities,
is to protect the Fund against the adverse effects of fluctuations in
interest rates without actually buying or selling such securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent
purchases of government securities at higher prices.
With respect to options on futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates. The
writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at the
expiration of the option is below the exercise price, the Fund will
retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes
a partial hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price
at expiration of the option is higher than the exercise price, the Fund
will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of government securities
which the Fund intends to purchase.
If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between the value of
its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may, to
some extent, be reduced or increased by changes in the value of
portfolio securities. The Fund will purchase a put option on a futures
contract to hedge the Fund's portfolio against the risk of rising
interest rates.
To the extent that interest rates move in an unexpected direction,
the Fund may not achieve the anticipated benefits of futures contracts
or options on futures contracts or may realize a loss. For example, if
the Fund is hedged against the possibility of an increase in interest
rates which would adversely affect the price of government securities
held in its portfolio and interest rates decrease instead, the Fund will
lose part or all of the benefit of the increased value of its government
securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Fund had
insufficient cash, it may be required to sell government securities from
its portfolio to meet daily variation margin requirements. Such sales of
government securities may, but will not necessarily, be at increased
prices which reflect the rising market. The Fund may be required to sell
securities at a time when it may be disadvantageous to do so.
To the extent that the Fund purchases an option on a futures
contract and fails to exercise the option prior to the exercise date, it
will suffer a loss of the premium paid. Further, with respect to options
on futures contracts, the Fund may seek to close out an option position
by writing or buying an offsetting position covering the same securities
or contracts and have the same exercise price and expiration date. The
ability to establish and close out positions on options will be subject
to the existence of a liquid secondary market, which cannot be assured.
The Fund will not enter into futures contracts to the extent that
more than 5% of the Fund's assets are required as futures contract
margin deposits and will not invest in futures contracts or options
thereon to the extent that obligations relating to such transactions
exceed 20% of the Fund's assets.
Restricted Securities
While maintaining oversight, the Board of Directors has delegated
to the Manager the day-to-day function of determining whether or not
individual Rule 144A Securities are liquid for purposes of the Fund's
10% limitation on investments in illiquid securities. The Board has
instructed the Manager to consider the following factors in determining
the liquidity of a Rule 144A Security: (i) the frequency of trades and
trading volume for the security; (ii) whether at least three dealers are
willing to purchase or sell the security and the number of potential
purchasers; (iii) whether at least two dealers are making a market in
the security; (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result,
the Fund's holdings of illiquid securities exceed the Fund's 10% limit
on investments in such securities, the Manager will determine what
action to take to ensure that the Fund continues to adhere to such
limitation.
Portfolio Loan Transactions
The major risk to which the Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time
when the value of the security goes up. Therefore, the Fund will only
enter into loan arrangements after a review of all pertinent facts by
the Manager, subject to overall supervision by the Board of Directors,
including the creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received from such
loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager. See Part B.
* * *
Investments by Fund of Funds
The Fund accepts investments from the series of Delaware Group
Foundation Funds, a fund of funds (the "Foundation Funds"). From time to
time, the Fund may experience large investments or redemptions due to
allocations or rebalancings by the Foundation Funds. While it is
impossible to predict the overall impact of these transactions over
time, there could be adverse effects on portfolio management to the
extent that the Fund may be required to sell securities or invest cash
at times when it would not otherwise do so. These transactions could
also have tax consequences if sales of securities result in gains and
could also increase transactions costs or portfolio turnover. The
Manager will monitor such transactions and will attempt to minimize any
adverse effects on both the Fund and the Foundation Funds resulting from
such transactions.
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 funds give investors the ability to create a portfolio that
fits their personal financial goals. For more information, contact your
financial adviser or call Delaware Investments at 800-523-1918.
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
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
www.delawarefunds.com
[RECYCLE LOGO OMITTED]
Printed in the U.S.A. on recycled paper
P-023[--]PP9/98
U.S. GOVERNMENT FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES SEPTEMBER 29, 1998
1818 Market Street, Philadelphia, PA 19103
For more information about the U.S. Government Fund Institutional Class
call Delaware Investments at 800-828-5052.
This Prospectus describes the Government Income Series (the "Fund")
of Delaware Group Government Fund, Inc. ("Government Fund, Inc."), a
professionally-managed mutual fund of the series type. The objective of
the Fund is high current income consistent with safety of principal by
investing primarily in debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
The Fund offers the U.S. Government Fund Institutional Class (the
"Class") of shares.
This Prospectus relates only to the Class and sets forth
information that you should read and consider before you invest. Please
retain it for future reference. The Fund's Statement of Additional
Information ("Part B" of Government Fund Inc.'s registration statement),
dated September 29, 1998, as it may be amended from time to time,
contains additional information about the Fund and has been filed with
the Securities and Exchange Commission. Part B is incorporated by
reference into this Prospectus and is available, without charge, by
writing to Delaware Distributors, L.P. at the above address or by
calling the above number. The Fund's financial statements appear in its
Annual Report, which will accompany any response to requests for Part B.
The SEC also maintains a Web site(http://www.sec.gov) that contains Part
B, material we incorporated by reference and other information regarding
registrants that electronically file with the SEC.
The Fund also offers the U.S. Government Fund A Class, the U.S.
Government Fund B Class and the U.S. Government Fund C Class. Shares of
these classes are subject to sales charges and other expenses, which may
affect their performance. A prospectus for these classes can be obtained
by writing to Delaware Distributors, L.P. at the above address or by
calling 800-523-1918.
TABLE OF CONTENTS
Cover Page
Synopsis
Summary of Expenses
Financial Highlights
Investment Objective and Policies
Suitability
Investment Strategy
Classes of Shares
How to Buy Shares
Redemption and Exchange
Dividends and Distributions
Taxes
Calculation of Net Asset Value
Per Share
Management of the Fund
Additional Information on
Investment Policies
and Risk Considerations
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS.
MUTUAL FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER,
SHARES OF THE FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY
ANY BANK OR ANY CREDIT UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY
CREDIT UNION, AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS
OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUND ARE NOT BANK OR
CREDIT UNION DEPOSITS.
SYNOPSIS
Investment Objective
The investment objective of the Fund is high current income
consistent with safety of principal by investing primarily in debt
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities. For further details, see Investment Objectives and
Policies and Additional Information on Investment Policies and Risk
Considerations.
Risk Factors and Special Considerations
The Fund may invest up to 20% of its assets in corporate notes and
bonds, certificates of deposit and obligations of both U.S. and foreign
banks, commercial paper and asset-backed securities. See Investment
Strategy under Investment Objective and Policies and Additional
Information on Investment Policies and Risk Considerations.
The Fund may also enter into options and futures transactions for
hedging purposes to counterbalance portfolio volatility. While the Fund
does not engage in options and futures for speculative purposes, there
are risks which result from use of these instruments by the Fund, and
the investor should review the descriptions of such in this Prospectus.
Certain options and futures transactions may be considered to be
derivative securities. See Additional Information on Investment Policies
and Risk Considerations.
Investment Manager, Distributor and Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and
direction of Government Fund, Inc.'s Board of Directors. The Manager
also provides investment management services to certain other funds
available from Delaware Investments. Delaware Distributors, L.P. (the
"Distributor") is the national distributor for the Fund and for all of
the other mutual funds available from Delaware Investments. Delaware
Service Company, Inc. (the "Transfer Agent") is the shareholder
servicing, dividend disbursing, accounting services and transfer agent
for the Fund and for all of the other mutual funds in the Delaware
Investments family.
See Summary of Expenses and Management of the Fund for further
information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.
Purchase Price
Shares of the Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge,
and are not subject to distribution fees under a Rule 12b-1 distribution
plan. See Classes of Shares.
Redemption and Exchange
Shares of the Class are redeemed or exchanged at the net asset
value calculated after receipt of the redemption or exchange request.
See Redemption and Exchange.
Open-End Investment Company
Government Fund, Inc., which was organized as a Maryland
corporation in 1985, is an open-end management investment company and
the Fund's portfolio of assets is diversified as defined by the
Investment Company Act of 1940 (the "1940 Act"). See Shares under
Management of the Fund.
SUMMARY OF EXPENSES
Shareholder Transaction Expenses
- ----------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Exchange Fees None*
Annual Operating Expenses
(as a percentage of average daily net assets)
- ----------------------------------------------------------------------
Management Fees 0.59%**
12b-1 Fees None
Other Operating Expenses 0.31%
------
Total Operating Expenses 0.90%
======
*Exchanges are subject to the requirements of each fund and a front-
end sales charge may apply.
**The management fee is equal to, on an annual basis, 0.60% of the
Fund's average daily net assets, less a proportionate share of all
directors' fees paid to the unaffiliated directors by the Fund.
For expense information about Class A Shares, Class B Shares and
Class C Shares, see the separate prospectus relating to those classes.
The following example illustrates the expenses that an investor
would pay on a $1,000 investment over various time periods, assuming (1)
a 5% annual rate of return and (2) redemption at the end of each time
period.
1 year 3 years 5 years 10 years
-------- -------- -------- --------
$9 $29 $50 $111
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than
those shown.
The purpose of these tables is to assist investors in understanding
the various costs and expenses that an investor in the Class will bear
directly or indirectly in owning shares of the Fund.
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial
statements of Delaware Group Government Fund, Inc. - Government Income
Series and have been audited by Ernst & Young LLP, independent auditors.
The data should be read in conjunction with the financial statements,
related notes, and the report of Ernst & Young LLP, all of which are
incorporated by reference into Part B. Further information about the
Fund's performance is contained in its Annual Report to shareholders. A
copy of the Fund's Annual Report (including the report of Ernst & Young
LLP) may be obtained from Government Fund, Inc. upon request at no
charge.
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS(1)
------------------------------------------------------------------------
Year Ended
7/31/98 7/31/97 7/31/96 7/31/95 7/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $7.760 $7.590 $7.860 $8.000 $9.010
Income From Investment
Operations
Net Investment Income 0.550 0.567 0.611 0.679 0.739
Net Gains or Losses on
Securities
(both realized
and unrealized) (0.040) 0.170 (0.270) (0.140) (1.010)
-------- -------- -------- -------- --------
Total From
Investment
Operations 0.510 0.737 0.341 0.539 (0.271)
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income) (0.550) (0.567) (0.611) (0.679) (0.739)
Distributions
(from capital gains) none none none none none
Total Distributions (0.550) (0.567) (0.611) (0.679) (0.739)
======== ======== ======== ======== ========
Net Asset Value,
End of Period $7.720 $7.760 $7.590 $7.860 $8.000
Total Return 6.80% 10.10% 4.39% 7.14% (3.23%)
Ratios/Supplemental
Data
Net Assets,
End of Period
(000's omitted) $17,865 $12,053 $10,780 $8,316 $14,016
Ratio of Expenses
to Average Daily
Net Assets 0.90% 0.86% 0.90% 0.94% 0.94%
Ratio of Net
Investment Income to
Average Daily Net
Assets 7.10% 7.43% 7.85% 8.66% 8.60%
Portfolio Turnover
Rate 118% 63% 81% 70% 309%
<CAPTION>
U.S. GOVERNMENT FUND INSTITUTIONAL CLASS(1)
------------------------------------------------------------------------
Year Ended
7/31/93 7/31/92(2) 7/31/91(1) 7/31/90(1) 7/31/89(1)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.020 $8.700 $8.590 $8.750 $8.650
Income From Investment
Operations
Net Investment Income 0.791 0.792 0.774 0.771 0.793
Net Gains or Losses on
Securities
(both realized
and unrealized) (0.010) 0.320 0.110 (0.160) 0.100
-------- -------- -------- -------- --------
Total From
Investment
Operations 0.781 1.112 0.884 0.611 0.893
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income) (0.791) (0.792) (0.774) (0.771) (0.793)
Distributions
(from capital gains) none none none none none
Total Distributions (0.791) (0.792) (0.774) (0.771) (0.793)
======== ======== ======== ======== ========
Net Asset Value,
End of Period $9.010 $9.020 $8.700 $8.590 $8.750
Total Return 9.04% 13.27% 10.76% 7.40% 10.92%
Ratios/Supplemental
Data
Net Assets,
End of Period
(000's omitted) $16,475 $19,421 $13,427 $8,359 $3,506
Ratio of Expenses
to Average Daily
Net Assets 0.97% 0.91% 0.88% 0.89% 0.97%
Ratio of Net
Investment Income to
Average Daily Net
Assets 8.74% 8.85% 8.99% 9.00% 9.26%
Portfolio Turnover
Rate 285% 196% 149% 127% 172%
- ------------------
1 The data for the period 1989 through 1991 are derived from data of the Government
Income Series I class which, like U.S. Government Fund Institutional Class,
(prior to May 2, 1994 was referred to as U.S. Government Fund (Institutional)
class), was not subject to Rule 12b-1 distribution expenses. Government Income
Series I class was converted into U.S. Government Fund class on June 1, 1992,
pursuant to a Plan of Recapitalization approved by shareholders of Government
Income Series I class. Prior to May 2, 1994, U.S. Government Fund A Class was
known as U.S. Government Fund class.
2 The U.S. Government Fund Institutional Class was first offered for sale on June 1,
1992. The data and ratios for Government Income Series I class (see note 1) and
the U.S. Government Fund (Institutional) class have been combined for 1992. For
the ten months ended May 31, 1992, the Government Income Series I class' operating
expenses and net investment income per share were $0.068 and $0.0657,
respectively. For the two months ended July 31, 1992, the U.S. Government Fund
Institutional Class' operating expenses and net investment income per share were
$0.014 and $0.135, respectively. All net investment income was distributed to
shareholders.
</TABLE>
INVESTMENT OBJECTIVE
AND POLICIES
SUITABILITY
The Fund may be suitable for individuals who want a stable and high
income flow, the security associated with investments focused
principally on U.S. government-backed instruments and the convenience
and liquidity of mutual funds. However, investors should consider asset
value fluctuation as well as income potential in making an investment
decision.
Because the Fund invests in longer term securities, the value of
shares will fluctuate. When interest rates rise, the share value will
tend to fall, and when interest rates fall, the share value will tend to
rise.
Ownership of Fund shares can reduce the bookkeeping and
administrative inconveniences which are typically connected with direct
purchase of the types of securities in which the Fund invests.
Investors should not consider a purchase of shares of the Fund as
equivalent to a complete investment program. Delaware Investments offers
funds, generally available through registered dealers, which may be used
together to create a more complete investment program.
INVESTMENT STRATEGY
The investment objective of the Fund described below is a matter of
fundamental policy and may not be changed without shareholder approval.
The objective of the Fund is high current income consistent with
safety of principal by investing primarily in debt obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
These include securities issued or backed by U.S. government agencies
and government-sponsored corporations which may not be backed by the
full faith and credit of the U.S. government, such as the Export-Import
Bank, Federal Housing Authority, Federal National Mortgage Association
and Federal Home Loan Banks and mortgage-backed securities issued by
non-government entities but collateralized by securities of the U.S.
government, its agencies and instrumentalities. The weighted average
maturity will be approximately 10 years. Although these securities are
guaranteed as to principal and interest by the U.S. government or its
instrumentalities, the market value of these securities, upon which
daily net asset value is based, may fluctuate and is not guaranteed.
U.S. government securities include U.S. Treasury securities
consisting of Treasury Bills, Treasury Notes and Treasury bonds. Some of
the other government securities in which the Fund may invest include
securities of the Federal Housing Administration, the Government
National Mortgage Association, the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration,
the General Services Administration, the Maritime Administration and the
Small Business Administration. The maturities of such securities usually
range from three months to 30 years.
The Fund may also invest up to 20% of its assets in: (1) corporate
notes and bonds rated A or above by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"); (2) certificates
of deposit and obligations of both U.S. and foreign banks if they have
assets of at least one billion dollars; (3) commercial paper rated P-1
by Moody's and/or A-1 by S&P; and (4) asset-backed securities rated Aaa
by Moody's or AAA by S&P.
Investment Techniques
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. The Fund may also invest in securities issued by certain
private, non-government corporations, such as financial institutions, if
the securities are fully collateralized at the time of issuance by
securities or certificates issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Two principal types of mortgage-
backed securities are collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs).
The Fund may invest in securities which are backed by assets such
as receivables on home equity and credit loans, receivables regarding
automobile, mobile home and recreational vehicle loans, wholesale dealer
floor plans and leases or other loans or financial receivables currently
available or which may be developed in the future. All such securities
must be rated in the highest rating category by a reputable credit
rating agency (e.g., AAA by S&P or Aaa by Moody's).
The Fund may use repurchase agreements which are at least 100%
collateralized by securities in which the Fund can invest directly.
Repurchase agreements help the Fund to invest cash on a temporary basis.
The Fund may purchase put options, write secured put options, write
covered call options, purchase call options and enter into closing
transactions. The Fund may invest in futures contracts and options on
such futures contracts subject to certain limitations.
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule
144A Securities") under the Securities Act of 1933. Rule 144A permits
many privately placed and legally restricted securities to be freely
traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 10% of the value of its net assets in illiquid
securities.
The Fund may loan up to 25% of its assets to qualified
broker/dealers or institutional investors for their use relating to
short sales or other security transactions.
For a further discussion of the investment techniques described above,
see Additional Information on Investment Policies and Risk
Considerations.
Other Restrictions
The Fund may borrow from banks. No investment securities will be
purchased while the Fund has an outstanding borrowing. Part B sets forth
other risk factors and more specific investment restrictions, some of
which limit the percentage of assets of the Fund which may be invested
in certain types of securities. A brief discussion of those factors that
materially affected the Fund's performance during its most recently
completed fiscal year appears in the Fund's Annual Report.
Portfolio Turnover
The Fund may experience a high rate of portfolio turnover, which is
not expected to exceed 400%. High portfolio turnover rates may occur,
for example, if the Fund writes a substantial number of covered call
options and the market prices of the underlying securities appreciate. A
100% turnover rate would occur if all of the securities in the portfolio
were sold and replaced within one year. The rate of portfolio turnover
is not a limiting factor when the Manager deems it desirable to purchase
or sell securities or to engage in options transactions. High portfolio
turnover involves correspondingly greater brokerage commissions and
other transaction costs and may affect taxes payable by the Fund's
shareholders. The turnover rate may also be affected by cash
requirements from redemptions and repurchases of the Fund's shares.
For the fiscal years ended July 31, 1997 and 1998, the portfolio
turnover rates for the Fund were 63% and 118%, respectively.
CLASSES OF SHARES
The Distributor serves as the national distributor for the Fund.
Shares of the Class may be purchased directly by contacting the Fund or
its agent or through authorized investment dealers. All purchases of
shares of the Class are at net asset value. There is no front-end or
contingent deferred sales charge.
Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with
directions provided by the employer. Employees considering purchasing
shares of the Class as part of their retirement program should contact
their employer for details.
Shares of the Class are available for purchase only by: (a)
retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt
employee benefit plans of the Manager or its affiliates and securities
dealer firms with a selling agreement with the Distributor; (c)
institutional advisory accounts of the Manager or its affiliates and
those having client relationships with Delaware Investment Advisers, or
its affiliates and their corporate sponsors, as well as subsidiaries and
related employee benefit plans and rollover individual retirement
accounts from such institutional advisory accounts; (d) a bank, trust
company and similar financial institution investing for its own account
or for the account of its trust customers for whom such financial
institution is exercising investment discretion in purchasing shares of
the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee;
and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a
broker or dealer and derives compensation for its services exclusively
from its clients for such advisory services.
U.S. Government Fund A Class, U.S. Government Fund B Class and U.S.
Government Fund C Class
In addition to offering the U.S. Government Fund Institutional
Class, the Fund also offers the U.S. Government Fund A Class, the U.S.
Government Fund B Class and the U.S. Government Fund C Class, which are
described in a separate prospectus. Shares of the U.S. Government Fund A
Class, U.S. Government Fund B Class and U.S. Government Fund C Class may
be purchased through authorized investment dealers or directly by
contacting the Fund or the Distributor. Class A Shares, Class B Shares
and Class C Shares may have different sales charges and other expenses
which may affect performance. To obtain a prospectus relating to such
classes, contact the Distributor by writing to the address or by calling
the phone numbers listed on the cover of this Prospectus.
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and
by arrangement with your investment dealer. In all instances, investors
must qualify to purchase shares of the Class.
Investing Directly by Mail
1. Initial Purchases--An Investment Application or, in the case of a
retirement plan account, an appropriate retirement plan application,
must be completed, signed and sent with a check payable to U.S.
Government Fund Institutional Class, to Delaware Investments at 1818
Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at any time by
mailing a check payable to U.S. Government Fund Institutional Class.
Your check should be identified with your name(s) and account number.
Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds
by wire to First Union National Bank, (include your name(s) and your
account number for the class in which you are investing).
1. Initial Purchases--Before you invest, telephone the Fund's Client
Services Department at 800-828-5052 to get an account number. If you do
not call first, it may delay processing your investment. In addition,
you must promptly send your Investment Application or, in the case of a
retirement plan account, an appropriate retirement plan application, to
U.S. Government Fund Institutional Class, to Delaware Investments at
1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments anytime by
wiring funds to First Union National Bank, as described above. You must
advise your Client Services Representative by telephone at 800-828-5052
prior to sending your wire.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments and you qualify to purchase shares of the Class, you may
write and authorize an exchange of part or all of your investment into
the Fund. However, shares of the U.S. Government Fund B Class and the
U.S. Government Fund C Class and the Class B Shares and the Class C
Shares of the other funds available from Delaware Investments offering
such classes of shares may not be exchanged into the Class. If you wish
to open an account by exchange, call your Client Services Representative
at 800-828-5052 for more information. See Redemption and Exchange for
more complete information concerning your exchange privileges.
Investing through Your Investment Dealer
You can make a purchase of Fund shares through most investment
dealers who, as part of the service they provide, must promptly transmit
orders to the Fund. They may charge for this service.
Purchase Price and Effective Date
The purchase price (net asset value) is determined as of the close
of regular trading on the New York Stock Exchange (ordinarily, 4 p.m.,
Eastern time) on days when the Exchange is open.
The effective date of a purchase is the date the order is received
by the Fund, its agent or designee. The effective date of a direct
purchase is the day your wire, electronic transfer or check is received,
unless it is received after the time the share price is determined, as
noted above. Purchase orders received after such time will be effective
the next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase order. If a
purchase is canceled because your check is returned unpaid, you are
responsible for any loss incurred. The Fund can redeem shares from your
account(s) to reimburse itself for any loss, and you may be restricted
from making future purchases in any of the funds in the Delaware
Investments family. The Fund reserves the right to reject purchase
orders paid by third-party checks or checks that are not drawn on a
domestic branch of a United States financial institution. If a check
drawn on a foreign financial institution is accepted, you may be subject
to additional bank charges for clearance and currency conversion.
The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of
redemptions.
REDEMPTION AND EXCHANGE
Redemption and exchange requests made on behalf of participants in
an employer-sponsored retirement plan are made in accordance with
directions provided by the employer. Employees should therefore contact
their employer for details.
Your shares will be redeemed or exchanged based on the net asset
value next determined after the Fund receives your request in good
order. For example, redemption and exchange requests received in good
order after the time the net asset value of shares is determined will be
processed on the next business day. See Purchase Price and Effective
Date under How to Buy Shares. Except as otherwise noted below, for a
redemption request to be in "good order," you must provide your Class
account number, account registration, and the total number of shares or
dollar amount of the transaction. With regard to exchanges, you must
also provide the name of the fund in which you want to invest the
proceeds. Exchange instructions and redemption requests must be signed
by the record owner(s) exactly as the shares are registered. You may
request a redemption or an exchange by calling the Fund at 800-828-5052.
Redemption proceeds will be distributed promptly, as described below,
but not later than seven days after receipt of a redemption request.
All exchanges involve a purchase of shares of the fund into which
the exchange is made. As with any purchase, an investor should obtain
and carefully read that fund's prospectus before buying shares in an
exchange. The prospectus contains more complete information about the
fund, including charges and expenses.
The Fund will process written and telephone redemption requests to
the extent that the purchase orders for the shares being redeemed have
already settled. The Fund will honor redemption requests as to shares
for which a check was tendered as payment, but the Fund will not mail or
wire the proceeds until it is reasonably satisfied that the check has
cleared, which may take up to 15 days from the purchase date. You can
avoid this potential delay if you purchase shares by wiring Federal
Funds. The Fund reserves the right to reject a written or telephone
redemption request or delay payment of redemption proceeds if there has
been a recent change to the shareholder's address of record.
Shares of the Class may be exchanged into any other mutual fund in
the Delaware Investments family, provided: (1) the investment satisfies
the eligibility and other requirements set forth in the prospectus of
the fund being acquired, including the payment of any applicable front-
end sales charge; and (2) the shares of the fund being acquired are in a
state where that fund is registered. If exchanges are made into other
shares that are eligible for purchase only by those permitted to
purchase shares of the Class, such exchange will be exchanged at net
asset value. Shares of the Class may not be exchanged into the Class B
Shares or Class C Shares of the funds in the Delaware Investments
family. The Fund may suspend, terminate or amend the terms of the
exchange privilege upon 60 days' written notice to shareholders.
Various redemption and exchange methods are outlined below. No fee
is charged by the Fund or the Distributor for redeeming or exchanging
your shares although, in the case of an exchange, a sales charge may
apply. You may also have your investment dealer arrange to have your
shares redeemed or exchanged. Your investment dealer may charge for this
service.
All authorizations given by shareholders, including selection of
any of the features described below, shall continue in effect until such
time as a written revocation or modification has been received by the
Fund or its agent.
Checkwriting Feature
You can request special checks by marking the box on the Investment
Application.
Checks must be drawn for $500 or more and, unless otherwise
indicated on the Investment Application or your checkwriting
authorization form, must be signed by all owners of the account.
Because the value of shares fluctuates, you cannot use checks to
close your account. The Checkwriting Feature is not available for
retirement plans. See Part B for additional information.
Written Redemption and Exchange
You can write to the Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares or to request an exchange of
any or all of your shares into another mutual fund in the Delaware
Investments family, subject to the same conditions and limitations as
other exchanges noted above. The request must be signed by all owners of
the account or your investment dealer of record.
For redemptions of more than $50,000, or when the proceeds are not
sent to the shareholder(s) at the address of record, the Fund requires a
signature by all owners of the account and may require a signature
guarantee. 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 agent from fraud. The Fund reserves the
right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. The Fund may require further
documentation from corporations, executors, retirement plans,
administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of
your redemption request. Certificates are issued for shares only if you
submit a specific request. If your shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and
exchange methods, you must have the Transfer Agent hold your shares
(without charge) for you. If you choose to have your shares in
certificate form, you may redeem or exchange only by written request and
you must return your certificate(s).
The Telephone Redemption -- Check to Your Address of Record service
and the Telephone Exchange service, both of which are described below,
are automatically provided unless you notify the Fund in writing that
you do not wish to have such services available with respect to your
account. The Fund reserves the right to modify, terminate or suspend
these procedures upon 60 days' written notice to shareholders. It may be
difficult to reach the Fund by telephone during periods when market or
economic conditions lead to an unusually large volume of telephone
requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine. With respect to such telephone
transactions, the Fund will follow reasonable procedures to confirm that
instructions communicated by telephone are genuine (including
verification of a form of personal identification) as, if it does not,
the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be
provided for all purchase, exchange and redemption transactions
initiated by telephone. By exchanging shares by telephone, you are
acknowledging prior receipt of a prospectus for the fund into which your
shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
You or your investment dealer of record can have redemption
proceeds of $50,000 or less mailed to you at your record address. Checks
will be payable to the shareholder(s) of record. Payment is normally
mailed the next business day after receipt of the redemption request.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize
this service when you open your account. If you change your
predesignated bank account, you must submit a written authorization and
you may need to have your signature guaranteed. For your protection,
your authorization must be on file. If you request a wire, your funds
will normally be sent the next business day. If you ask for a check, it
will normally be mailed the next business day after receipt of your
redemption request to your predesignated bank account. Redemption
proceeds will be wired or mailed to your bank provided that purchase
orders for shares being redeemed have settled and checks tendered as
payment for shares being redeemed have cleared. There are no fees for
this redemption method, but the mail time may delay getting funds into
your bank account. Simply call your Client Services Representative prior
to the time the net asset value is determined, as noted above.
Telephone Exchange
You or your investment dealer of record can exchange shares into
any fund in the Delaware Investments family under the same registration.
As with the written exchange service, telephone exchanges are subject to
the same conditions and limitations as other exchanges noted above.
Telephone exchanges may be subject to limitations as to amounts or
frequency.
DIVIDENDS AND DISTRIBUTIONS
Government Fund, Inc. declares a dividend to all shareholders of
record at the time the net asset value per share is determined. See
Purchase Price and Effective Date under How to Buy Shares. Thus, when
redeeming shares, dividends continue to be credited up to and including
the date of redemption.
Purchases of Class shares by wire begin earning dividends when
converted into Federal Funds and available for investment, normally the
next business day after receipt. However, if the Fund is given prior
notice of a Federal Funds wire and an acceptable written guarantee of
timely receipt from an investor satisfying the Fund's credit policies,
the purchase will start earning dividends on the date the wire is
received. Purchases by check earn dividends upon conversion to Federal
Funds, normally one business day after receipt.
Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class will not incur
any distribution fees under the 12b-1 Plans which apply to the U.S.
Government Fund A Class, the U.S. Government Fund B Class and the U.S.
Government Fund C Class.
The Fund's dividends are declared daily and paid monthly. Dividends
and distributions, if any, will be automatically reinvested in a
shareholder's account at net asset value. Any net short-term capital
gains after deducting any net long-term capital losses (including
carryforwards) and, pursuant to an Exemptive Order under Section 19(b)
of the Investment Company Act, any long-term gains that would have been
short-term gains except for 60/40 treatment under Section 1256(a) of the
Internal Revenue Code (the "Code") may be distributed quarterly, but in
the discretion of the Fund's Board of Directors, may be distributed less
frequently. Any distribution from net long-term realized securities
profits will be made twice a year. The first payment normally would be
made during the first quarter of the next fiscal year. The second
payment would be made near the end of the calendar year to comply with
certain requirements of the Code.
TAXES
The tax discussion set forth below is included for general
information only. Investors should consult their own tax advisers
concerning the federal, state, local or foreign tax consequences of an
investment in the Fund.
On August 5, 1997, President Clinton signed into law the Taxpayer
Relief Act of 1997 (the "1997 Act"). This new law makes sweeping changes
in the Code. Because many of these changes are complex, and only
indirectly affects the Fund and its distributions to you, they are
discussed in Part B. Changes in the treatment of capital gains, however,
are discussed in this section.
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 certain other requirements relating to the sources of
income and diversification of its assets.
The Fund intends to distribute substantially all of its net
investment income and net capital gains, if any. Dividends from net
investment income or net short-term capital gains will be taxable to
investors who are subject to income taxes as ordinary income, even
though received in additional shares. No portion of the Fund's
distributions will be eligible for the dividends-received deduction for
corporations.
Distributions paid by the Fund from long-term capital gains,
received in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the
length of time an investor has owned shares in the Fund. The Fund does
not seek to realize any particular amount of capital gains during a
year; rather, realized gains are a by-product of Fund management
activities. Consequently, capital gains distributions may be expected to
vary considerably from year to year. Also, for those investors subject
to tax, if purchases of shares in the Fund are made shortly before the
record date for a dividend or capital gains distribution, a portion of
the investment will be returned as a taxable distribution.
The Treatment of Capital Gain Distributions under the Taxpayer Relief
Act of 1997
The 1997 Act creates a category of long-term capital gain for
individuals that will be taxed at new lower tax rates. For investors who
are in the 28% or higher federal income tax brackets, these gains will
be taxed at a maximum rate of 20%. For investors who are in the 15%
federal income tax bracket, these gains will be taxed at a maximum rate
of 10%. Capital gain distributions will qualify for these new maximum
tax rates, depending on when the Fund's securities were sold and how
long they were held by the Fund before they were sold. The holding
periods for which the new rates apply were revised by the Internal
Revenue Service Restructuring and Reform Act of 1998. Investors who want
more information on holding periods and other qualifying rules relating
to these new rates should review the expanded discussion in Part B, or
should contact their own tax advisers.
Government Fund, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain
distributions which will qualify for these maximum federal tax rates.
Dividends which are declared in October, November or December to
shareholders of record on a specified date in one of those months, but
which, for operational reasons, may not be paid to the shareholder until
the following January, will be treated for tax purposes as if paid by
the Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
The sale of shares of the Fund is a taxable event and may result in
a capital gain or loss to shareholders subject to tax. Capital gain or
loss may be realized from an ordinary redemption of shares or an
exchange of shares between the Fund and any other fund available from
Delaware Investments. Any loss incurred on a sale or exchange of Fund
shares that had been held for six months or less will be treated as a
long-term capital loss to the extent of capital gain dividends received
with respect to such shares.
In addition to the federal taxes described above, shareholders may
be subject to state and local taxes on distributions. Distributions of
interest income and capital gains realized from certain types of U.S.
government securities may be exempt from state personal income taxes.
Because investors' state and local taxes may be different than the
federal taxes described above, investors should consult their own tax
advisers. Shares of the Fund are exempt from Pennsylvania county
personal property taxes.
Each year, Government Fund, Inc. will mail to you information on
the tax status of the Fund's dividends and distributions. Shareholders
will also receive each year information as to the portion of dividend
income that is derived from U.S. government securities that are exempt
from state income tax. Of course, shareholders who are not subject to
tax on their income would not be required to pay tax on amounts
distributed to them by the Fund.
Government Fund, Inc. is required to withhold 31% of taxable
dividends, capital gains distributions and redemptions paid to
shareholders who have not complied with IRS taxpayer identification
regulations. You may avoid this withholding requirement by certifying on
your Investment Application your proper Taxpayer Identification Number
and by certifying that you are not subject to backup withholding.
See Accounting and Tax Issues and Taxes in Part B for additional
information on tax matters relating to the Fund and its shareholders.
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of the Class is the net asset
value ("NAV") per share of Class shares next computed after the order is
received. The NAV is computed as of the close of regular trading on the
New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when
the Exchange is open.
The NAV per share is computed by adding the value of all securities
and other assets in the portfolio, deducting any liabilities (expenses
and fees are accrued daily) and dividing by the number of shares
outstanding. U.S. government securities are valued at the mean between
the bid and asked prices. Options are valued at the last reported sale
price or, if no sales are reported, at the mean between the last
reported bid and asked prices. Any short-term investments having a
maturity of less than 60 days are valued at amortized cost, which
approximates market value. Non-Exchange-traded options are valued at
fair value using a mathematical model. All other securities are valued
at their fair value by an independent pricing service using methods
approved by Government Fund, Inc.'s Board of Directors.
The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in the Fund represented by the
value of shares of that class. All income earned and expenses incurred
by the Fund will be borne on a pro-rata basis by each outstanding share
of a class, based on each class' percentage in the Fund represented by
the value of shares of such classes, except that the Class will not
incur any of the expenses under the Fund's 12b-1 Plans and U.S.
Government Fund A Class, B Class and C Class alone will bear the 12b-1
Plan fees payable under their respective Plans. Due to the specific
distribution expenses and other costs that will be allocable to each
class, the dividends paid to each class of the Fund may vary. However,
the NAV per share of each class is expected to be equivalent.
MANAGEMENT OF THE FUND
Directors
The business and affairs of Government Fund, Inc. are managed under
the direction of its Board of Directors. Part B contains additional
information regarding the Fund's directors and officers.
Investment Manager
The Manager furnishes investment management services to the Fund.
The Manager and its predecessors have been managing the funds in
the Delaware Investments family since 1938. On July 31, 1998, the
Manager and its affiliates within the Delaware Investments family,
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 (approximately $17,929,500,000) accounts. The directors of
Government Fund, Inc. annually review fees paid to the Manager.
The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a
business trust on March 1, 1998. The Manager is an indirect, wholly
owned subsidiary of Delaware Management Holdings, Inc. ("DMH"). On April
3, 1995, a merger between DMH and a wholly owned subsidiary of Lincoln
National Corporation ("Lincoln National") was completed. DMH and the
Manager are now indirect, wholly owned subsidiaries, and subject to the
ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, a
new Investment Management Agreement between Government Fund, Inc. on
behalf of the Fund and the Manager was executed following shareholder
approval.
The Manager manages the Fund's portfolio and makes investment
decisions which are implemented by Government Fund, Inc.'s Trading
Department. The Manager also administers Government Fund, Inc.'s affairs
and pays the salaries of all the directors, officers and employees of
Government Fund, Inc. who are affiliated with the Manager. For these
services, the Manager is paid an annual fee equal to 0.60% of the Fund's
average daily net assets, less a proportionate share of all directors'
fees paid to the unaffiliated directors by the Fund. Investment
management fees paid by the Fund for the fiscal year ended July 31, 1998
were 0.59% of its average daily net assets.
Paul Grillo, Vice President/Portfolio Manager of the Government
Fund, Inc., has primary responsibility for making day-to-day decisions
for the Fund. Mr. Grillo assumed such responsibility on February 21,
1997. Mr. Grillo holds a BA in Business Management from North Carolina
State University and an MBA in Finance from Pace University. Prior to
joining Delaware Investments in 1993, Mr. Grillo served as mortgage
strategist and trader at the Dreyfus Corporation. He also served as a
mortgage strategist and portfolio manager for the Chemical Investment
Group and as financial analyst at Chemical Bank. Mr. Grillo is a CFA
charterholder.
In making investment decisions for the Fund, Mr. Grillo consults
regularly with Paul E. Suckow and Roger A. Early. Mr. Suckow is
Executive Vice President/Chief Investment Officer, Fixed-Income of the
Fund. He is a CFA charterholder and a graduate of Bradley University
with an MBA from Western Illinois University. Mr. Suckow was a fixed-
income portfolio manager at Delaware Investments from 1981 to 1985. He
returned to Delaware Investments in 1993 after eight years with
Oppenheimer Management Corporation where he served as Executive Vice
President and Director of Fixed Income. Mr. Early was the Fund's
Portfolio Manager from July 18, 1994 to February 21, 1997. While
continuing in the capacity as a consultant to the Fund, going
forward,Mr. Early will be devoting more of his time to other advisory
tasks on behalf of Delaware Management Company. Mr. Early has an
undergraduate degree in economics from the University of Pennsylvania's
Wharton School and an MBA in finance and accounting from the University
of Pittsburgh. He is also a CPA and a CFA charterholder. Prior to
joining Delaware Investments, Mr. Early was a portfolio manager for
Federated Investment Counseling's fixed-income group, with over $1
billion in assets.
Portfolio Trading Practices
Portfolio trades are generally made on a net basis without
brokerage commissions. However, the price may include a mark-up or mark-
down. Banks, brokers or dealers are selected by the Manager to execute
the Fund's portfolio transactions.
The Fund uses its best efforts to obtain the best available price
and most favorable execution for portfolio transactions. Orders may be
placed with brokers or dealers who provide brokerage and research
services to the Manager or its advisory clients. These services may be
used by the Manager in servicing any of its accounts. Subject to best
price and execution, the Fund may consider a broker/dealer's sales of
shares of funds in the Delaware Investments family in placing portfolio
orders and may place orders with broker/dealers that have agreed to
defray certain expenses of such funds, such as custodian fees.
Performance Information
From time to time, the Fund may quote yield or total return
performance of the Class in advertising and other types of literature.
The current yield for the Class will be calculated by dividing the
annualized net investment income earned by the Class during a recent 30-
day period by the net asset value per share on the last day of the
period. The yield formula provides for semi-annual compounding, which
assumes that net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period.
Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions. Each presentation will
include the average annual total return for one-, five- and ten-year, or
life-of-fund periods, as applicable. The Fund may also advertise
aggregate and average total return information concerning the Class over
additional periods of time.
Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.
Statements and Confirmations
You will receive quarterly statements of your account summarizing
all transactions during the period. A confirmation statement will be
sent following all transactions other than those involving a
reinvestment of dividends. You should examine statements and
confirmations immediately and promptly report any discrepancy by calling
your Client Services Representative.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information
about the Fund's investments and performance. Government Fund, Inc.'s
fiscal year ends on July 31.
Distribution and Service
The Distributor, Delaware Distributors, L.P., serves as the
national distributor for the Fund under a Distribution Agreement dated
April 3, 1995, as amended on November 29, 1995. The Distributor bears
all of the costs of promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the
Fund under an Agreement dated June 29, 1988. The Transfer Agent also
provides accounting services to the Fund pursuant to the terms of a
separate Fund Accounting Agreement. Certain recordkeeping and other
shareholder services that otherwise would be performed by the Transfer
Agent may be performed by certain other entities and the Transfer Agent
may elect to enter into an agreement to pay such other entities for
those services. In addition, participant account maintenance fees may be
assessed for certain recordkeeping provided as part of retirement plan
and administration service packages. These fees are based on the number
of participants in the plan and the various services selected. Fees will
be quoted upon request and are subject to change.
The directors annually review fees paid to the Distributor and the
Transfer Agent. The Distributor and the Transfer Agent are also
indirect, wholly owned subsidiaries of DMH.
* * *
As with other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected
if the computer systems used by its service providers do not properly
process and calculate date-related information from and after January 1,
2000. This is commonly known as the "Year 2000 Problem." The Fund is
taking steps to obtain satisfactory assurances that the Fund's major
service providers are taking steps reasonably designed to address the
Year 2000 Problem with respect to the computer systems that such service
providers use. There can be no assurance that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
Expenses
Government Fund, Inc. is responsible for all of its own expenses
other than those borne by the Manager under the Investment Management
Agreement and those borne by the Distributor under the Distribution
Agreement. The ratio of operating expenses to average daily net assets
for the Class was 0.90% for the fiscal year ended July 31, 1998.
Shares
The Fund is an open-end management investment company, currently
offering one series of shares. The Fund's portfolio of assets is
diversified as defined by the 1940 Act. Commonly known as a mutual fund,
Government Fund, Inc. was organized as a Maryland corporation on April
23, 1985.
Fund shares have a par value of $.01, equal voting rights, except
as noted below, and are equal in all other respects. All shares have
noncumulative voting rights which means that the holders of more than
50% of Government Fund, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Government Fund, Inc. is not required, and does not
intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act.
In addition to the Class, the Fund also offers the U.S. Government
Fund A Class, the U.S. Government Fund B Class and the U.S. Government
Fund C Class. Shares of each class represent proportionate interests in
the assets of the Fund and have the same voting and other rights and
preferences as the other classes of the Fund, except that shares of the
Class are not subject to, and may not vote on matters affecting, the
Fund's Distribution Plans under Rule 12b-1 relating to the U.S.
Government Fund A Class, the U.S. Government Fund B Class and the U.S.
Government Fund C Class.
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS
GNMA Securities
The Fund may invest in certificates of the Government National
Mortgage Association ("GNMA"). GNMA Certificates are mortgage-backed
securities. Each Certificate evidences an interest in a specific pool of
mortgages insured by the Federal Housing Administration or the Farmers
Home Administration or guaranteed by the Veterans Administration.
Scheduled payments of principal and interest are made to the registered
holders of GNMA Certificates. The GNMA Certificates in which the Fund
will invest are of the modified pass-through type. GNMA guarantees the
timely payment of monthly installments of principal and interest on
modified pass-through Certificates at the time such payments are due,
whether or not such amounts are collected by the issuer on the
underlying mortgages. The National Housing Act provides that the full
faith and credit of the United States is pledged to the timely payment
of principal and interest by GNMA of amounts due on these GNMA
Certificates.
The average life of GNMA Certificates varies with the maturities of
the underlying mortgage instruments with maximum maturities of 30 years.
The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result
of prepayments of refinancing of such mortgages or foreclosure. Such
prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest, and have the effect of
reducing future payments. Due to the GNMA guarantee, foreclosures impose
no risk to principal investments.
The average life of pass-through pools varies with the maturities
of the underlying mortgage instruments. In addition, a pool's term may
be shortened by unscheduled or early payments of principal and interest
on the underlying mortgages. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and other
social and demographic conditions. As prepayment rates vary widely, it
is not possible to accurately predict the average life of a particular
pool. However, statistics indicate that the average life of the type of
mortgages backing the majority of GNMA Certificates is approximately 12
years. For this reason, it is standard practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in
the twelfth year. Pools of mortgages with other maturities or different
characteristics will have varying assumptions for average life. The
assumed average life of pools of mortgages having terms of less than 30
years is less than 12 years, but typically not less than five years.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages
underlying the Certificates, but only by the amount of the fees paid to
GNMA and the issuer. Such fees in the aggregate usually amount to
approximately 1/2 of 1%.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. In periods of
falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of a pool of mortgage-related
securities. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Prepayments generally occur when interest rates have
fallen. Reinvestments of prepayments will be at lower rates.
Historically, actual average life has been consistent with the 12-year
assumption referred to above. The actual yield of each GNMA Certificate
is influenced by the prepayment experience of the mortgage pool
underlying the Certificates and may differ from the yield based on the
assumed average life. Interest on GNMA Certificates is paid monthly
rather than semi-annually as for traditional bonds.
Mortgage-Backed Securities
Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs). CMOs are debt securities issued by U.S.
government agencies or by financial institutions and other mortgage
lenders and collateralized by a pool of mortgages held under an
indenture. CMOs are issued in a number of classes or series with
different maturities. The classes or series are retired in sequence as
the underlying mortgages are repaid. Prepayment may shorten the stated
maturity of the obligation and can result in a loss of premium, if any
has been paid. Certain of these securities may have variable or floating
interest rates and others may be stripped (securities which provide only
the principal or interest feature of the underlying security).
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities.
CMOs and REMICs issued by private entities are not Government
securities and are not directly guaranteed by any Government agency.
They are secured by the underlying collateral of the private issuer. The
Fund will invest in such private-backed securities only if they are 100%
collateralized at the time of issuance by securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
The Fund currently invests in privately-issued CMOs and REMICs only if
they are rated at the time of purchase in the two highest grades by a
nationally-recognized rating agency.
Asset-Backed Securities
As noted and subject to the limitations set forth in Investment
Strategy, the Fund may invest in securities which are backed by assets
such as receivables on home equity and credit loans, receivables
regarding automobile, mobile home and recreational vehicle loans,
wholesale dealer floor plans and leases or other loans or financial
receivables currently available or which may be developed in the future.
Such receivables are securitized in either a pass-through or a pay-
through structure. Pass-through securities provide investors with an
income stream consisting of both principal and interest payments in
respect of the receivables in the underlying pool. Pay-through asset-
backed securities are debt obligations issued usually by a special
purpose entity, which are collateralized by the various receivables and
in which the payments on the underlying receivables provide the funds to
pay the debt service on the debt obligations issued.
The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying
assets. Such rate of payments may be affected by economic and various
other factors such as changes in interest rates or the concentration of
collateral in a particular geographic area. Therefore, the yield may be
difficult to predict and actual yield to maturity may be more or less
than the anticipated yield to maturity. Due to the shorter maturity of
the collateral backing such securities, there tends to be less of a risk
of substantial prepayment than with mortgage-backed securities but the
risk of such a prepayment does exist. Such asset-backed securities do,
however, involve certain risks not associated with mortgage-backed
securities, including the risk that security interests cannot be
adequately or in many cases ever established, and other risks which may
be peculiar to particular classes of collateral. For example, with
respect to credit card receivables, a number of state and federal
consumer credit laws give debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the outstanding balance. In
the case of automobile receivables, there is a risk that the holders may
not have either a proper or first security interest in all of the
obligations backing such receivables due to the large number of vehicles
involved in a typical issuance and technical requirements under state
laws. Therefore, recoveries on repossessed collateral may not always be
available to support payments on the securities. For further discussion
concerning the risks of investing in such asset-backed securities, see
Part B.
Repurchase Agreements
In order to invest its short-term cash reserves or when in a
temporary defensive posture, the Fund may enter into repurchase
agreements with banks or broker/dealers deemed to be creditworthy by the
Manager, under guidelines approved by the Board of Directors. A
repurchase agreement is a short-term investment in which the purchaser
(i.e., the Fund) acquires ownership of a debt security and the seller
agrees to repurchase the obligation at a future time and set price,
thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than
one week but on occasion for longer periods. Not more than 10% of the
Fund's assets may be invested in repurchase agreements of over seven-
days' maturity or other illiquid assets. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the
loss to the Fund, if any, would be the difference between the repurchase
price and the market value of the security. The Fund will limit its
investments in repurchase agreements to those which the Manager under
the guidelines of the Board of Directors determines to present minimal
credit risks and which are of high quality. In addition, the Fund must
have collateral of at least 100% of the repurchase price, including the
portion representing the Fund's yield under such agreements which is
monitored on a daily basis. Such collateral is held by Bankers Trust
Company ("Custodian") in book entry form. Such agreements may be
considered loans under the 1940 Act, but the Fund considers repurchase
agreements contracts for the purchase and sale of securities, and it
seeks to perfect a security interest in the collateral securities so
that it has the right to keep and dispose of the underlying collateral
in the event of default.
The funds in the Delaware Investments family have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of
the 1940 Act to allow the funds in the Delaware Investments family
jointly to invest cash balances. The Fund may invest cash balances in a
joint repurchase agreement in accordance with the terms of the Order and
subject generally to the conditions described above.
Options
The Fund may write put and call options on a covered basis only,
and will not engage in option writing strategies for speculative
purposes. The Fund may write covered call options and secured put
options from time to time on such portion of its portfolio, without
limit, as the Manager determines is appropriate in seeking to obtain the
Fund's investment objective. The Fund may also purchase (i) call options
to the extent that premiums paid for such options do not exceed 2% of
the Fund's total assets and (ii) put options to the extent that premiums
paid for such options do not exceed 2% of the Fund's total assets.
A. Covered Call Writing--A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Fund, has the
obligation to sell the underlying security at the exercise price during
the option period. There is no percentage limitation on writing covered
call options.
The advantage to the Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that
if the security rises in value the Fund will lose the appreciation.
During the option period, a covered call option writer may be
assigned an exercise notice by the broker/dealer through whom such call
option was sold requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time in
which the writer effects a closing purchase transaction. A closing
purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying
security or to enable the Fund to write another call option on the
underlying security with either a different exercise price or expiration
date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in
a closing purchase transaction may be partially or entirely offset by
the premium received from a sale of a different call option on the same
underlying security. Such a loss may also be wholly or partially offset
by unrealized appreciation in the market value of the underlying
security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option less
the commission paid. Such a gain, however, may be offset by depreciation
in the market value of the underlying security during the option period.
If a call option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security equal to the difference between the
cost of the underlying security and the proceeds of the sale of the
security plus the amount of the premium on the option less the
commission paid.
The market value of a call option generally reflects the market
price of the underlying security. Other principal factors affecting
market value include supply and demand, interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
Call options will be written only on a covered basis, which means
that the Fund will own the underlying security subject to a call option
at all times during the option period. Unless a closing purchase
transaction is effected, the Fund would be required to continue to hold
a security which it might otherwise wish to sell. Options written by the
Fund will normally have expiration dates between three and nine months
from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at
the time the option is written.
B. Purchasing Call Options--The Fund may purchase call options to
the extent that premiums paid by the Fund do not aggregate more than 2%
of the Fund's total assets. When the Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the
Fund obtains the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The
writer of the call option, who receives the premium upon writing the
option, has the obligation, upon exercise of the option, to deliver the
underlying security against payment of the exercise price. The advantage
is that the Fund may hedge against an increase in the price of
securities which it ultimately wishes to buy. However, the premium paid
for the call option plus any transaction costs will reduce the benefit,
if any, realized by the Fund upon exercise of the option.
The Fund may, following the purchase of a call option, liquidate
its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option
previously purchased. The Fund will realize a profit from a closing sale
transaction if the price received on the transaction is more than the
premium paid to purchase the original call option; the Fund will realize
a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call
option.
Although the Fund will generally purchase only those call options
for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an Exchange will exist for
any particular option, or at any particular time, and for some options
no secondary market on an Exchange may exist. In such event, it may not
be possible to effect closing transactions in particular options, with
the result that the Fund would be required to exercise its options in
order to realize any profit and would incur brokerage commissions upon
the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options.
Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any
value to the Fund.
C. Secured Put Writing--A put option gives the purchaser of the
option the right to sell, and the writer, in this case the Fund, the
obligation to buy the underlying security at the exercise price during
the option period. During the option period, the writer of a put option
may be assigned an exercise notice by the broker/dealer through whom the
option was sold requiring the writer to make payment of the exercise
price against delivery of the underlying security. In this event, the
exercise price will usually exceed the then market value of the
underlying security. This obligation terminates upon expiration of the
put option or at such earlier time at which the writer effects a closing
purchase transaction. The operation of put options in other respects is
substantially identical to that of call options. Premiums on outstanding
put options written or purchased by the Fund may not exceed 2% of its
total assets.
The advantage to the Fund of writing such options is that it
receives premium income. The disadvantage is that the Fund may have to
purchase securities at higher prices than the current market price if
the put is exercised.
Put options will be written only on a secured basis, which means
that the Fund will maintain in a segregated account with its Custodian
cash or U.S. government securities in an amount not less than the
exercise price of the option at all times during the option period. The
amount of cash or U.S. government securities held in the segregated
account will be adjusted on a daily basis to reflect changes in the
market value of the securities covered by the put option written by the
Fund. Secured put options will generally be written in circumstances
where the Manager wishes to purchase the underlying security for the
Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund would write a secured put option at an
exercise price which, reduced by the premium received on the option,
reflects the lower price it is willing to pay.
D. Purchasing Put Options--The Fund may purchase put options to the
extent that premiums paid for such options do not exceed 2% of the
Fund's total assets. The Fund will, at all times during which it holds a
put option, own the security covered by such option.
The Fund intends to purchase put options in order to protect
against a decline in the market value of the underlying security below
the exercise price less the premium paid for the option ("protective
puts"). The ability to purchase put options will allow the Fund to
protect unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund will
continue to receive interest income on the security. If the security
does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such sales
will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.
Futures
The Fund may invest in futures contracts and options on such
futures contracts subject to certain limitations. Futures contracts are
agreements for the purchase or sale for future delivery of securities.
When a futures contract is sold, the Fund incurs a contractual
obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A
purchase of a futures contract means the acquisition of a contractual
right to obtain delivery to the Fund of the securities called for by the
contract at a specified price during a specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by
entering into an offsetting transaction. When the Fund enters into a
futures transaction, it must deliver to the futures commission merchant
selected by the Fund an amount referred to as "initial margin." This
amount is maintained by the futures commission merchant in an account at
the Fund's Custodian bank. Thereafter, a "variation margin" may be paid
by the Fund to, or drawn by the Fund from, such account in accordance
with controls set for such account, depending upon changes in the price
of the underlying securities subject to the futures contract.
The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities
except that options on futures give the purchaser the right, in return
for the premium paid, to assume a position in a futures contract, rather
than actually to purchase or sell the futures contract, at a specified
exercise price at any time during the period of the option.
The purpose of the purchase or sale of futures contracts for the
Fund, which consists of a substantial number of government securities,
is to protect the Fund against the adverse effects of fluctuations in
interest rates without actually buying or selling such securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to hedge in anticipation of subsequent
purchases of government securities at higher prices.
With respect to options on futures contracts, when the Fund is not
fully invested, it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates. The
writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at the
expiration of the option is below the exercise price, the Fund will
retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio
holdings. The writing of a put option on a futures contract constitutes
a partial hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price
at expiration of the option is higher than the exercise price, the Fund
will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of government securities
which the Fund intends to purchase.
If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between the value of
its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing options on futures may, to
some extent, be reduced or increased by changes in the value of
portfolio securities. The Fund will purchase a put option on a futures
contract to hedge the Fund's portfolio against the risk of rising
interest rates.
To the extent that interest rates move in an unexpected direction,
the Fund may not achieve the anticipated benefits of futures contracts
or options on futures contracts or may realize a loss. For example, if
the Fund is hedged against the possibility of an increase in interest
rates which would adversely affect the price of government securities
held in its portfolio and interest rates decrease instead, the Fund will
lose part or all of the benefit of the increased value of its government
securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if the Fund had
insufficient cash, it may be required to sell government securities from
its portfolio to meet daily variation margin requirements. Such sales of
government securities may, but will not necessarily, be at increased
prices which reflect the rising market. The Fund may be required to sell
securities at a time when it may be disadvantageous to do so.
To the extent that the Fund purchases an option on a futures
contract and fails to exercise the option prior to the exercise date, it
will suffer a loss of the premium paid. Further, with respect to options
on futures contracts, the Fund may seek to close out an option position
by writing or buying an offsetting position covering the same securities
or contracts and have the same exercise price and expiration date. The
ability to establish and close out positions on options will be subject
to the existence of a liquid secondary market, which cannot be assured.
The Fund will not enter into futures contracts to the extent that
more than 5% of the Fund's assets are required as futures contract
margin deposits and will not invest in futures contracts or options
thereon to the extent that obligations relating to such transactions
exceed 20% of the Fund's assets.
Restricted Securities
While maintaining oversight, the Board of Directors has delegated
to the Manager the day-to-day function of determining whether or not
individual Rule 144A Securities are liquid for purposes of the Fund's
10% limitation on investments in illiquid assets. The Board has
instructed the Manager to consider the following factors in determining
the liquidity of a Rule 144A Security: (i) the frequency of trades and
trading volume for the security; (ii) whether at least three dealers are
willing to purchase or sell the security and the number of potential
purchasers; (iii) whether at least two dealers are making a market in
the security; (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result,
the Fund's holdings of illiquid securities exceed the Fund's 10% limit
on investments in such securities, the Manager will determine what
action to take to ensure that the Fund continues to adhere to such
limitation.
Portfolio Loan Transactions
The major risk to which the Fund would be exposed on a loan
transaction is the risk that the borrower would go bankrupt at a time
when the value of the security goes up. Therefore, the Fund will only
enter into loan arrangements after a review of all pertinent facts by
the Manager, subject to overall supervision by the Board of Directors,
including the creditworthiness of the borrowing broker, dealer or
institution and then only if the consideration to be received from such
loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager. See Part B.
* * *
Investments by Fund of Funds
The Fund accepts investments from the series of Delaware Group
Foundation Funds, a fund of funds (the "Foundation Funds"). From time to
time, the Fund may experience large investments or redemptions due to
allocations or rebalancings by the Foundation Funds. While it is
impossible to predict the overall impact of these transactions over
time, there could be adverse effects on portfolio management to the
extent that the Fund may be required to sell securities or invest cash
at times when it would not otherwise do so. These transactions could
also have tax consequences if sales of securities result in gains and
could also increase transactions costs or portfolio turnover. The
Manager will monitor such transactions and will attempt to minimize any
adverse effects on both the Fund and the Foundation Funds resulting from
such transactions.
Part B describes certain of these investment policies and risk
considerations. Part B also sets forth other investment policies, risk
considerations and more specific investment restrictions.
For more information, 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
www.delawarefunds.com
[RECYCLED LOGO OMITED] Printed in the U.S.A. on recycled paper.
DGGF-IC-CHT [--] PP XX/98
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U.S. GOVERNMENT FUND
INSTITUTIONAL
- --------------
Prospectus
September 29, 1998
[GRAPHIC OMITTED: DELAWARE INVESTMENTS LOGO]
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 Advisors
(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) $0,000 None $31,000 $00,000
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. U.S.
Government Money Fund seeks maximum current income with preservation of
principal and maintenance of liquidity by investing only in short-term
securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities, while maintaining a stable net asset
value.
Delaware Cash Reserve seeks the highest level of income consistent
with the preservation of capital and liquidity through investments in
short-term money market instruments, while maintaining a stable net
asset value.
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 Florida Intermediate Fund seeks to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to
select investments that will enable its shares to be exempt from the
Florida intangible personal property tax. The Fund seeks to reduce
market risk by maintaining an average weighted maturity from five to ten
years.
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.
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.
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Accountant's Report
*The financial statements and Accountant's Report listed
above are incorporated into Part B by reference to the
Registrant's Annual Report for the fiscal year ended
July 31, 1998.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Articles of Incorporation, as amended and
supplemented through November 20, 1995 incorporated
into this filing by reference to Post-Effective
Amendment No. 17 filed November 20, 1996.
(b) Executed Articles Supplementary (November 28, 1995)
incorporated into this filing by reference to Post-
Effective No. 18 filed September 27, 1996.
(2) By-Laws. By-Laws, as amended through November 20, 1995
incorporated into this filing by reference to Post-
Effective Amendment No. 17 filed November 20, 1996.
(3) Voting Trust Agreement. Inapplicable.
(4) Copies of All Instruments Defining the Rights of Holders.
(a) Articles of Incorporation, Articles of Amendment and
Articles Supplementary.
(i) Article Second of Articles Supplementary (April 29,
1994), Article Fourth of Articles Supplementary
(June 1, 1992), Article Fifth of Articles of
Amendment (June 14, 1988) and Article Eighth of
Articles of Incorporation (April 19, 1985)
incorporated into this filing by reference to Post-
Effective Amendment No. 17 filed November 20, 1995.
(ii) Article Fourth of Articles Supplementary (November
28, 1995) incorporated into this filing by reference
to Post-Effective Amendment No. 18 filed September
27, 1996.
(b) By-Laws. Article II, Article III, as amended, and
Article XIII, which was subsequently redesignated as
Article XIV, incorporated into this filing by
reference to Post-Effective Amendment No. 17 filed
November 20, 1995.
(5) Investment Management Agreement. Investment Management
Agreement between Delaware Management Company, Inc. and
the Registrant dated April 3, 1995 incorporated into this
filing by reference to Post-Effective Amendment No. 17
filed November 20, 1995.
(6)(a) Distribution Agreement.
(i) Form of Distribution Agreement (April 3, 1995)
incorporated into this filing by reference to Post-
Effective Amendment No. 17 filed November 20, 1995.
(ii) Form of Amendment No. 1 to Distribution Agreement
(November 28, 1995) incorporated into this filing
by reference to Post-Effective Amendment No. 17
filed November 20, 1995.
(b) Administration and Service Agreement. Form of
Administration and Service Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 17 filed
November 20, 1995.
(c) Dealer's Agreement. Dealer's Agreement (as amended
November 1995) incorporated into this filing by
reference to Post-Effective Amendment No. 17 filed
November 20, 1995.
(d) Mutual Fund Agreement for the Delaware Group of Funds
(as amended November 1995) (Module) incorporated into
this filing by reference to Post-Effective Amendment
No. 18 filed September 27, 1996.
(7) Bonus, Profit Sharing, Pension Contracts.
(a) Amended and Restated Profit Sharing Plan (November 17,
1994) incorporated into this filing by reference to
Post-Effective Amendment No. 17 filed November 20,
1995.
(b) Amendment to Profit Sharing Plan (December 21, 1995)
(Module) incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed September 27,
1996.
(8) Custodian Agreement.
(a) Custodian Agreement (May, 1996) between the Registrant
and The Chase Manhattan Bank attached as Exhibit.
(b) Securities Lending Agreement (1996) between the
Registrant and The Chase Manhattan Bank attached as
Exhibit.
(c) Letter to the Chase Manhattan Bank to add U.S.
Government Fund to Schedule A of the Global Custody
Agreement.
(9) Other Material Contracts.
(a) Shareholders Services Agreement between Delaware
Service Company, Inc. and the Registrant dated June 29,
1988 incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed September 27,
1996.
(b) Executed Delaware Group of Funds Fund Accounting
Agreement between Delaware Service Company, Inc. and
the Registrant (August 19, 1996) incorporated into this
filing by reference to Post-Effective Amendment No. 18
filed September 27, 1996.
(i) Amendment No. 7 (October 14, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(ii) Amendment No. 8 (December 18, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(iii) Amendment No. 9 (March 31, 1998) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
attached as Exhibit.
(10) Opinion of Counsel. Attached as Exhibit.
(11) Consent and Report of Auditors. Attached as Exhibit.
(12-13) Inapplicable.
(14) Model Plans. Incorporated into this filing by reference
to Post-Effective Amendment No. 14 filed September 29,
1993 and Post-Effective Amendment No. 17 filed November
20, 1995.
**(15) Plans under Rule 12b-1.
(a) Form of Plan under Rule 12b-1 for Class A (November
29, 1995) incorporated into this filing by reference
to Post-Effective Amendment No. 17 filed November 20,
1995.
(b) Form of Plan under Rule 12b-1 for Class B (November
29, 1995) incorporated into this filing by reference
to Post-Effective Amendment No. 17 filed November 20,
1995.
(c) Form of Plan under Rule 12b-1 for Class C (November
29, 1995) incorporated into this filing by reference
to Post-Effective Amendment No. 17 filed November 20,
1995.
(16) Schedules of Computation for each Performance Quotation.
(a) Incorporated into this filing by reference to Post-
Effective Amendment No. 17 filed November 20, 1995,
Post-Effective Amendment No. 18 filed September 27,
1996 and Post-Effective Amendment No. 19 filed
September 29, 1997.
** Relates only to U.S. Government Fund A Class, U.S. Government Fund B
Class and U.S. Government Fund C Class.
(17) Financial Data Schedules. Attached as Exhibit.
(18) Inapplicable.
(19) Other: Directors' Power of Attorney. Attached as
Exhibit.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
(1) (2)
Number of
Title of Class Record Holders
------------- -----------------
Delaware Group Government Fund, Inc.'s:
U.S. Government Fund A Class
Common Stock Par Value 6,715 Accounts as of
$.01 Per Share August 31, 1998
U.S. Government Fund B Class
Common Stock Par Value 754 Accounts as of
$.01 Per Share August 31, 1998
U.S. Government Fund C Class
Common Stock Par Value 183 Accounts as of
$.01 Per Share August 31, 1998
U.S. Government Fund
Institutional Class
Common Stock Par Value 29 Accounts as of
$.01 Per Share August 31, 1998
Item 27. Indemnification. Incorporated into this filing by reference to
initial Registration Statement filed May 17, 1985 and Post-Effective
Amendment No. 17 filed November 20, 1996.
Item 28. Business and Other Connections of Investment Adviser.
Delaware Management Company, a series of Delaware Management
Business Trust, (the "Manager") serves as investment manager to the
Registrant and also serves as investment manager or sub-adviser to
certain of the other funds in the Delaware Group (Delaware Group Equity
Funds I, Inc., Delaware Investments family (Delaware Group Equity Funds
I, Inc., Delaware Group Equity Funds II, Inc., Delaware Group Equity
Funds III, Inc., Delaware Group Equity Funds IV, Inc., Delaware Group
Equity Funds V, Inc., Delaware Group Government Fund, Inc., Delaware
Group Income Funds, Inc., Delaware Group Limited-Term Government Funds,
Inc., Delaware Group Tax-Free Fund, Inc., Delaware Group State Tax-Free
Income Trust, Delaware Group Tax-Free Money Fund, Inc., Delaware Group
Premium Fund, Inc., Delaware Group Global & International Funds, Inc.,
Delaware Pooled Trust, Inc., Delaware Group Adviser Funds, Inc.,
Delaware Group Dividend and Income Fund, Inc., Delaware Group Global
Dividend and Income Fund, Inc., Delaware Group Foundation Funds, Inc.,
Voyageur Intermediate Tax-Free Funds, Inc., Voyageur Tax-Free Funds,
Inc., Voyageur Funds, Inc., Voyageur Insured Funds, Inc., Voyageur
Investment Trust, Voyageur Investment Trust II, Voyageur Mutual Funds,
Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc.,
Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured
Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income
Fund, Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota
Municipal Fund II, Inc. and Voyageur Minnesota Municipal Fund III,
Inc.). In addition, certain officers of the Manager also serve as
directors/trustees of the other funds in the Delaware Investments
family, and certain officers are also officers of these other funds. A
company indirectly owned by the Manager's indirect parent company acts
as principal underwriter to the mutual funds in the Delaware Investments
family (see Item 29 below) and another such company acts as the
shareholder services, dividend disbursing, accounting servicing and
transfer agent for all of the mutual funds in the Delaware Investments
family.
The following persons serving as directors or officers of the
Manager have held the following positions during the past two years:
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Wayne A. Stork Chairman of the Board, President, Chief Executive
Officer and Chief Investment Officer of Delaware
Management Company (a series of Delaware Management
Business Trust); Chairman of the Board, President,
Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company,
Inc. and Delaware Management Business Trust;
Chairman of the Board, President, Chief Executive
Officer and Director of DMH Corp., Delaware
Distributors, Inc. and Founders Holdings, Inc.;
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 Holdings Ltd. and Delaware
International Advisers Ltd.; Chairman of the Board
and Director of the Registrant, each of the other
funds in the Delaware Investments family, Delaware
Management Holdings, Inc., and Delaware Capital
Management, Inc.; Chairman of Delaware Distributors,
L.P.; President and Chief Executive Officer of
Delvoy, Inc.; and Director and/or Trustee of
Delaware Service Company, Inc. and Delaware
Investment & Retirement Services, Inc.
Richard G.
Unruh, Jr. Executive Vice President of the Registrant, each of
the other funds in the Delaware Investments family,
Delaware Management Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Management Company (a
series of Delaware Management Business Trust);
Executive Vice President and Director/Trustee of
Delaware Management Company, Inc. and Delaware
Management Business Trust; President of Delaware
Investment Advisers (a series of Delaware Management
Business Trust); and Director of Delaware
International Advisers Ltd.
Board of Directors, Chairman of Finance Committee,
Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors,
Chairman of Finance Committee, AAA Mid Atlantic,
Inc. since 1989, 2040 Market Street, Philadelphia,
PA; Board of Directors, Metron, Inc. since 1995,
11911 Freedom Drive, Reston, VA
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Paul E. Suckow Executive Vice President/Chief Investment Officer,
Fixed Income of Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business
Trust), the Registrant, each of the other funds in
the Delaware Investments family 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; and Director
of Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
David K. Downes Executive Vice President, Chief Operating Officer
and Chief Financial Officer of the Registrant and
each of the other funds 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 Operating Officer, Chief
Financial Officer and Director of Delaware
Management Company, Inc., DMH Corp, Delaware
Distributors, Inc., Founders Holdings, Inc. and
Delvoy, Inc.; Executive Vice President, Chief
Financial Officer, Chief Administrative Officer and
Trustee of Delaware Management Business Trust;
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
Investment & Retirement Services, Inc.; Chairman and
Director of Delaware Management Trust Company;
Director of Delaware International Advisers Ltd.;
and Vice President of Lincoln Funds Corporation
Chief Executive Officer and Director of Forewarn,
Inc. since 1993, 8 Clayton Place, Newtown Square, PA
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
George M. Senior Vice President, Secretary and General Counsel
Chamberlain, Jr. of the Registrant, each of the other funds in the
Delaware Investments family, Senior Vice President
and Secretary of 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 Delaware Management Company,
Inc., DMH Corp., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings,
Inc., Delaware Capital Management, Inc., Delaware
Investment & Retirement Services, Inc., Delvoy, Inc.
and Delaware Management Business Trust; Senior Vice
President and Director of Delaware International
Holdings Ltd.; Executive Vice President, Secretary
and Director of Delaware Management Trust Company;
Director of Delaware International Advisers Ltd.;
Secretary of Lincoln Funds Corporation
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Richard J.
Flannery Senior Vice President/Corporate and International
Affairs of the Registrant, each of the other funds
in the Delaware Investments family, Executive Vice
President and General Counsel of Delaware Management
Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc., Delaware
Distributors, L.P., Delaware Management Trust Company,
Delaware Capital Management, Inc., Delaware Service
Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management
Business Trust) and Delaware Investment & Retirement
Services, Inc.; Executive Vice President/Corporate
& International Affairs and Director of Delaware
International Holdings Ltd.; Senior Vice
President/Corporate and International Affairs and
Director of Founders Holdings, Inc. and Delvoy,
Inc.; Senior Vice President of Founders CBO
Corporation; and Director of Delaware International
Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since 1991,
Bulltown Rd., Elverton, PA; Director and Member of
Executive Committee of Stonewall Links, Inc. since
1991, Bulltown Rd., Elverton, PA
Michael P. Bishof Senior Vice President/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 of the
Registrant, each of the other funds in the Delaware
Investments family and Founders Holdings, Inc.;
Senior Vice President and Treasurer/ Manager,
Investment Accounting of Delaware Distributors, L.P.
and Delaware Investment Advisers (a series of
Delaware Management Business Trust); Assistant
Treasurer of Founders CBO Corporation; and Senior
Vice President and Manager of Investment Accounting
of Delaware International Holdings Ltd.
* Business Address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Capital Management,
Inc., Delaware Distributors, L.P., Delaware Service
Company, Inc., Delaware International Holdings Ltd.,
Delaware Management Company (a series of Delaware
Management Business Trust), Delvoy, Inc. and
Delaware Management Business Trust; Senior Vice
President/Corporate Controller of the Registrant,
each of the other funds in the Delaware Investments
family and Founders Holdings, Inc.; Executive Vice
President, Chief Financial Officer and Treasurer of
Delaware Management Trust Company; Chief Financial
Officer and Treasurer of Delaware Investment &
Retirement Services, Inc.; Senior Vice
President/Assistant Treasurer of Founders CBO
Corporation; and Treasurer of Lincoln Funds
Corporation.
Michael T. Taggart Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc. and Delaware Management Company (a
series of Delaware Management Business Trust)
Douglas L.
Anderson Senior Vice President/Operations of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment and Retirement Services,
Inc. and Delaware Service Company, Inc.; Senior Vice
President/Operations and Director of Delaware
Management Trust Company
James L. Shields Senior Vice President/Chief Information Officer of
Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management
Business Trust), Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy
General Counsel of the Registrant and each of the
other funds in the Delaware 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),
Delaware Management Holdings, Inc., DMH Corp.,
Delaware Distributors, L.P., Delaware Distributors
Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc.,
Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.; Assistant
Secretary of Delaware Management Business Trust; and
Vice President and Assistant Secretary of Delvoy,
Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Richelle S.
Maestro Vice President and Assistant Secretary of the
Registrant, each of the other funds 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), Delaware Management Holdings, Inc.,
Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., DMH Corp.,
Delaware Management Trust Company, Delaware Capital
Management, Inc., Delaware Investment & Retirement
Services, Inc., Founders Holdings, Inc. and Delvoy,
Inc.; Vice President and Secretary of Delaware
International Holdings Ltd.; and Secretary of
Founders CBO Corporation
Partner of Tri-R Associates since 1989, 10001
Sandmeyer Lane, Philadelphia, PA
Richard Salus1 Vice President/Assistant Controller of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and Delaware Management Trust Company
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of the
Registrant, each of the other funds in the Delaware
Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of
Delaware Management Business Trust), Delaware
Management Holdings, Inc., DMH Corp., Delaware
Management Trust Company and Delaware Investment &
Retirement Services, Inc.; Vice President/Director
of Internal Audit of Delvoy, Inc.
Joel A. Ettinger2 Vice President/Director of Taxation of the
Registrant, each of the other funds in the Delaware
Investments family, Delaware Management Company,
Inc., Delaware Management Company (a series of
Delaware Management Business Trust) and Delaware
Management Holdings, Inc.
Christopher Adams Vice President/Strategic Planning of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and Delaware Service Company, Inc.
Susan L. Hanson Vice President/Strategic Planning of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and Delaware Service Company, Inc.
Dennis J. Mara3 Vice President/Acquisitions of Delaware Management
Company, Inc. and Delaware Management Company (a
series of Delaware Management Business Trust)
Scott Metzger Vice President/Business Development of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and Delaware Service Company, Inc.
Lisa O. Brinkley Vice President/Compliance of the Registrant,
Delaware Management Company, Inc., each of the other
funds in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management
Business Trust), DMH Corp., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Management Trust Company,
Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.; Vice
President/Compliance Officer of Delaware Management
Business Trust; and Vice President of Delvoy, Inc.
Mary Ellen
Carrozza Vice President/Client Services of 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 the
Registrant
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
22 other investment companies in the Delaware
Investments family; Vice President of Founders
Holdings, Inc.; and Treasurer, Assistant Secretary
and Director of Founders CBO Corporation
Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
21 other investment companies in the Delaware
Investments family; Vice President of Founders
Holdings, Inc.; and President and Director of
Founders CBO Corporation
Gary A. Reed Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
19 other investment companies in the Delaware
Investments family and Delaware Capital Management,
Inc.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
19 other investment companies in the Delaware
Investments family and Delaware Capital Management,
Inc.
Roger A. Early Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
19 other investment companies in the Delaware
Investments family
Mitchell L.
Conery4 Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
19 other investment companies in the Delaware
Investments family and Delaware Capital Management,
Inc.
George H. Burwell Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and 10 investment companies in the Delaware
Investments family
John B. Fields Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), 10 investment
companies in the Delaware Investments family,
Delaware Capital Management, Inc. and Trustee of
Delaware Management Business Trust
Gerald S. Frey5 Vice President/Senior Portfolio Manager of 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 10
investment companies in the Delaware Investments
family
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
Christopher Beck6 Vice President/Senior Portfolio Manager of 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 10
investment companies in the Delaware Investments
family
Elizabeth H.
Howell7 Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), seven investment companies in the Delaware
Investments family
Andrew M.
McCullagh, Jr.8 Vice President/Senior Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) eight investment companies in the Delaware
Investments family
Paul Grillo Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust), the Registrant,
19 other investment companies in the Delaware
Investments family
Marshall T.
Bassett Vice President/Portfolio Manager of 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 each of
the other funds in the Delaware Investments family
John Heffern Vice President/Portfolio Manager of Delaware
Management Company, Inc., Delaware Management
Company (a series of Delaware Management Business
Trust) and each of the other funds in the Delaware
Investments family
Cynthia I. Isom Vice President/Portfolio Manager of Delaware Management
Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), and 17 other
companies in the Delaware Investments family.
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
2 TAX PRINCIPAL, Ernst & Young LLP prior to April 1998.
3 CORPORATE CONTROLLER, IIS prior to July 1997.
4 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
5 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June
1996.
6 SENIOR PORTFOLIO MANAGER, Pitcairn Trust Company prior to May 1997.
7 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May
1997.
8 SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER, Voyageur Asset
Management LLC prior to May 1997.
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter for
all the mutual funds in the Delaware Group.
(b) Information with respect to each director, officer or partner
of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ----------------- --------------------- ---------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Investment
Advisers Limited Partner None
Delaware Capital
Management, Inc. Limited Partner None
Wayne A. Stork Chairman Chairman
Bruce D. Barton President and Chief Executive None
Officer
David K. Downes Executive Vice President, Executive Vice
and Chief Financial Officer President,
Chief Operating
Officer
Operating Officer
and Chief
George M. Chamberlain, Jr. Senior Vice President/Secretary Senior Vice
President/
Secretary/General
Counsel
Richard J. Flannery Executive Vice President, Senior Vice
and General Counsel President/
Corporate and
International
Affairs
Joseph H. Hastings Senior Vice President/Corporate Senior Vice
Controller & Treasurer President/
Corporate
Controller
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ----------------- --------------------- ---------------------
Terrence P. Cunningham Senior Vice President/Financial None
Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
J. Chris Meyer Senior Vice President/ None
Director Product Management
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager
Michael P. Bishof Senior Vice President and
Treasurer/ Manager, Investment Senior Vice
Accounting President/Treasurer
Eric E. Miller Vice President/
Assistant Secretary/ Vice President/
Deputy General Counsel Assistant
Secretary/Deputy
General
Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Lisa O. Brinkley Vice President/Compliance Vice President/
Compliance
Daniel H. Carlson Vice President/Strategic
Marketing None
Diane M. Anderson Vice President/Plan Record
Keeping and Administration None
Anthony J. Scalia Vice President/Defined
Contribution Sales, SW Territory None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ----------------- --------------------- ---------------------
Courtney S. West Vice President/
Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Lori M. Burgess Vice President/Client Services None
Julia R. Vander Els Vice President/Participant
Services None
Jerome J. Alrutz Vice President/Retail Sales None
Scott Metzger Vice President/Business
Development Vice President/
Business
Development
Stephen C. Hall Vice President/
Institutional Sales None
Gregory J. McMillan Vice President/
National Accounts None
Holly W. Reimel Senior Vice President/Manager,
National Accounts None
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Senior Vice President/Product None
Development
Andrew W. Whitaker Vice President/
Financial Institutions None
Jesse Emery Vice President/ Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ----------------- --------------------- ---------------------
Michael J. Woods Vice President/UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing Support None
David P. Anderson Vice President/Wholesaler None
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze Vice President/Wholesaler None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Ronald A. Haimowitz Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/ Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ----------------- --------------------- ---------------------
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
John A. Wells Vice President/Marketing
Technology None
Scott Whitehouse Vice President/Wholesaler None
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818 Market
Street, Philadelphia, PA 19103 or One Commerce Square, Philadelphia, PA
19103.
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
(d) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Philadelphia and
Commonwealth of Pennsylvania on this 25th day of September, 1998.
DELAWARE GROUP GOVERNMENT FUND, INC.
By /s/ Wayne A. Stork
------------------
Wayne A. Stork
Chairman
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and on
the dates indicated:
Signature Title Date
- ------------------ ------------ ------------
<S> <C> <C>
/s/ Wayne A. Stork Chairman and Director September 25, 1998
- ------------------
Wayne A. Stork
Executive Vice President/
Chief Operating Officer/
Chief Financial Officer
(Principal Financial
Officer and
/s/David K. Downes Principal Accounting Officer) September 25, 1998
- ------------------
David K. Downes
/s/Walter P. Babich * Director September 25, 1998
- -------------------
Walter P. Babich
/s/Anthony D. Knerr * Director September 25, 1998
- -------------------
Anthony D. Knerr
/s/Ann R. Leven * Director September 25, 1998
- ---------------
Ann R. Leven
/s/W. Thacher Longstreth * Director September 25, 1998
- -----------------------
W. Thacher Longstreth
/s/ Thomas F. Madison * Director September 25, 1998
- ---------------------
Thomas F. Madison
/s/ Jeffrey J. Nick * Director September 25, 1998
- -------------------
Jeffrey J. Nick
/s/Charles E. Peck * Director September 25, 1998
- ------------------
Charles E. Peck
/s/John H. Durham * Director September 25, 1998
- -----------------
John H. Durham
*By /s/Wayne A. Stork
-----------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ---------- --------
EX-99.B8A Executed Custodian Agreement (May, 1996) between the Registrant
(MODULE NAME and The Chase Manhattan Bank.
CHASE_CUST_AGR)
EX-99.B8B Form of Securities Lending Agreement (1996) between the
Registrant and The Chase Manhattan Bank.
EX-99.B8C Letter to The Chase Manhattan Bank to add U.S. Government
Fund to Schedule A of the Global Custody Agreement.
EX-99.B9BI Amendment No. 7 (October 14, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BII Amendment No. 8 (December 18, 1997) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B9BIII Amendment No. 9 (March 31, 1998) to Schedule A to
Delaware Group of Funds Fund Accounting Agreement
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Auditors
EX-99.B19 Power of Attorney
EX-27 Financial Data Schedules
CHASE
GLOBAL CUSTODY AGREEMENT
AGREEMENT, effective May 1, 1996, between THE CHASE MANHATTAN BANK, N.A.
(the "Bank") and those registered investment companies listed on Schedule A
hereto (each a Customer ) on behalf of certain of their respective series,
as listed on Schedule A (individually and collectively the Series ).
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer on behalf of each
Series ("Custody Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer
("Securities"); and
(b) A deposit account in the name of the Customer on behalf of each
Series ("Deposit Account") for any and all cash in any currency received by
the Bank or its Subcustodian for the account of the Customer, which cash
shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. Such Instructions shall
specifically indicate to which Series such Assets belong or, if such Assets
belong to more than one Series, shall allocate such Assets to the appropriate
Series. The Bank may deliver securities of the same class in place of those
deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
To the extent available and permissible under applicable law and
regulation, Cash held pursuant to Instructions shall be held in interest
bearing accounts. If interest bearing accounts are not available, such cash
may be held in non-interest bearing accounts. The Bank is authorized to
maintain cash balances on deposit for the Customer with itself or one of its
affiliates. Interest bearing accounts shall bear interest at such reasonable
rates of interest as may from time to time be paid on such accounts by the
Bank or its affiliates.
(iii) For each Series that is exclusively a domestic Series, the following
additional provisions shall apply:
(x) In the event that during a given calendar month a Series has maintained
an average daily cash balance greater than zero, the Bank shall provide an
earnings credit against custody fees otherwise owing hereunder by such Series
during such calendar month in an amount equal to the product of (A) 75% of
the 90 day U.S. government Treasury bill rate as quoted in the Wall Street
Journal for the last Business Day (being a day on which the Bank is open
for the transaction of all its ordinary business) of such calendar month, (B)
the average daily cash balance for such month, and (C) the number of days in
such calendar month divided by 365.
(y) In the event that during a given calendar month a Series has maintained
an average daily cash balance less than or equal to zero, the Bank shall be
paid interest on such amount by such Series in an amount equal to the product
of (A) the Overnight Fed Funds Rate (as defined below) plus 25 basis points
for the last Business Day of such calendar month, (B) the average daily cash
balance for such month, and (C) the number of days in such calendar month
divided by 365.
(z) For purposes of (y) above, the term Overnight Fed Funds Rate shall mean
the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers,
as published by the Federal Reserve Bank of New York (with the rate for the
last Business Day of a given calendar month being the rate so published on
the Business Day immediately following such Day), or, if such rate is note so
published, the average quotations, for the last Business Day of a given
calendar month, of such transactions received by the Bank from three Federal
funds brokers of recognized standing selected by the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized by
a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in their account
with any securities depository in which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule B. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
Upon receipt of Instructions, the Bank shall cease using any
Subcustodian with respect to the customer, and arrange for delivery of
Securities held with such Subcustodian to another entity as designated by the
Customer; provided that, the Bank shall have no responsibility for the
performance of such other entity.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging
to other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of
the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that: (i) such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in favor
of such Subcustodian except for safe custody or administration, (ii) the
beneficial ownership of such assets will be freely transferable without the
payment of money or value other than for safe custody or administration;
(iii) adequate records will be maintained identifying the assets held
pursuant to such agreement as belonging to the customers of the Bank; (iv)
subject to applicable law, Subcustodian shall permit independent public
accountants for Bank and customers of the Bank reasonable access to
Subcustodian s books and records as they pertain to the subcustody account in
connection with such accountants' examination of the books and records of
such account; and (v) the Bank will receive periodic reports with respect to
the safekeeping of assets in the subcustody account, including advices and/or
notifications of any transfers to or from such subcustody account. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by the Customer with any particular Subcustodian.
(e) Upon request of the Customer, the Bank shall deliver to the Customer
annually a report stating: (i) the identity of each Subcustodian then acting
on behalf of the Bank and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such Subcustodian;
(ii) the countries in which each Subcustodian is located; and (iii) as long
as Securities and Exchange Commission ("SEC") Rule 17f-5 under the Investment
Company Act of 1940, as amended ("1940 Act"), requires the Customer s Board
of Directors/Trustees directly to approve its foreign custody arrangements,
such other information relating to such Subcustodians as may reasonably be
requested by the Customer to ensure compliance with Rule 17f-5. As long as
Rule 17f-5 requires the Customer s Board of Directors/Trustees directly to
approve its foreign custody arrangements, the Bank shall also furnish
annually to the Customer information concerning such Subcustodians similar in
kind and scope as that furnished to the Customer in connection with the
initial approval hereof. The Bank shall timely advise the Customer of any
material adverse change in the facts or circumstances upon which such
information is based where such changes would affect the eligibility of the
Subcustodian under Rule 17f-5 as soon as practicable after it becomes aware
of any such material adverse change in the normal course of its custodial
activities.
5. Deposit Account Transactions
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required
by the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a loan payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include
all information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be
made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivery of
Securities to a purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank shall credit or debit the Accounts on a contractual
settlement date with cash or Securities with respect to any sale, exchange or
purchase of Securities in those countries set forth in Appendix A hereto;
provided that, the Bank may amend Appendix A from time to time in its sole
discretion and shall advise the Customer of such amendments. Otherwise,
transactions will be credited or debited to the Accounts on the date cash or
Securities are actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction; provided that, the Bank shall
give Customer prior notification of any such reversal. Where the foregoing
notification is oral, the Bank shall promptly provide written confirmation of
the same (which confirmation may be electronic).
(ii) If any Securities delivered pursuant to this Section 6 are returned
by the recipient thereof, the Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian, subject to applicable SEC rules and regulations under the Act.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer advises the Bank orally and then promptly sends
the Bank a written exception or objection to any Bank statement within 180
days of receipt, the Customer shall be deemed to have approved such
statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. Subject to the standard of care in Section 12 hereof, the Bank shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Bank or by its Subcustodians of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which
the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information
concerning the Securities which requires discretionary action by the
beneficial owner of the Securities (other than a proxy), such as subscription
rights, bonus issues, stock repurchase plans and rights offerings, or legal
notices or other material intended to be transmitted to securities holders
("Corporate Actions"), the Bank will give the Customer written notice (which
may be electronic) of such Corporate Actions to the extent that the Bank's
central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person (as defined in Section
10 hereof), but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too
late to seek Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with the
proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
b. Proxy Voting. With respect to domestic U.S. and Canadian Securities
(the latter if held in DTC), the Bank will send to the Customer or the
Authorized Person (as defined in Section 10) for a Custody Account, such proxies
(signed in blank, if issued in the name of the Bank's nominee or the nominee
of a central depository) and communications with respect to Securities in the
Custody Account as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by the Bank for
forwarding to its customers. In addition, the Bank will follow coupon
payments, redemptions, exchanges or similar matters with respect to
Securities in the Custody Account and advise the Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of which
the Bank has received notice from the issuer of the Securities, or as to
which notice is published in publications routinely utilized by the Bank for
this purpose.
With respect to Securities other than the foregoing, proxy voting
services shall be provided in accordance with separate proxy voting agreement
annexed hereto a Appendix B.
The foregoing proxy voting services may be provided by Bank, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third parties to the same extent as the Bank would
have been if it performed such services itself..
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank will
apply for a reduction of withholding tax and any refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer which the Bank
believes may be available to such Customer. Where such reports are available,
the Bank shall periodically report to Customer concerning the making of
applications for a reduction of withholding tax and refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The
Bank shall use reasonable means to advise the Customer of the declarations,
documentation and information which the Customer is to provide to the Bank in
order for the Bank to provide the tax reclaim services described herein. The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax will be deducted from U.S. source income. The Customer shall
provide to the Bank such documentation and information as it may require in
connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. The Customer undertakes to notify the Bank
immediately if any such information requires updating or amendment.
(iii) Subject to subsection (vii) hereof, the Bank shall not be liable
to the Customer or any third party for any tax, fines or penalties payable by
the Bank or the Customer, and shall be indemnified accordingly, whether these
result from the inaccurate completion of documents by the Customer or any
third party, or as a result of the provision to the Bank or any third party
of inaccurate or misleading information or the withholding of material
information by the Customer or any other third party, or as a result of any
delay of any revenue authority or any other matter beyond the control of the
Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this sub-
clause, the Bank shall have no responsibility with regard to the Customer's
tax position or status in any jurisdiction. Except as provided in Section
8(c)(ii) and pursuant to Instructions, the Bank shall take no action in the
servicing of the Customer s Securities which, in and of itself, creates a
taxable nexus for the Customer in any jurisdiction other than with respect to
interest, dividends and capital gains that may otherwise be subject to tax by
such jurisdiction with respect to a foreign investor not otherwise engaged in
a trade or business in such jurisdiction in a given taxable year. Bank shall
not be liable for any tax liability caused, directly or indirectly, by
Customer's actions or status in any jurisdiction.
(vi) In connection with obtaining tax relief, the Customer confirms
that the Bank is authorized to disclose any information requested by any
revenue authority or any governmental body in relation to the Customer or the
Securities and/or Cash held for the Customer. This provision does not
authorize any other voluntary disclosure to any revenue authority or any
governmental body without the prior written consent of Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the Customer
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to
be fair and equitable. The Customer agrees to hold the Bank, Subcustodians,
and their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank reasonably believes in good
faith to have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions which the
Bank may specify. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until canceled or superseded. For
purposes hereof, reasonableness shall mean compliance with applicable
procedures.
Any Instructions delivered to the Bank by telephone (including cash
transfer instructions as described below) shall promptly thereafter be
confirmed in writing by any two Authorized Persons (which confirmation may
bear the facsimile signature of such Persons), but the Customer will hold the
Bank harmless for the failure of such Authorized Persons to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time; provided that, where the Bank receives
a telephone Instruction from an Authorized Person requiring the transfer of
cash, prior to executing such Instruction the Bank will, to confirm such
Instruction, call back any one of the individuals on a list of persons
authorized to confirm such oral transfer Instructions (which Person shall be
a person other than the initiator of the transfer Instruction) and the Bank
shall not execute the Instruction until it has received such confirmation.
Either party may electronically record any Instructions given by telephone,
and any other telephone discussions with respect to the Custody Account. The
Customer shall be responsible for safeguarding any testkeys, identification
codes or other security devices which the Bank shall make available to the
Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable
to the Customer for any loss which shall occur as the result of the failure
of a Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New York. In the event that
Securities are lost by reason of the failure of the Bank or its Subcustodian
to use reasonable care, the Bank shall be liable to the Customer based on the
market value of the property which is the subject of the loss on the date it
is replaced by the Bank and without reference to any special conditions or
circumstances, it being understood that for purposes of measuring damages
hereunder, the value of Securities which are sold by the Customer prior to
the replacement thereof shall be equal to the sale price thereof less the
expenses of such sale incurred by the Customer. The Bank shall act with
reasonable promptness in making such replacements. In no event shall the
Bank be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Bank
has been advised of the likelihood of such loss or damage and regardless of
the form of action. Subject to the Bank's obligations pursuant to Section 4(e)
hereof, the Bank will not be responsible for the insolvency of any
Subcustodian which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) (a) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise pursuant to this Agreement if such act or omission
was in good faith, without negligence. In performing its obligations under
this Agreement, the Bank may rely on the genuineness of any Customer document
which it reasonably believes in good faith to have been validly executed.
(b) The Bank shall hold Customer harmless from, and shall indemnify Customer
for, any loss, liability, claim or expense incurred by Customer (including,
but not limited to, Customer's reasonable legal fees) to the extent that such
loss, liability, claim or expense arises from the negligence or willful mis-
conduct on the part of the Bank or a Subcustodian; provided that, in no event
shall the Bank be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits),
even if the Bank has been advised of the likelihood of such loss or damage
and regardless of the form of action. Subject to the Bank's obligations
pursuant to Section 4(e) hereof, the Bank will not be responsible for the
insolvency of any Subcustodian which is not a branch or affiliate of Bank.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than a
Security.
(iv) except as may be otherwise provided in any securities lending
agreement between the Customer and the Bank, evaluate or report to the
Customer or an Authorized Person regarding the financial condition of any
broker, agent or other party to which Securities are delivered or payments
are made pursuant to this Agreement;
(v) except for trades settled at DTC where the broker provides to the
Bank the trade confirmation and the Customer provides for the Bank to receive
the trade instruction, review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such
confirmations against Instructions issued to and statements issued by the
Bank.
(c) The Customer authorizes the Bank to act, hereunder, in its capacity
as a custodian notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or circumstances
are such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the issuer
of Securities, act as a lender to the issuer of Securities, act in the same
transaction as agent for more than one customer, have a material interest in
the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing ("Fee Schedule"),
together with the Bank's reasonable out-of-pocket or incidental expenses (as
further defined in the Fee Schedule), including, but not limited to, legal
fees. The Bank shall have a lien on and is authorized to charge any Accounts
of the Customer for any amount owing to the Bank under any provision of this
Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply
to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification
of such other facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or indirectly from any
such certifications.
(c) Access to Records. Applicable accounts, books and records of the
Bank shall be open to inspection and audit at all reasonable times during
normal business hours upon reasonable advance notice by Customer s
independent public accountants and by employees of Customer designated to the
Bank. All such materials shall, to the extent applicable, be maintained and
preserved in conformity with the Act and the rules and regulations
thereunder, including without limitation, SEC Rules 31a-1 and 31a-2. Subject
to restrictions under applicable law, the Bank shall also obtain an
undertaking to permit the Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the
examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are Mutual Fund assets subject to certain
Securities and Exchange Commission ("SEC") rules and regulations.
This Agreement consists exclusively of this document together with
Schedules A and B, Appendices 1 and 2, Exhibits I - _______ and the following
Rider(s) [Check applicable rider(s)]:
X MUTUAL FUND
----
X SPECIAL TERMS AND CONDITIONS
----
There are no other provisions of this Agreement, and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining provisions will
not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under
this Agreement operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise, or the exercise
of any other power or right. No waiver by a party of any provision of this
Agreement, or waiver of any breach or default, is effective unless in writing
and signed by the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
-------------------------------------
Customer: Delaware Group of Funds
1818 Market St.
Philadelphia, PA 19103
att: Messrs. Bishof and O Conner
or telex:
--------------------------------------
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names
of the persons to whom the Bank shall deliver the Assets. In either case the
Bank will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver
the Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to the Bank;
provided that, where the Bank is the terminating party and the Bank had not
notified the Customer that termination was for breach of this Agreement by
the Customer, such 60 day period shall be extended for an additional period
as requested by Customer of up to 120 days.
Termination as to One or More Series. This Agreement may be terminated
as to one or more Series (but less than all the Series) by delivery of an
amended Schedule A deleting such Series, in which case termination as to the
deleted Series shall take effect sixty (60) days after the date of such
delivery. The execution and delivery of an amended Schedule A which deletes
one or more Series, shall constitute a termination hereof only with respect
to such deleted Series, shall be governed by the preceding provisions of
Section 14 as to the identification of a successor custodian and the delivery
of the Assets of the Series so deleted to such successor custodian, and shall
not affect the obligations of the Bank and the Customer hereunder with
respect to the other Series set forth in Schedule A, as amended from time to
time.
(j) Several Obligations of the Series. With respect to any obligations
of the Customer on behalf of the Series and their related Accounts arising
hereunder, the Custodian shall look for payment or satisfaction of any such
obligation solely to the assets and property of the Series and such Accounts
to which such obligation relates as though the Customer had separately
contracted with the Custodian by separate written instrument with respect to
each Series and its Accounts.
CUSTOMER
By: /s/ Michael P. Bishof
---------------------
Title Vice President and Treasurer
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Rosemary M. Stidmon
-----------------------
Title Vice President
STATE OF Pennsylvania)
: ss.
COUNTY OF Philadelphia)
On this 9th day of July, 1996, before me personally came Michael P. Bishof,
to me known, who being by me duly sworn, did depose and say that he resides
in Blue Bell, PA at 110 Spyglass Drive; that he is Vice President/Treasurer
of Delaware Group of Funds, the entity described in and which executed the
foregoing instrument; that he knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of
said entity, and that he signed his name thereto by like order.
/s/ Maritza H. Cruzado
-----------------------
Maritza H. Cruzado
Notary
Sworn to before me this 9th
day of July, 1996.
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 24th day of May, 1996, before me personally came Rosemary
Stidmon, to me known, who being by me duly sworn, did depose and say that she
resides in New Providence, NJ at 31 Sagamore Drive; that she is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that she signed her name thereto
by like order.
Sworn to before me this 24th
day of May, 1996.
/s/ Laiyee Ng
- -------------
Laiyee Ng
Notary
Schedule A
Delaware Pooled Trust, Inc. - Global Fixed Income Portfolio
Delaware Pooled Trust, Inc. - International Equity Portfolio
Delaware Pooled Trust, Inc. - Labor Select International Equity Portfolio
Delaware Pooled Trust, Inc. - Real Estate Investment Trust Portfolio
Delaware Pooled Trust, Inc. - High Yield Portfolio
Delaware Pooled Trust, Inc. - International Fixed Income Portfolio
Delaware Pooled Trust, Inc. - Defensive Equity Utility Portfolio
Delaware Group Global & International Funds, Inc. - International Equity Fund
Delaware Group Global & International Funds, Inc. - Global Assets Fund
Delaware Group Global & International Funds, Inc. - Global Bond Fund
Delaware Group Global & International Funds, Inc. - Emerging Markets Fund
Delaware Group Premium Fund, Inc. - International Equity Series
Delaware Group Premium Fund, Inc. - Equity Income Series
Delaware Group Premium Fund, Inc. - High Yield Series
Delaware Group Premium Fund, Inc. - Capital Reserves Series
Delaware Group Premium Fund, Inc. - Money Market Series
Delaware Group Premium Fund, Inc. - Growth Series
Delaware Group Premium Fund, Inc. - Multiple Strategy Series
Delaware Group Premium Fund, Inc. - Value Series
Delaware Group Premium Fund, Inc. - Emerging Growth Series
Delaware Group Premium Fund, Inc. - Global Bond Series
Delaware Group Delchester High-Yield Bond Fund, Inc.
Delaware Group Delaware Fund, Inc. - Delaware Fund
Delaware Group Delaware Fund, Inc. - Devon Fund
Delaware Group Value Fund, Inc.
Delaware Group DelCap Fund, Inc.
Delaware Group Dividend & Income Fund, Inc.
Delaware Group Advisor Funds, Inc. - Enterprise Fund
Delaware Group Advisor Funds, Inc. - U.S. Growth Fund
Delaware Group Advisor Funds, Inc. - World Growth Fund
Delaware Group Advisor Funds, Inc. - New Pacific Fund
Delaware Group Advisor Funds, Inc. - Federal Bond Fund
Delaware Group Advisor Funds, Inc. - Corporate Income Fund
March, 1996 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
<S> <C> <C>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA
BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CZECH REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK
EGYPT National Bank of Egypt National Bank of Egypt
24 Sherif Street Cairo
Cairo
EGYPT
EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank KOP Merita Bank KOP
Aleksis Kiven 3-5 Helsinki
00500 Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Bank A.G. Chase Bank A.G.
Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY
GHANA Barclays Bank of Ghana Barclays Bank
Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG, Bombay Branch Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Piazza Meda 1 Milan
20121 Milan
ITALY
JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya
LUXEMBOURG
Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg
MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
Corporation Ltd Corporation Ltd.
Curepipe Road Curepipe
Curepipe
MAURITIUS
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
(Equities)Montes Urales no. 470, 4th Floor
Col. Lomas de Chapultepec
11000 Mexico D.F.
(Government Banco Nacional de Mexico, No correspondent Bank
Bonds) Avenida Juarez No. 104 - 11 Piso
06040 Mexico D.F.
MEXICO
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
NETHERLANDS
ABN AMRO N.V. Generale Bank
Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND
National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
NORWAY Den Norske Bank Den Norske Bank
Kirkegaten 21 Oslo
Oslo 1
NORWAY
PAKISTAN Citibank N.A. Citibank N.A.
I.I. Chundrigar Road Karachi
AWT Plaza
Karachi
PAKISTAN
Deutsche Bank Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES
The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES
POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
Curtis Plaza Warsaw
Woloska 18
02-675 Warsaw
POLAND
For Mutual Funds:
Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A.
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
PORTUGAL Banco Espirito Santo & Comercial Banco Nacional Ultra Marino
de Lisboa Lisbon
Servico de Gestaode Titulos
R. Mouzinho da Silveira, 36 r/c
1200 Lisbon
PORTUGAL
SHANGHAI The Hongkong and Shanghai Citibank
(CHINA) Banking Corporation Limited New York
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
(CHINA) Banking Corporation Limited Hong Kong
1st Floor
Central Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE
SLOVAK REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
SOUTH AFRICA
Standard Bank of South Africa Standard Bank of South Africa
Standard Bank Chambers South Africa
46 Marshall Street
Johannesburg 2001
SOUTH AFRICA
SOUTH KOREA
The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank, N.A. Banco Bilbao Vizcaya,
Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai
Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
SWITZERLAND
Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
115 Min Sheng East Road - Sec 3,
9th Floor
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia
TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
Turkey
U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
Ground Floor Harare
Tanganyika House
Corner of 3rd Street & Union Avenue
Harare
ZIMBABWE
</TABLE>
EX-99.B8B
Exhibit 24(b)8
SECURITIES LENDING AGREEMENT ("Lending Agreement"), dated as
of , 1996 between ("Lender"), having its
principal place of business at , and The
Chase Manhattan Bank, N.A. ("Chase"), having its principal place of
business at One Chase Manhattan Plaza, New York, New York 10081.
It is hereby agreed as follows:
Section 1 - Definitions
Unless the context clearly requires otherwise, the following words
shall have the meanings set forth below when used herein:
a. "Account" shall mean the securities account established and
maintained by Chase on behalf of Lender pursuant to, as the case may be,
a separate custody agreement or a separate directed trust agreement
("Agreement") between Chase and Lender, which Agreement provides, inter
alia, for the safekeeping of Securities received by Chase from time to
time on behalf of Lender.
b. "Agreement" shall have the meaning assigned thereto in
Section 1(a) hereof.
c. "Authorized Investment" shall mean any type of instrument,
security, participation or other property in which Cash Collateral may
be invested or reinvested, as described in Section 5(f) hereof and
Appendix 4 hereto (and as such Appendix may be amended from time to time
by written agreement of the parties).
d. "Authorized Person" shall mean, except to the extent that
Chase is advised to the contrary by Proper Instruction, any person who
is authorized to give instructions to Chase pursuant to the Agreement
and any mandates given to Chase in connection with such Agreement. An
Authorized Person shall continue to be so until such time as Chase
receives Proper Instructions that nay such person is no longer an
Authorized Person.
e. "Borrower" shall mean an entity listed on Appendix 1 hereto,
other than an entity which Chase shall have been instructed to delete
from list pursuant to Written Instructions and as such Appendix may be
amended in accordance with Section 4(b) hereof.
f. "Business Day" shall have the meaning assigned thereto in
the applicable MSLA.
g. "Buy-in" shall have the meaning assigned thereto in Section
7(c) hereof.
h. "Cash Collateral" shall mean fed funds, New York Clearing
House Association funds and such non-U.S. currencies as may be pledged
by a Borrower in connection with a particular Loan.
i. "Collateral" shall have the meaning assigned thereto in the
applicable MSLA, together with Cash Collateral.
j. "Collateral Account" shall mean, as the case may be, an
account maintained by Chase with itself, with any Depository or with any
Triparty Institution and designated as a Collateral Account for the
purpose of holding any one or more of Collateral, Authorized
Investments, and Proceeds in connection with Loans hereunder.
k. "Collateral Amount" shall have the meaning assigned thereto
in Section 5(c) hereof.
l. "Collateral Criterion" shall have the meaning assigned
thereto in Section 5(c) hereof.
m. "Depository" shall mean: (1) the Depository Trust Company,
the Participants' Trust Company and any other securities depository or
clearing agency (and each of their respective successors and nominees)
registered with the U.S. Securities and Exchange Commission or
registered with or regulated by the applicable foreign equivalent
thereof or otherwise able to act as a securities depository or clearing
agency, (ii) any transnational depository, (iii) the Federal Reserve
book-entry system for the receiving and delivering of U.S. Government
Securities, and (iv) any other national system for the receiving and
delivering of that country's government securities.
n. "Difference" shall have the meaning assigned thereto in
Section 7(c) hereof.
o. "Distributions" shall have the meaning assigned thereto in
Section 3(b)(v) hereof.
p. "Dollars" shall have the meaning assigned thereto in Section
7(b) hereof.
q. "Due Date" shall have the meaning assigned thereto in
Section 7(b) hereof.
r. "Insolvency Event" shall have the meaning assigned thereto
in Section 7(b) hereof.
s. "Letter of Credit" shall have the meaning assigned thereto
in the applicable MSLA and be issued by a bank listed on Appendix 2
hereto (as such list may be amended by Chase from time to time on notice
to Lender), other than a bank deleted from such list pursuant to Written
Instruction.
t. "Loan" shall mean a loan of Securities hereunder and under
the applicable MSLA.
u. "Loan Fee" shall mean the amount payable by a Borrower to
Chase pursuant to the applicable MSLA in connection with Loans
collateralized other than by Cash Collateral.
v. "Market Value" shall have the meaning assigned thereto in
the applicable MSLA.
w. "MSLA" shall mean a master securities lending agreement
between Chase and a Borrower, pursuant to which Chase as agent lends
securities on behalf of its customers (including Lender) from time to
time. A copy of Chase's standard form of MSLA, including the
international addendum thereto, is annexed as Appendix 3.
x. "Net Assets" shall have the meaning assigned thereto in
Section 8 hereof.
y. "Net Realized Income" shall have the meaning thereto in
Section 8 hereof.
z. "Oral Instructions" shall have the meaning assigned thereto
in Section 10 hereof.
aa. "Proceeds" shall mean interest, dividends and other
payments and Distributions received by Chase in connection with
Authorized Investments.
bb. "Proper Instructions" shall mean Oral Instructions and
Written Instructions.
cc. "Rebate" shall mean the amount payable by Chase on behalf
of Lender to a Borrower in connection with Loans collateralized by Cash
Collateral.
dd. "Return Date" shall have the meaning assigned thereto in
Section 7(c) hereof.
ee. "Securities" shall mean government securities (including
U.S. Government Securities), equity securities, bonds, debentures, other
corporate debt securities, notes, mortgages or other obligations, and
any certificates, warrants or other instruments representing rights to
receive, purchase, or subscribe for the same, or evidencing or
representing any other rights or interests therein and held pursuant to
the Agreement.
ff. "Term Loan" shall have the meaning assigned thereto in
Section 5(i) hereof.
gg. "Triparty Institution" shall mean a financial institution
with which Chase shall have previously entered a triparty agreement
among itself, such Triparty Institution and a particular Borrower
providing, among other things, for the holding of Collateral in a
Collateral Account at such Triparty Institution in Chase's name on
behalf of Chase's lending customers and for the substitution of
Collateral; provided, however, that any substituted Collateral shall
meet the then standards for acceptable Collateral set by Chase.
hh. "U.S. Government Security" shall mean book-entry securities
issued by the U.S. Treasury defined in Subpart 0 of Treasury Department
Circular No. 300 and any successor provisions) and any other securities
issued or fully guaranteed by the United States government or any
agency, instrumentality or establishment of the U.S. government,
including, without limitation, securities commonly known as "Ginnie
Maes," Sally Maes," "Fannie Maes" and "Freddie Maes".
ii. "Written Instructions" shall have the meaning assigned
thereto in Section 10 hereof.
Section 2 - Appointment, Authority
(a) Appointment. Lender hereby appoints Chase as its agent to lend
Securities in the Account on Lender's behalf on a fully disclosed basis
to Borrowers from time to time in accordance with the terms hereof and
on such terms and conditions and at such times as Chase shall determine
and Chase may exercise all rights and powers provided under any MSLA as
may be incidental thereto, and Chase hereby accepts appointment as such
agent and agrees to so act.
(b) Authority. Lender hereby authorizes and empowers Chase to
execute in Lender's name on its behalf and at its risk all agreements
and documents as may be necessary to carry out any of the powers herein
granted to Chase. Lender grants Chase the authority set forth herein
notwithstanding its awareness that Chase, in its individual capacity or
acting in a fiduciary capacity for other accounts, may have transactions
with the same institutions to which Chase may be lending Securities
hereunder, which transactions may give rise to actual or potential
conflict of interest situations. Chase shall not be bound to: (i)
account to Lender for any sum received or profit made by Chase for its
own account or the account of any other person or (ii) disclose or
refuse to disclose any information or take any other action if the same
would or might in Chase's judgment, made in good faith, constitute a
breach of any law or regulation or be otherwise actionable with respect
to Chase; provided that, in circumstances mentioned in (ii) above, Chase
shall promptly inform Lender of the relevant facts (except where doing
so would, or might in Chase's judgment, made in good faith, constitute a
breach of any law or regulation or be otherwise actionable as
aforesaid).
Section 3 - Representation and Warranties
(a) Representations of each party. Each party hereto represents
and warrants to the other that: (i) it has the power to execute and
deliver this Lending Agreement, to enter into the transactions
contemplated hereby, and to perform its obligations hereunder; (ii) it
has taken all necessary action to authorize such execution, delivery,
and performance; (iii) this Lending Agreement constitutes a legal,
valid, and binding obligation enforceable against it; and (iv) the
execution, delivery, and performance by it of this Lending Agreement
shall at all times comply with all applicable laws and regulations.
(b) Representations of Lender. Lender represents and warrants to
Chase that: (i) this Lending Agreement is, and each Loan shall be,
legally and validly entered into, and does not and shall not violate any
statute, regulation, rule, order or judgment binding on Lender, or any
provision of Lender's charter or by-laws, or any agreement binding on
Lender or affecting its property, and is enforceable against Lender in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors' rights generally; (ii) the person
executing this Lending Agreement and all Authorized Persons acting on
behalf of Lender has and have been duly and properly authorized to do
so; (iii) it is lending Securities as principal and shall not transfer,
assign or encumber its interest in, or rights with respect to, any
Securities available for Loan hereunder; (iv) it is the beneficial owner
of all Securities or otherwise has the right to lend Securities; and (v)
it is entitled to receive all interest, dividends and other
distributions ("Distributions") made by the issuer with respect thereto.
Lender shall promptly identify to Chase by notice, which notice may be
oral, any Securities that are no longer subject to the representations
contained in (b).
Section 4 - Borrowers
(a) MSLA. Lender hereby acknowledges receipt of the form of MSLA
and authorizes Chase to lend Securities in the Account to Borrowers
thereunder pursuant to an agreement substantially in the form thereof.
(b) Borrowers. Securities may be lent to any Borrower selected
by Chase in Chase's sole discretion, in accordance with the terms
hereof. In that connection, Appendix 1 may be amended from time to time
by Chase on notice to Lender.
Section 5 - Loans
(a) Securities to be lent, Lending opportunities, Loan initiation.
All Securities of Lender held by Chase that are issued, settled or
traded in the markets that have been approved by Chase from time to time
for purposes of Chase's discretionary securities lending program shall
be subject to the terms hereof. Chase shall seek to assure that Lender
receives a fair allocation of lending opportunities vis-a-vis other
lenders, taking into account the demand for and availability of
Securities, types of Collateral, eligibility of Borrowers, limitations
on investments of Cash Collateral, tax treatment, and similar commercial
factors. From time to time, Chase may lend to Borrowers Securities held
in the Account (except Securities that are no longer subject to the
representations set forth in Section 3) and shall deliver such
Securities against receipt of Collateral in accordance with the
applicable MSLA. Chase shall have the right to decline to make any
Loans to any Borrower and to discontinue lending to any Borrower in its
sole discretion and without notice to Lender.
(b) Receipt of Collateral, Collateral substitution. For each Loan,
Chase shall receive and hold Letters of Credit received as Collateral
and Chase or a Triparty Institution shall receive and hold all other
Collateral required by the applicable MSLA in a Collateral Account, and
Chase is hereby authorized and directed, without obtaining any further
approval from Lender, to invest and reinvest all or substantially all
Cash Collateral. Chase shall credit, or where applicable shall have a
Triparty Institution credit, all Collateral, Authorized Investments and
Proceeds to a Collateral Account and Chase shall not mark its books and
records to identify Lender's interest therein, it being understood,
however, that all monies credited to a Collateral Account may for
purposes of investment be commingled with cash collateral held for other
lenders of securities on whose behalf Chase may act. Chase may, in its
sole discretion, liquidate any Authorized Investment and credit the net
proceeds in a Collateral Account. Chase shall accept substitutions of
Collateral in accordance with the applicable MSLA and shall credit, or
where applicable shall have a Triparty Institution credit, all such
substitutions to a Collateral Account.
(c) Mark to market procedures. (i) Chase shall require initial
Collateral for a Loan in an amount determined by applying the then
applicable "Collateral Criterion" (as defined below) to the Market Value
of the Security that is the subject of the Loan. The Collateral
Criterion with respect to a given Security shall be an amount equal to
the then applicable percentage (currently 102% for securities issued in
the U.S. and 105% for securities issued outside of the U.S.) of the
Market Value of the Security (plus accrued interest, if any, with
respect to debt securities) which is the subject of a Loan as determined
as of the close of trading on the preceding Business Day. (ii) Each
Business Day Chase shall determine if the Market Value of all Collateral
received by Chase from a given Borrower in connection with all loans to
such Borrower from all lenders is at least equal to the aggregate amount
("Collateral Amount") determined by applying the applicable Collateral
Criterion to each security on loan to such Borrower from all lenders.
(iii) In accordance with general market practice, the Market Value of
certain securities (including, without limitation, U.S. Government
Securities) whether on Loan or received as Collateral, may be determined
on a same day basis by reference to recognized pricing services.
(d) Demand for additional Collateral. If the determination
made in Section 5(c)(ii) above demonstrates that the Market Value of all
Collateral received from a given Borrower is not at least equal to the
Collateral Amount, Chase shall demand additional Collateral from such
Borrower in accordance with the applicable MSLA so as to meet the
Collateral Amount by making specific Loans; provided that, Chase may
from time to time establish de minimis guidelines pursuant to which a
mark would not be made even where the aggregate Collateral Amount has
not been met.
(e) Changes in procedures applicable to Collateral. The
Collateral procedures set forth in Sections 5(b)-(d) above reflect
Chase's current practice and may be changed by Chase from time to time
based on general market conditions (including volatility of Securities
on Loan and of securities Collateral), the Market Value of Securities on
Loan to a given Borrower, and in accordance with general market practice
and regulatory requirements. Chase shall notify Lender of material
revisions to the foregoing procedures.
(f) Investment of Cash Collateral. (i) Chase is hereby
authorized to invest and reinvest cash Collateral in accordance with the
investment guidelines (and the interpretations, procedures and
definitions included therewith) annexed hereto as Appendix 4. (ii)
Authorized Investments are made for the account of, and at the sole risk
of, Lender. In that connection, Lender shall pay to Chase on demand in
cash an amount equal to any deficiency in the amount of Collateral
available for return to a Borrower pursuant to an applicable MSLA.
(g) Lender's rights with respect to Securities on Loan;
Distribution and voting rights. (i) An amount equal to the amount of
all Distributions paid with respect to Securities on Loan that Lender
would have received had such Securities not been on Loan shall be
credited to Lender's account on the date such Distributions are
delivered by Borrower to Chase. Any non-cash Distribution on Securities
on Loan which is in the nature of a stock split or a stock dividend,
shall be added to the Loan (and shall be considered to constitute
Securities on Loan) as of the date such non-cash Distribution is
received by the Borrower and shall be subject to the provisions of this
Lending Agreement; provided that the Lender may, by giving chase ten
(10) Business Days' notice prior to the date of such non-cash
Distribution (or such different amount of time as Chase may from time to
time require on advice to Lender), direct Chase to request that the
Borrower deliver such non-cash Distribution to Chase pursuant to the
applicable MSLA, in which case Chase shall credit such non-cash
Distribution to Lender's account on the date it is delivered to Chase.
Without regard to the reference to "delivered" in the foregoing, the
"AutoCredit" provisions of the Agreement shall apply where a Borrower
fails to make a Distribution payment to Chase, the effect of which would
be for Chase to credit Lender's account with Distributions on the
payable date. (ii) During the term of any Loan, Chase will permit the
Securities on Loan to be transferred into the name of and be voted by
the Borrower or others. Lender shall not be entitled to participate in
any dividend reinvestment program or to vote proxies with respect to
Securities that are eligible for Loan (whether or not actually on Loan)
as of the applicable record date for such Securities.
(h) Advances, overdrafts and indebtedness, Security Interest.
Chase may, in its sole discretion, advance funds on behalf of Lender in
order to pay to Borrowers any Rebates or to return to Borrowers Cash
Collateral to which they are entitled pursuant to the applicable MSLA.
Lender shall repay Chase on demand the amount of any advance or any
other amount owned by Lender hereunder plus accrued interest at a rate
per annum not to exceed the rate customarily charged by Chase for such
loans at the time such loan is made and shall otherwise be on such terms
and conditions as Chase customarily makes such loans available. In
order to secure repayment of any advance or other indebtedness of Lender
to Chase arising hereunder, Chase shall have a continuing lien and
security interest in and to all assets now or hereafter held in the
Account and any Collateral Account (to which Lender is entitled
hereunder) and any other property at any time held by it for the benefit
of Lender or in which Lender may have an interest which is then in
Chase's possession or control or in the possession or control of any
third party acting on Chase's behalf. In this regard, Chase shall be
entitled to all the rights and remedies of a pledgee under common law
and a secured party under the New York Uniform Commercial Code and/or
any other applicable laws and/or regulations as then in effect.
(i) Termination of a Loan. (i) Loans shall generally be terminable
on demand. With the prior approval of Lender, however, Loans may be
made on the basis of a reasonably anticipated termination date ("Term
Loan") and without providing for the right of substitution of equivalent
Securities. Termination of a Term Loan prior to its anticipated
termination date by either Lender or Borrower may result in the
terminating party having to pay non-terminating party damages based on
the cost of obtaining a replacement loan. (ii) Chase shall terminate
any Loan of Securities to a Borrower as soon as practicable after (a)
receipt by Chase of a notice of termination of the respective MSLA; (b)
receipt by Chase of Written Instructions directing it to terminate a
Loan; (c) receipt by Chase of Written Instructions instructing it to
delete from Appendix 2 the Borrower to whom such Loans was made; (d)
receipt by Chase of Written Instructions advising that the Security
subject to a Loan is no longer subject to the representation contained
in Section 3 hereof; (e) receipt by Chase of notice advising that an
Event of Default (as defined in the applicable MSLA) has occurred and is
continuing beyond any applicable grace period; (f) whenever Chase, in
its sole discretion, elects to terminate such Loan other than a Term
Loan; or (g) termination of this Lending Agreement. (iii) If Securities
which are the subject of a Loan being terminated are to be sold by
Lender, Written Instructions shall in no event be given to Chase later
than the trade date established by Lender for such sale or such earlier
date of which Chase may advise Lender from time to time with respect to
particular markets. Chase shall not be liable for any failure of a
Borrower to return Securities on Loans in a time fashion.
(j) Recordkeeping and Reports. Chase shall establish and
maintain such records as are reasonably necessary to account for Loans
that are made and the income derived therefrom. Chase shall provide
Lender with a monthly statement describing the Loans made during the
preceding month, and the income derived from Loans, during the period
covered by such statement. A party shall comply with the reasonable
requests of the other party for information necessary to the requester's
performance of its duties hereunder.
Section 6 - Default by Borrower
(1) Chase may assume (unless it has actual knowledge to the
contrary) that any representations made by a Borrower in connection with
any Loan are true, that no event which is or may become an Event of
Default (as defined in the applicable MSLA) has occurred and that a
Borrower has complied with its obligations under the applicable MSLA.
Subject to Sections 7(b)-(d), Chase shall have no responsibility for the
accuracy or completeness of any information supplied, or for any breach
of any obligation, by any Borrower under or in connection with any MSLA
or Loan. Chase shall not be liable as a result of taking or omitting to
take any action provided that Chase shall have carried out its
responsibilities hereunder in good faith. (ii) If any Borrower with
respect to any Loan affected pursuant hereto and pursuant to the
applicable MSLA fails to return any loaned Securities when due
thereunder for reasons other than relating to the solvency of the
Borrower, Chase shall then take whatever action its deems appropriate in
accordance with general market practice and Chase's reasonable judgment,
including, but no necessarily limited to, claiming compensation from
such Borrower on behalf of Lender in the event a trade executed by
Lender fails on account of such Borrower's failure timely to have
returned Securities on Loan or, where Chase deems it necessary, such
other action as may be permitted by the applicable MSLA, including
collecting any applicable MSLA fails to return any Securities on Loan
when due thereunder for reasons relating to the solvency of the
Borrower, Chase shall take such action as its deems appropriate in
accordance with Chase's reasonable judgment under the applicable MSLA.
Section 7 - Standard of Care, Liabilities, Indemnification
(a) Standard of care, Liabilities. Except as provided in
paragraphs (b) and (c) hereof, Chase shall be liable for any costs,
expenses, damages, liabilities or claims (including attorneys' and
accountants' fees) incurred by Lender, except those costs, expenses,
damages, liabilities and claims arising out of the negligence, bad faith
or willful misconduct of Chase. Chase shall have no obligation
hereunder for: (i) costs, expenses, damages, liabilities or claims
(including attorneys' and accountants' fees), which are sustained or
incurred by Lender by reason of any action or inaction by any pricing
service, any Depository or a Triparty Institution or their respective
successors or nominees; and (ii) any failure to perform any obligation
due to any matters beyond the control of Chase. In no event shall Chase
be liable for indirect or consequential damages or lost profits or loss
of business, arising hereunder or in connection herewith, even if
previously informed of the possibility of such damages and regardless of
the form of action.
Except for any costs or expenses incurred by Chase in performing
its obligations pursuant to paragraphs (b) and (c) hereof any ordinary
operating expenses incurred by Chase in providing services hereunder,
Lender shall indemnify Chase and hold it harmless from and against any
and all costs, expenses, damages, liabilities or claims, including
reasonable fees and expenses of counsel, which Chase may sustain or
incur or which may be asserted against Chase by reason of or as a result
of any action taken or omitted by Chase in connection with operating
under this Lending Agreement or enforcing Lender's rights under the
applicable MSLA, other than those costs, expenses, damages, liabilities
or claims arising out of the negligence, bad faith or willful misconduct
of Chase. The foregoing indemnity shall be a continuing obligation of
the Lender, its successors and assigns, notwithstanding the termination
of any Loans hereunder or of this Lending Agreement. Chase may charge
any amounts to which it is entitled hereunder against the Account, and
Lender shall be entitled to an accounting of all amounts so charged.
Actions taken or omitted in reliance upon Proper Instructions, or upon
any information, order, indenture, stock certificate, power of attorney,
assignment, affidavit or other instrument reasonably believed by Chase,
in good faith, to be genuine or bearing the signature of a person or
persons believed, in good faith, to be authorized to sign, countersign
or execute the same, shall be conclusively presumed to have been taken
or omitted in good faith.
(b) Indemnification of Lender in respect to Distributions. If the
Borrower in respect of any Loan effected pursuant hereto and pursuant to
the applicable MSLA fails, as a result of its bankruptcy, insolvency,
reorganization, liquidation, receivership or similar event (each an
"Insolvency Event"), to remit to Chase for Lender's account any
Distributions on or with respect to Securities on Loan when due (the
"Due Date") in accordance with such MSLA and such Due Date occurs at
least one day prior to an Insolvency Event then Chase shall at its
expense (subject to paragraph (d) hereof) and within one (1) Business
Day of the Due Date, undertake the following: (i) with respect to
Distributions in the form of cash, Chase shall credit Lender's account
with the full amount of such Distributions and (ii) with respect to
Distributions in the form of securities, Chase shall, at its option,
either purchase replacement securities (of an equal amount of the same
issue, class, type or series as the Distributions) on the principal
market in which such securities are traded or credit Lender's account
with the market value in United States dollars ("Dollars") of such
Distributions on the Due Date as determined by Chase in good faith.
Market value shall be determined by Chase in accordance with the
applicable MSLA, including the computation of Dollar equivalents where
Securities on Loan and/or Collateral (and Proceeds) are denominated in a
currency other than Dollars.
(c) Indemnification of Lender in respect of Securities. If the
Borrower in respect of any Loan effected pursuant hereto and pursuant to
the applicable MSLA fails to return any Securities on Loan to Chase for
Lender's account when due thereunder (the "Return Date") which is the
date of default, then Chase shall, at its expense (subject to paragraph
(d) hereof) and within one (1) Business Day of the Return Date, credit
Lender's account in Dollars with the difference ("Difference") (where a
positive number), if any, between (x) the market value of such lent
Securities on the Return Date (including, in the case of debt
Securities, accrued but unpaid interest), and (y) in the case of Loans
collateralized by (i) Cash Collateral, the greater of (A) the Market
Value of the Cash Collateral on the date of initial pledge as adjusted
for any subsequent marks-to-market through the Return Date and (B) the
Market Value of Cash Collateral investments on the Return Date, (ii)
non-Cash Collateral comprising securities Collateral, the greater of the
Market Value of such Collateral on the (A) Business Day immediately
preceding the Return Date and (B) Return Date, or (iii) non-Cash
Collateral comprising Letter of Credit Collateral, the Market Value of
the Letter of Credit Collateral on the date of initial pledge as
adjusted for any subsequent marks-to-market through the Return Date.
Market Value shall be determined by Chase in accordance with the
applicable MSLA, including the computation of Dollar equivalents where
Securities on Loan and/or Collateral (and Proceeds) are denominated in a
currency other than Dollars. Where Cash Collateral and non-Cash
Collateral have each been allocated to a Loan as of the Return Date, the
Difference payable by Chase shall be computed in accordance with the
foregoing as if there had been two Loans in effect on the Return Date,
one collateralized by Cash Collateral and the other collateralized by
non-Cash Collateral. In lieu of paying Lender the Difference, Chase
may, at its sole option and expense, purchase for Lender's account
("Buy-in") replacement securities of the same issue, type, class, and
series as that of the Securities on Loan.
(d) Subrogation. If Chase makes a payment or a purchase pursuant
to Section 7(b) or effects a Buy-in pursuant to Section 7(c), or if
Chase effects a Difference payment pursuant to Section 7(c) on account
of a failure to return Securities on Loan not arising from an Insolvency
Event, Chase shall, to the extent of such payment, purchase, Difference
payment or Buy-in, be subrogated to, and Lender shall assign and be
deemed to have assigned to Chase, all of its rights in, to and against
the Borrower (and any guarantor thereof) in respect of such Loan, any
Collateral pledged by the Borrower in respect of such Loan, and all
proceeds of such Collateral. In the event that Lender receives or is
credited with any payment, benefit or value from or on behalf of the
Borrower in respect of rights to which Chase is subrogated as provided
herein, Lender shall promptly remit or pay to Chase the same (or its
Dollar equivalent) but only to the extent that Lender has been paid all
amounts owed to it by Borrower.
Section 8 - Chase Compensation
(a) In connection with each Loan hereunder, Lender shall pay to
Chase a fee equal to ___% of (i) earnings (less any Rebate paid by Chase
to a Borrower) derived from Authorized Investments in connection with
Loans collateralized by cash, and (ii) any Securities Loan Fee paid or
payable by the Borrower on Loans not collateralized by cash. (b) The
fee payable to Chase for services performed pursuant to Section 5(f)
hereof shall be equal to one tenth of the one percent (0.1%) of the
Fund's average daily Assets (with "Fund" being as defined in Appendix 4
hereto). All securities in the Fund shall be valued based on their
amortized cost. Fees shall be accrued and charged daily against the
Fund's yield or assets, as appropriate, and shall be payable monthly in
arrears on the first business day of the month following the month in
which earned. (c) Chase is authorized, on a monthly basis, to charge
all the foregoing fees (together with reasonable expenses incurred by
Chase hereunder) and any other amounts owed by Lender hereunder against
the Account and/or a Collateral Account.
Section 9 - Taxes
Lender shall be responsible for all filings, tax returns and
reports on any Loans undertaken by Chase on Lender's behalf which are to
be made to any authority whether governmental or otherwise and for the
payment of all unpaid calls, taxes (including, without limitations, any
value added tax), imposts, levies or duties due on any principal or
interest, or any other liability or payments arising out of or in
connection with any Securities or any Collateral, and in so far as Chase
is under obligation (whether of a governmental nature or otherwise) to
pay the same on Lender's behalf Chase may do so out of any monies or
assets held by it pursuant to the terms of the Agreement or hereunder.
Section 10 - Instructions
(a)(i) Written Instructions. "Written Instructions" shall mean
written communications actually received by Chase from an Authorized
Person or from a person reasonably believed by Chase to be an Authorized
Person by letter, memorandum, telegram, cable, telex, telecopy
facsimile, computer, video (CRT) terminal or other on-line system, or
any other method reasonably acceptable to Chase and whereby Chase is
able to verify with a reasonable degree of certainty the identity of the
sender of such communications or with communications are transmitted
with proper testing or authentication pursuant to terms and conditions
which Chase may specify. (ii) Oral Instructions. "Oral Instructions"
shall mean oral communications actually received by Chase from an
Authorized Person or from a person reasonably believed by Chase to be an
Authorized Person. Oral Instructions shall promptly thereafter be
confirmed in writing by an Authorized Person (which confirmation may
bear the facsimile signature of such Person), but Lender will hold Chase
harmless for the failure of an Authorized Person to send such
confirmation in writing, the failure of such confirmation to conform to
the Oral Instructions received, or Chase's failure to produce such
confirmation at any subsequent time. Lender shall be responsible for
safeguarding any testkeys, identification codes or other security
devices which Chase may make available to Lender or its Authorized
Persons.
(b) Unless otherwise expressly provided, all Proper Instructions
shall continue in full force and effect until canceled or superseded.
Section 11 - Pricing Services
Chase may use any pricing service referred to in an applicable MSLA
and any other recognized pricing service (including itself and any of
its affiliates) in order to perform its valuation responsibilities with
respect to Securities, Collateral and Authorized Investments, and Lender
shall hold Chase harmless from and against any loss or damage suffered
or incurred as a result of errors or omissions of any such pricing
service.
Section 12 - Termination
This Lending Agreement may be terminated at any time by either
party upon delivery to the other party of notice specifying the date of
such termination, which shall be not less than 30 days after the date of
receipt of such notice. Notwithstanding any such notice, this Lending
Agreement shall continue in full force and effect with respect to all
Loans outstanding on the termination date, which Loans shall, however,
be terminated as soon as reasonably practicable.
Section 13 - Miscellaneous
(a) Legal proceedings. Chase may refrain from bringing any legal
action or proceeding arising out of or in connection with any Loan until
it shall have received such security as it may require for all costs,
expenses (including legal fees) and liabilities which it will or may
expend or incur in relation thereto.
(b) Integration, Lending Agreement to Govern. This Lending
Agreement and the Agreement contain the complete agreement of the
parties with respect to the subject matter hereof and supersede and
replace any previously made proposals, representations, warranties or
agreements with respect thereto by the parties. In the event of any
conflict between this Lending Agreement, and the Agreement, this Lending
Agreement shall govern.
(c) Notice. Unless expressly provided herein to the contrary,
notices hereunder shall be in writing, and delivered by telecopier,
overnight express mail, first-class postage prepaid, delivered
personally or by receipt courier service. All such notices which are
mailed shall be deemed delivered upon receipt. Notices shall be
addresses as follows (or to such other address as a party may from time
to time designate on notice duly given in accordance with this
paragraph): notices to Chase shall be addressed to it at 2 Chase
Manhattan Plaza, 19th Floor, New York, New York 10081, Attention:
Securities Lending Division; notices to be given to Lender shall be
addressed to it at its offices at
Attention: .
(d) Amendments, Waiver. This Lending Agreement may be modified
only by a written amendment signed by both parties, and no waiver of any
provisions hereof shall be effective unless expressed in a writing
signed by the party to be charged.
(e) Government Law, Consent to Jurisdiction, Waiver of Immunity.
This Lending Agreement shall be construed in accordance with laws of the
State of New York, without regard to the conflict of laws principles
thereof. Chase and Lender each hereby consents to the jurisdiction of a
state or federal court situated in New York City, New York in connection
with any dispute arising hereunder and Lender hereby waives any claim of
forum non conveniens to the extent that it may lawfully do so. To the
extent that in any jurisdiction Lender may now or hereafter be entitled
to claim, for itself or its assets, immunity from suit, execution,
attachment (before or after judgment) or other legal process, Lender
irrevocably shall not claim, and it hereby waives, such immunity.
(f) Counterparts, Headings. This Lending Agreement may be executed
in several counterparts, each one of which shall constitute an original,
and all collectively shall constitute but one instrument. The headings
of the sections hereof are included for convenience of reference only
and do not form part of this Lending Agreement.
(g) Severability. Any provisions of this Lending Agreement which
may be determined by competent authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, or unenforceability
without invalidating the remaining provisions hereof, and any such
prohibition or unenforceably in any jurisdiction shall not invalidate or
render unenforceable such provisions in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Lending Agreement
as of the date first above-written.
[Insert name of LENDER] THE CHASE MANHATTAN BANK, N.A.
By: By:
Title: Title:
EX-99.B8C
Exhibit 24(b)8(c)
As of 1998
VIA UPS OVERNIGHT
_________________
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245
Attention: Global Custody Division
Re: Global Custody Agreement, Effective May 1, 1996
between The Chase Manhattan Bank and those registered investment
companies (and on behalf of certain series thereof), listed on
Schedule A attached thereto ("Agreement")
___________
Ladies and Gentlemen:
Pursuant to the provisions of Section 1 of the Agreement, the
undersigned, on behalf of Delaware Group Government Fund, Inc. for the
benefit of Government Income Series (the "Series") hereby appoints The
Chase Manhattan Bank to provide custodial services for this Series under
and in accordance with the terms of the Agreement and accordingly,
requests that the Series be added to Schedule A to the Agreement
effective 1998. Kindly acknowledge your agreement to provide such
services and to add this Series to Schedule A by signing in the space
provided below.
DELAWARE GROUP GOVERNMENT FUND, INC.
on behalf of Government
Income Series
By:________________________________
David K. Downes
Its: Executive Vice President
Chief Operating Officer
Chief Financial Officer
AGREED:
THE CHASE MANHATTAN BANK
By:_____________________
Its:____________________
EX-99.B9BI
Exhibit 24 (b)(9)(b)(i)
AMENDMENT NO.7
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
__________________
*Except as otherwise noted, all Portfolios included on this
Schedule A are Existing Portfolios for purposes of the compensation
described on Schedule B to that Fund Accounting Agreement between
Delaware Service Company, Inc. and the Delaware Group of Funds dated as
of August 19, 1996 ("Agreement"). All portfolios added to this Schedule
A by amendment executed by a Company on behalf of such Portfolio hereof
shall be a New Portfolio for purposes of Schedule B to the Agreement.
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (deregistered
January 14, 1997)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT
Tax-Free Income Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of October 14, 1997
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
By: _________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
/s/Wayne A. Stork
By: _________________________________________________
Wayne A. Stork
Chairman
EX-99.B9BII
Exhibit 24(b)(9)(b)(ii)
AMENDMENT NO. 8
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
__________________
*Except as otherwise noted, all Portfolios included on this
Schedule A are Existing Portfolios for purposes of the compensation
described on Schedule B to that Fund Accounting Agreement between
Delaware Service Company, Inc. and the Delaware Group of Funds dated as
of August 19, 1996 ("Agreement"). All portfolios added to this Schedule
A by amendment executed by a Company on behalf of such Portfolio hereof
shall be a New Portfolio for purposes of Schedule B to the Agreement.
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered
January 14, 1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT
Tax-Free Income Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of December 18, 1997
DELAWARE SERVICE COMPANY, INC.
/s/David K. Downes
By:__________________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
/s/ Wayne A. Stork
By:__________________________________________________________
Wayne A. Stork
Chairman
EX-99.B9BIII
Exhibit 24 (b)(9)(b)(iii)
AMENDMENT NO. 9
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund (liquidated September 19, 1997)
Enterprise Fund (liquidated September 19, 1997)
Federal Bond Fund (liquidated September 19, 1997)
New Pacific Fund
U.S. Growth Fund
Overseas Equity Fund (formerly World Growth Fund)
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds III, Inc. (formerly Trend)
Trend Fund
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Small Cap Value Fund (formerly Value Fund)
Retirement Income Fund (New)
__________________
*Except as otherwise noted, all Portfolios included on this
Schedule A are Existing Portfolios for purposes of the compensation
described on Schedule B to that Fund Accounting Agreement between
Delaware Service Company, Inc. and the Delaware Group of Funds dated as
of August 19, 1996 ("Agreement"). All portfolios added to this Schedule
A by amendment executed by a Company on behalf of such Portfolio hereof
shall be a New Portfolio for purposes of Schedule B to the Agreement.
Delaware Group Foundation Funds (New)
Balanced Portfolio (New)
Growth Portfolio (New)
Income Portfolio (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Large-Cap Value Equity Portfolio
(formerly The Defensive Equity Portfolio)
The Small/Mid-Cap Value Equity Portfolio (New)
(formerly The Defensive Equity Small/Mid-Cap Portfolio)
The Defensive Equity Utility Portfolio (deregistered
January 14, 1997)
The Emerging Markets Portfolio (New)
The Intermediate Fixed Income Portfolio
(formerly The Fixed Income Portfolio)
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
The Global Equity Portfolio (New)
The Real Estate Investment Trust Portfolio II (New)
The Diversified Core Fixed Income Portfolio (New)
The Aggregate Fixed Income Portfolio (New)
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
REIT Series (New)
Strategic Income Series (New)
Trend Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group State Tax-Free Income Trust (formerly DMCT
Tax-Free Income Trust-Pennsylvania)
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of March 31, 1998
DELAWARE SERVICE COMPANY, INC.
/s/David K. Downes
By: ________________________________________________________
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP FOUNDATION FUNDS
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
/s/ Wayne A. Stork
By: ________________________________________________________
Wayne A. Stork
Chairman
EX-99.B10
Exhibit 24(b)(10)
Law Offices
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098
(215) 564-8000
Direct Dial: (215) 564-8115
September 23, 1998
Delaware Group Government Fund, Inc.
1818 Market Street
Philadelphia, PA 19103
Re: Legal Opinion-Securities Act of 1933
Ladies and Gentlemen:
We have examined the Articles of Incorporation, as amended and
supplemented (the "Articles") of Delaware Group Government Fund, Inc.
(the "Fund"), a series corporation organized under Maryland law on April
17, 1985, the By-Laws of the Fund, and its proposed form of Share
Certificates (if any) all as amended to date, and the various pertinent
corporate proceedings we deem material. We have also examined the
Notification of Registrationand the Registration Statements filed under
the Investment Company Act of 1940 (the "Investment Company Act") and
the Securities Act of 1933 (the "Securities Act"), all as amended to
date, as well as other items we deem material to this opinion.
The Fund is authorized by the Articles to issue five hundred million
(500,000,000) shares of common stock at a par value of $0.01 and
currently issues four classes of shares of a single series designated
the Government Income Series. The Articles also empower the Board to
designate any additional series or classes and allocate shares to such
series or classes.
The Fund has filed with the U.S. Securities and Exchange Commission, a
registration statement under the Securities Act, which registration
statement is deemed to register an indefinite number of shares of the
Fund pursuant to the provisions of Section 24(f) of the Investment
Company Act. You have further advised us that the Fund has filed, and
each year hereafter will timely file, a Notice pursuant to Rule 24f-2
under the Investment Company Act perfecting the registration of the
shares sold by the Fund during each fiscal year during which such
registration of an indefinite number of shares remains in effect.
You have also informed us that the shares of the Fund have been, and
will continue to be, sold in accordance with the Fundis usual method of
distributing its registered shares, under which prospectuses are made
available for delivery to offerees and purchasers of such shares in
accordance with Section 5(b) of the Securities Act.
Based upon the foregoing information and examination, so long as the
Fund remains a valid and subsisting entity under the laws of its state
of organization, and the registration of an indefinite number of shares
of the Fund remains effective, the authorized shares of the Fund when
issued for the consideration set by the Board of Directors pursuant to
the Articles, and subject to compliance with Rule 24f-2, will be legally
outstanding, fully-paid, and non-assessable shares, and the holders of
such shares will have all the rights provided for with respect to such
holding by the Articles and the laws of the State of Maryland.
We hereby consent to the use of this opinion, in lieu of any other, as
an exhibit to the Registration Statement of the Fund, along with any
amendments thereto, covering the registration of the shares of the Fund
under the Securities Act and the applications, registration statements
or notice filings, and amendments thereto, filed in accordance with the
securities laws of the several states in which shares of the Fund are
offered, and we further consent to reference in the registration
statement of the Fund to the fact that this opinion concerning the
legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
BY: /S/ Bruce G. Leto
---------------------------------
Bruce G. Leto
EX-99.B11
Exhibit 24(b)(11)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Financial Statements" in the
Statement of Additional Information and to the incorporation by
reference in this Post-Effective Amendment No. 20 to the
Registration Statement (Form N-1A) (No. 2-97889) of Delaware Group
Government Fund, Inc. of our report dated September 4, 1998 included in
the 1998 Annual Report to shareholders.
/s/Ernst & Young LLP
--------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
September 28, 1998
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<DISTRIBUTIONS-OF-INCOME> 10,751,487
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<SERIES>
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<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 161,828,004
<INVESTMENTS-AT-VALUE> 163,765,102
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<DISTRIBUTIONS-OF-GAINS> 0
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<ACCUMULATED-NII-PRIOR> 6,108
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<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NII> .474
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SERIES>
<NUMBER> 013
<NAME> U.S. GOVERNMENT FUND C CLASS
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<PERIOD-END> JUL-31-1998
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<OTHER-ITEMS-LIABILITIES> 527,469
<TOTAL-LIABILITIES> 16,028,130
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<SHARES-COMMON-PRIOR> 135,664
<ACCUMULATED-NII-CURRENT> 625
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 2,047,105
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,389,016
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<EXPENSES-NET> 2,062,748
<NET-INVESTMENT-INCOME> 11,326,268
<REALIZED-GAINS-CURRENT> (58,287)
<APPREC-INCREASE-CURRENT> (889,791)
<NET-CHANGE-FROM-OPS> 10,378,190
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<DISTRIBUTIONS-OF-INCOME> 73,758
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 379,435
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<ACCUMULATED-NII-CURRENT> 625
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<OVERDISTRIBUTION-GAINS> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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EX-99.B19
Exhibit 24(b)(19)
POWER OF ATTORNEY
Each of the undersigned, a member of the Boards of
Directors/Trustees of the Delaware Group Funds listed on Exhibit A to
this Power of Attorney, hereby constitutes and appoints on behalf of
each of the Funds listed on Exhibit A, Wayne A. Stork, Jeffrey J. Nick
and Walter P. Babich and any one of them acting singly, his true and
lawful attorneys-in-fact, in his name, place, and stead, to execute and
cause to be filed with the Securities and Exchange Commission and other
federal or state government agency or body, such registration
statements, and any and all amendments thereto as either of such
designees may deem to be appropriate under the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and all
other applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of this 18th day of December, 1997.
/s/Walter P. Babich /s/Thomas F. Madison
_____________________ _____________________
Walter P. Babich Thomas F. Madison
/s/Anthony D. Knerr /s/Jeffrey J. Nick
_____________________ _____________________
Anthony D. Knerr Jeffrey J. Nick
/s/Ann R. Leven /s/Charles E. Peck
_____________________ _____________________
Ann R. Leven Charles E. Peck
/s/W. Thacher Longstreth /s/Wayne A. Stork
_____________________ _____________________
W. Thacher Longstreth Wayne A. Stork
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS III, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP FOUNDATION FUNDS
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
