<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-97889
File No. 811-4304
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No._____
Post-Effective Amendment No. 23 /X/
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AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 23
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DELAWARE GROUP GOVERNMENT FUND
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-1371
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Richelle S. Maestro, Esquire, 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: September 29, 2000
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It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
__X__ on September 29, 2000 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
If appropriate:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 23 to Registration File No. 2-97889
includes the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectuses
4. Part B - Statement of Additional Information
5. Part C - Other Information
6. Signatures
7. Exhibits
<PAGE>
DELAWARE(SM)
INVESTMENTS
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Philadelphia o London
Delaware American Government Bond Fund
Class A o Class B o Class C
Prospectus September 29, 2000
(Art for Current Income Fund)
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this Prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of contents
.................................................................
Fund profile page 2
Delaware American Government Bond Fund 2
.................................................................
How we manage the Fund page 4
Our investment strategies 4
The securities we typically invest in 5
The risks of investing in the Fund 7
.................................................................
Who manages the Fund page 9
Investment manager 9
Portfolio managers 9
Fund administration (Who's who) 10
.................................................................
About your account page 11
Investing in the Fund 11
Choosing a share class 11
How to reduce your sales charge 13
How to buy shares 14
Retirement plans 15
How to redeem shares 16
Account minimums 17
Special services 17
Dividends, distributions and taxes 19
Certain management considerations 19
.................................................................
Financial highlights page 20
1
<PAGE>
Profile: Delaware American Government Bond Fund
What is the Fund's goal?
The Fund seeks 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. Although the Fund will strive to
achieve its investment goal, there is no assurance that it will.
What are the Fund's main investment strategies? We invest primarily in U.S.
government securities including:
o U.S. Treasury bills, notes and bonds;
o other debt securities issued or unconditionally guaranteed by the U.S.
government or backed by the full faith and credit of the U.S. government; and
o debt issued or guaranteed by U.S. government agencies or instrumentalities,
including debt obligations guaranteed by the Government National Mortgage
Association, also known as GNMA, Federal Home Loan Mortgage Corporation
(Freddie Mac) and Federal National Mortgage Association (Fannie Mae) and other
mortgage-backed securities.
We may also invest up to 20% of our net assets in high quality, non-government
fixed-income securities.
What are the main risks of investing in the Fund? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The price of Fund shares will increase and decrease according to changes
in the value of the Fund's investments. This Fund will be affected by changes in
bond prices, particularly as a result of changes in interest rates.
Mortgage-backed securities may experience increased pre-payments on the
underlying mortgages if interest rates decline, which may require the Fund to
reinvest in lower yielding securities. The Fund may also experience portfolio
turnover in excess of 100%, which could result in higher transaction costs and
tax liability for investors. For a more complete discussion of risk, please turn
to page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
Who should invest in the Fund
o Investors with medium- or long-range goals.
o Investors looking for regular income from their investments.
o Investors looking for a bond investment to help balance their investments in
stocks or more aggressive securities.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short-term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
<PAGE>
How has the Fund performed?
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This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how returns for the Fund's Class A shares have varied over the
past ten calendar years, as well as the average annual returns of all shares for
the one-, five- and ten-year or lifetime periods, as applicable. The Fund's past
performance does not necessarily indicate how it will perform in the future.
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Year-by-year total return (Class A)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.79% 15.14% 6.37% 7.79% -5.81% 13.71% 2.82% 8.45% 7.08% -2.59%
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
As of June 30, 2000, the Fund's Class A shares had a calendar year-to-date
return of 3.89%. During the periods illustrated in this bar chart, Class A's
highest quarterly return was 5.42% for the quarter ended September 30, 1991 and
its lowest quarterly return was -3.78% for the quarter ended March 31, 1994.
The maximum Class A sales charge of 4.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the previous paragraph
or in the bar chart. If this fee were included, the returns would be less than
those shown. The average annual returns in the table shown on page 3 do include
the sales charge.
2
<PAGE>
How has the Fund performed? (continued)
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Average annual returns as of 12/31/99
<TABLE>
<CAPTION>
CLASS A B C Lehman Brothers
(if redeemed)* (if redeemed)* Government Bond Index
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(Inception 8/1/85) (Inception 5/2/94) (Inception 11/29/95)
<S> <C> <C> <C> <C>
1 year -7.23% -6.92% -4.18% -2.23%
5 years 4.73% 4.71% N/A 7.44%
10 years or lifetime** 5.48% 3.98% 3.46% 7.48%
</TABLE>
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Lehman Brothers Government Bond
Index. You should remember that unlike the Fund, the index is unmanaged and
doesn't reflect the costs of operating a mutual fund, such as the costs of
buying, selling and holding securities.
*If shares were not redeemed, the returns for Class B would be -3.27%, 5.01%
and 4.11%, respectively, for the one-year, five-year and lifetime periods.
Returns for Class C would be -3.26% and 3.46%, respectively, for the one-year
and lifetime periods.
**Lifetime returns are shown if the Fund or Class existed for less than ten
years. The Lehman Brothers Government Bond Index return shown is for ten
years. Index returns for Class B and Class C lifetime periods were 6.61% and
5.13%, respectively. Maximum sales charges are included in the Fund returns in
the table.
<TABLE>
<CAPTION>
What are the Fund's fees and expenses? CLASS A B C
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<S> <C> <C> <C> <C>
Sales charges are fees paid directly Maximum sales charge (load) imposed on
from your investments when you buy or sell purchases as a percentage of offering price 4.75% none none
shares of the Fund.
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none(1) 4%(2) 1%(3)
Maximum sales charge (load) imposed on
reinvested dividends none none none
Redemption fees none none none
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Annual fund operating expenses are Management fees 0.55% 0.55% 0.55%
deducted from the Fund's assets.
Distribution and service (12b-1) fees 0.30%(4) 1.00% 1.00%
Other expenses 0.49% 0.49% 0.49%
Total operating expenses 1.34% 2.04% 2.04%
CLASS(6) A B B C C
(if redeemed) (if redeemed)
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This example is intended to 1 year $605 $207 $707 $207 $307
help you compare the cost of
investing in the Fund to the 3 years $879 $640 $940 $640 $640
cost of investing in other
mutual funds with similar 5 years $1,174 $1,098 $1,298 $1,098 $1,098
investment objectives. We show
the cumulative amount of Fund 10 years $2,011 $2,189 $2,189 $2,370 $2,370
expenses on a hypothetical
investment of $10,000 with an
annual 5% return over the time
shown.(5) This is an example
only, and does not represent
future expenses, which may be
greater or less than those
shown here.
</TABLE>
<PAGE>
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial adviser who is
paid a commission, a contingent deferred sales charge will be imposed on
redemptions made within two years of purchase. Additional Class A purchase
options that involve a contingent deferred sales charge may be permitted
from time to time and will be disclosed in the Prospectus if they are
available.
(2) If you redeem Class B shares during the first two years after you buy them,
you will pay a contingent deferred sales charge of 4%, which declines to 3%
during the third and fourth years, 2% during the fifth year, 1% during the
sixth year, and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1%
contingent deferred sales charge.
(4) The Board of Trustees adopted a formula for calculating 12b-1 plan expenses
for the Fund's Class A shares that went into effect on June 1, 1992. Under
this formula, 12b-1 plan expenses will not be more than 0.30% or less than
0.10%.
(5) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
(6) The Class B example reflects the conversion of Class B shares to Class A
shares after approximately eight years. Information for the ninth and tenth
years reflects expenses of the Class A shares.
3
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio managers pursue the Fund's investment
goals.
The Fund invests in a mix of fixed-income securities, primarily those that are
issued or guaranteed by the U.S. government. The Fund may also invest a portion
of its assets in high-quality non-government securities. Through careful
selection of bonds, we strive to provide high current income with emphasis on
stability of principal.
We typically invest a significant portion of the Fund's assets in
mortgage-related securities. When selecting mortgage-related securities for the
portfolio, we carefully evaluate them based on their income potential but we
generally also look for mortgages with characteristics that reduce the
likelihood of prepayment by homeowners. Such characteristics might include low
remaining balances, interest rates that are lower than current rates, or failure
to prepay in a previous period of low interest rates.
The weighted average maturity of the Fund will typically be between seven and 10
years. This is considered an intermediate range maturity. By keeping the average
maturity in this intermediate range, we aim to reduce the Fund's sensitivity to
changes in interest rates. When interest rates rise, prices of bonds and bond
funds generally decline and when interest rates decline, prices generally rise.
We believe intermediate-maturity bonds generally offer us attractive income
potential with lower price fluctuations than longer-term bonds.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
How to use this glossary
The glossary includes definitions of investment terms used throughout the
Prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check the glossary.
<TABLE>
<CAPTION>
Glossary A-C Amortized cost Average maturity
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<S> <C> <C>
Amortized cost is a method used to value An average of when
a fixed-income security that starts with the individual bonds
the face value of the security and then and other debt
adds or subtracts from that value securities held in a
depending on whether the purchase price portfolio will
was greater or less than the value of mature.
the security at maturity. The amount
greater or less than the par value is
divided equally over the time remaining
until maturity.
</TABLE>
4
<PAGE>
The securities we Fixed-income securities offer the potential for greater
typically invest in income payments than stocks, and also may provide capital
appreciation.
<TABLE>
<CAPTION>
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Securities How we use them
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Delaware American Government Bond Fund
<S> <C>
U.S. Treasury obligations: Treasury bills, notes We may invest without limit in U.S. Treasury securities.
and bonds of varying maturities. U.S. Treasury
securities are backed by the "full faith and
credit" of the United States.
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Government agency obligations: Securities issued We may invest without limit in the debt securities of U.S.
or backed by U.S. government agencies or government agencies or instrumentalities.
government-sponsored corporations such as the
Federal Housing Authority or the Export-Import
Bank. These securities may or may not be backed by
the full faith and credit of the U.S. government.
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Mortgage-backed securities: Fixed-income We may invest without limit in government-related
securities that represent pools of mortgages, with mortgage-backed securities.
investors receiving principal and interest
payments as the underlying mortgage loans are paid We may also invest without limit in privately issued
back. Many are issued and guaranteed against mortgage-backed securities if they are 100% collateralized at
default by the U.S. government or its agencies or the time of issuance by securities issued or guaranteed by
instrumentalities, such as the Federal Home Loan the U.S. government, its agencies or instrumentalities. These
Mortgage Corporation, Federal National Mortgage privately issued mortgage-backed securities we invest in are
Association and the Government National Mortgage either collateralized mortgage obligations (CMOs) or real
Association. Others are issued by private estate mortgage investment conduits (REMICs). We currently
financial institutions, with some fully invest in these government-backed privately issued CMOs and
collateralized by certificates issued or REMICs only if they are rated in the two highest grades by a
guaranteed by the U.S. government or its agencies nationally recognized statistical rating organization (NRSRO)
or instrumentalities. at the time of purchase.
We may also invest in privately issued mortgage-backed
securities that are not collateralized by U.S. government
securities and are not directly guaranteed by the U.S.
government in any way. They are secured by the underlying
collateral of the private issuer. These include CMOs, REMICs
and commercial mortgage-backed securities. We may invest in
these securities only if they are rated in the highest
quality category by an NRSRO. However, the Fund may not
invest more than 20% of its net assets in high quality
non-government securities, which include these non-agency
mortgage-backed securities.
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Asset-backed securities: Bonds or notes backed by We may invest only in asset-backed securities rated in the
accounts receivable, including home equity, highest quality category, such as AAA, by an NRSRO. However,
automobile or credit loans. we may not invest more than 20% of the Fund's net assets in
high quality securities (including these asset-backed
securities) that are not government securities or do not use
government securities as collateral.
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Corporate notes and bonds: Debt obligations issued We may invest in corporate notes and bonds that are rated A
by a corporation. or above by an NRSRO. Our total holdings of high quality
non-government securities, including corporate notes and
bonds, may not exceed 20% of net assets.
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Certificates of deposit and obligations of U.S. We may invest in certificates of deposit and obligations from
and foreign banks: Interest paying debt banks that have assets of at least one billion dollars. These
instruments issued by a bank. instruments are subject to our 20% limit on non-government
securities.
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Corporate commercial paper: Short-term debt We may invest in commercial paper that is rated P-1 by
obligations with maturities ranging from two to Moody's and/or A-1 by S&P. These securities are subject to
270 days, issued by companies. our 20% limit on non-government securities.
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Repurchase agreements: An agreement between a Typically, we use repurchase agreements as a short-term
buyer of securities, such as the Fund, and a investment for the Fund's cash position. In order to enter
seller of securities, in which the seller agrees into these repurchase agreements, the Fund must have
to buy the securities back within a specified time collateral of 102% of the repurchase price. The Fund will
at the same price the buyer paid for them, plus an only enter into repurchase agreements in which the collateral
amount equal to an agreed upon interest rate. is comprised of U.S. government securities.
Repurchase agreements are often viewed as
equivalent to cash.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond Bond ratings Capital
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<S> <C> <C>
A debt security, like an IOU, issued by a company, Independent evaluations of The amount of money
municipality or government agency. In return for creditworthiness, ranging from you invest.
lending money to the issuer, a bond buyer Aaa/AAA (highest quality) to D
generally receives fixed periodic interest (lowest quality). Bonds rated
payments and repayment of the loan amount on a Baa/BBB or better are considered
specified maturity date. A bond's price changes investment grade. Bonds rated Ba/BB
prior to maturity and typically is inversely or lower are commonly known as junk
related to current interest rates. Generally, when bonds. See also Nationally
interest rates rise, bond prices fall, and when recognized statistical rating
interest rates fall, bond prices rise. organization.
</TABLE>
5
<PAGE>
How we manage the Fund (continued)
<TABLE>
<CAPTION>
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Securities How we use them
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Delaware American Government Bond Fund
<S> <C>
Options and futures: Options represent a right to At times when we anticipate adverse conditions, we may want
buy or sell a security or a group of securities at to protect gains on securities without actually selling them.
an agreed upon price at a future date. The We might use options or futures to neutralize the effect of
purchaser of an option may or may not choose to go any price declines, without selling a bond or bonds, or as a
through with the transaction. The seller of an hedge against changes in interest rates. We may also sell an
option, however, must go through with the option contract (often referred to as "writing" an option) to
transaction if its purchaser exercises the option. earn additional income for the Fund.
Futures contracts are agreements for the purchase Use of these strategies can increase the operating costs of
or sale of a security or a group of securities at the Fund and can lead to loss of principal.
a specified price, on a specified date. Unlike
purchasing an option, a futures contract must be
executed unless it is sold before the settlement
date.
Certain options and futures may be considered to
be derivative securities.
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Restricted securities: Privately placed securities We may invest in privately placed securities including those
whose resale is restricted under securities law. that are eligible for resale only among certain institutional
buyers without registration, which are commonly known as Rule
144A Securities. Restricted securities that are determined to
be illiquid may not exceed the Fund's 10% limit on illiquid
securities, which is described below.
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Interest rate swaps agreements: In an interest Interest rate swaps may be used to adjust the Fund's
rate swap, a fund receives payments from another sensitivity to interest rates or to hedge against changes in
party based on a floating interest rate, in return interest rates.
for making payments based on a fixed interest
rate. An interest rate swap can also work in Interest rate swaps will be considered illiquid securities
reverse with a fund receiving payments based on a (see below).
fixed interest rate and making payments based on a
floating interest rate.
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Illiquid securities: Securities that do not have a We may invest up to 10% of total assets in illiquid
ready market and cannot be easily sold within securities.
seven days at approximately the price that a fund
has valued them.
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</TABLE>
Please see the Statement of Additional Information for additional descriptions
on the securities listed in the table above.
Borrowing from banks The Fund may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Fund may be unable to meet its investment objective.
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in securities
transactions. These transactions, if any, will generate additional income for
the Fund.
Temporary defensive positions For temporary defensive purposes, we may hold a
substantial part of the Fund's assets in cash or cash equivalents. To the extent
that it holds these securities, the Fund may be unable to achieve its investment
objective.
Portfolio turnover The Fund's annual portfolio turnover may exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for investors.
<TABLE>
<CAPTION>
C-D Capital appreciation Capital gains distributions Commission Compounding
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<S> <C> <C> <C>
An increase in the value Payments to mutual fund The fee an investor pays to a Earnings on an
of an investment. shareholders of profits (realized financial adviser for investment investment's previous
gains) from the sale of a fund's advice and help in buying or earnings.
portfolio securities. Usually paid selling mutual funds, stocks, bonds
once a year; may be either or other securities.
short-term gains or long-term
gains.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
The risks of investing Investing in any mutual fund involves risk, including the risk that you may
in the Fund receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. You should consider an investment in the Fund to
be a long-term investment that typically provides the best results when held for
a number of years. Following are the chief risks you assume when investing in
the Fund. Please see the Statement of Additional Information for further
discussion of these risks and other risks not discussed here.
</TABLE>
<TABLE>
<CAPTION>
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Risks How we strive to manage them
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Delaware American Government Bond Fund
<S> <C>
Interest rate risk is the risk that securities Interest rate risk is the most significant risk for this
will decrease in value if interest rates rise. The Fund. In striving to manage this risk, we monitor economic
risk is greater for bonds with longer maturities conditions and the interest rate environment. We keep the
than for those with shorter maturities. average maturity of the portfolio as short as is prudent, in
keeping with our objective to provide high current income.
Swaps may be particularly sensitive to interest
rate changes. Depending on the actual movements of The Fund will not invest in interest rate swaps with
interest rates and how well the portfolio manager maturities of more than two years. Each business day we will
anticipates them, a fund could experience a higher calculate the amount the Fund must pay for any swaps it holds
or lower return than originally expected. and will segregate enough cash or other liquid securities to
cover that amount.
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Market risk is the risk that all or a majority of We maintain a long-term investment approach and focus on high
the securities in a certain market--like the stock quality individual bonds that we believe can provide a steady
or bond market--will decline in value because of stream of income regardless of interim fluctuations in the
factors such as economic conditions, future bond market. We do not buy and sell securities for short-term
expectations or investor confidence. purposes.
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Credit risk is the possibility that a bond's By focusing primarily on U.S. Treasury securities and other
issuer (or an entity that insures the bond) will securities that are backed by the U.S. government, we
be unable to make timely payments of interest and minimize the possibility that any of the securities in our
principal. portfolio will not pay interest or principal. U.S. government
securities are generally considered to be of the highest
quality.
When selecting non-government securities and the dealers with
whom we do interest rate swaps, we focus on those with high
quality ratings and do careful credit analysis before
investing.
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Liquidity risk is the possibility that securities U.S. Treasuries and other U.S. government debt securities are
cannot be readily sold within seven days at typically the most liquid securities available. Therefore,
approximately the price that a fund has valued liquidity risk is not a significant risk for this Fund.
them.
Swap agreements will be treated as illiquid securities, but
most swap dealers will be willing to repurchase interest rate
swaps.
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</TABLE>
<TABLE>
<CAPTION>
Contingent deferred sales
Consumer Price Index (CPI) charge (CDSC) Corporate bond Depreciation Diversification
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<S> <C> <C> <C> <C>
Measurement of U.S. inflation; Fee charged by some mutual funds A debt security A decline in an The process of
represents the price of a when shares are redeemed (sold back issued by a investment's value. spreading
basket of commonly purchased to the fund) within a set number of corporation. See investments among a
goods. years; an alternative method for Bond. number of different
investors to compensate a financial securities, asset
adviser for advice and service, classes or
rather than an up-front commission. investment styles to
reduce the risks of
investing.
</TABLE>
7
<PAGE>
How we manage the Fund (continued)
<TABLE>
<CAPTION>
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Risks How we strive to manage them
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Delaware American Government Bond Fund
<S> <C>
Prepayment risk is the risk that the principal on Prepayment risk can be a significant risk to this Fund
a bond that a fund owns will be prepaid prior to because we may invest a large percentage of our holdings in
maturity at a time when interest rates are lower mortgage securities. Homeowners or others who have mortgages
than what that bond was paying. The Fund would are more likely to prepay them when interest rates are
then have to reinvest that money at a lower relatively low. In order to manage this risk, when interest
interest rate. rates are low or when we anticipate that rates will be
declining, we look for mortgage securities that we believe
are less likely to be prepaid, such as those that have
interest rates lower than current rates or have low remaining
loan balances.
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Futures and options risk is the possibility that a We will use options and futures for defensive purposes, such
fund may experience a significant loss if it as to protect gains in the portfolio without actually selling
employs an options or futures strategy related to a security, to neutralize the impact of interest rate changes
a security or a market index and that security or or to earn additional income. We will not use futures and
index moves in the opposite direction from what options for speculative reasons or in an effort to enhance
the portfolio manager anticipated. Futures and return.
options also involve additional expenses, which
could reduce any benefit or increase any loss to a
fund from using the strategy.
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</TABLE>
<TABLE>
<CAPTION>
D-I Dividend distribution Duration Expense ratio
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<S> <C> <C>
Payments to mutual fund A measurement of a A mutual fund's total operating expenses,
shareholders of dividends fixed-income investment's expressed as a percentage of its total net
passed along from the fund's price volatility. The larger assets. Operating expenses are the costs of
portfolio of securities. the number, the greater the running a mutual fund, including management
likely price change for a fees, offices, staff, equipment and expenses
given change in interest related to maintaining the fund's portfolio
rates. of securities and distributing its shares.
They are paid from the fund's assets before
any earnings are distributed to shareholders.
</TABLE>
8
<PAGE>
Who manages the Fund
Investment manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services to the Fund, the manager was paid
0.55% of average daily net assets for the last fiscal year.
Portfolio managers
Paul A. Grillo has responsibility for making day-to-day investment decisions for
the Fund. When making decisions for the Fund, Mr. Grillo regularly consults with
Jude T. Driscoll.
Paul A. Grillo, Vice President/Portfolio Manager, 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. Mr.
Grillo has been managing the Fund since 1997.
Jude T. Driscoll, Executive Vice President/Head of Fixed-Income, received a
bachelor's degree in Economics from the University of Pennsylvania. Prior to
joining Delaware Investments in July 2000, Mr. Driscoll was Senior Vice
President, Director of Fixed-Income Process at Conseco Capital Management, where
he managed bank loan, high-yield and general insurance portfolios. He previously
held management positions at NationsBanc Montgomery Securities and Goldman Sachs
& Co.
<TABLE>
<CAPTION>
Financial adviser Fixed-income securities Government securities Inflation Investment goal
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial professional With fixed-income securities, the Securities issued by the The increase in the The objective,
(e.g., broker, banker, money you originally invest is U.S. government or its cost of goods and such as long-
accountant, planner or paid back at a pre-specified agencies. They include services over time. U.S. term capital
insurance agent) who maturity date. These securities, Treasuries as well as inflation is frequently growth or high
analyzes clients' finances which include government, agency-backed securities measured by changes current income,
and prepares personalized corporate or municipal bonds, as such as Fannie Maes. in the Consumer Price that a mutual
programs to meet well as money market securities, Index (CPI). fund pursues.
objectives. typically pay a fixed rate of
return (often referred to as
interest). See Bond.
</TABLE>
9
<PAGE>
Who manages the Fund (continued)
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments Funds.
<TABLE>
<CAPTION>
-----------------
Board of Trustees
-----------------
<S> <C> <C>
--------------------------- ----------------- ------------------------
Investment manager The Fund Custodian
Delaware Management Company ----------------- The Chase Manhattan Bank
One Commerce Square 4 Chase Metrotech Center
Philadelphia, PA 19103 Brooklyn, NY 11245
--------------------------- ------------------------
------------------------ --------------------------- ------------------------------
Distributor Service agent
Portfolio managers Delaware Distributors, L.P. Delaware Service Company, Inc.
(see page 9 for details) 1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
------------------------ ---------------------------- ------------------------------
----------------------
Financial advisers
----------------------
----------------------
Shareholders
----------------------
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager and distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
<PAGE>
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASDR(SM)) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Financial advisers Financial advisers provide advice to their clients, analyzing
their financial objectives and recommending appropriate funds or other
investments. Financial advisers are compensated for their services, generally
through sales commissions, and through 12b-1 and/or service fees deducted from
the fund's assets.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
L-N Lehman Brothers Government Bond Index Management fee Market capitalization
--------------------------------------------------------------------------------------------------------------------------
An index composed of The Treasury Bond The amount paid by a mutual fund to the The value of a corporation determined by
Index (all public obligations of the investment adviser for management multiplying the current market price of
U.S. Treasury, excluding flower bonds services, expressed as an annual a share of common stock by the number of
and foreign-targeted issues) and the percentage of the fund's average daily shares held by shareholders. A
Agency Bond Index (all publicly issued net assets. corporation with one million shares
debt of U.S. government agencies and outstanding and the market price per
quasi-federal corporations, and share of $10 has a market capitalization
corporate debt guaranteed by the U.S. of $10 million.
government).
</TABLE>
10
<PAGE>
About your account
Investing in the Fund
You can choose from a number of share classes for the Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial adviser to determine which class best suits
your investment goals and time frame.
Class A
Choosing a share class
o Class A shares have an up-front sales charge of up to 4.75% that you pay
when you buy the shares. The offering price for Class A shares includes the
front-end sales charge.
o If you invest $100,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reduced sales charges, as described in "How to
reduce your sales charge," and under certain circumstances the sales charge
may be waived; please see the Statement of Additional Information.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% of average daily net assets, which is lower than the 12b-1 fee for
Class B and Class C shares.
o Class A shares generally are not subject to a contingent deferred sales
charge except in the limited circumstances described in the table below.
<TABLE>
<CAPTION>
Class A sales charges
------------------------------------------------------------------------------------------------------------------------------------
Sales charge as % Sales charge as % of Dealer's commission as
Amount of purchase of offering price amount invested % of offering price
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.00%
$100,000 but
under $250,000 3.75% 3.90% 3.00%
$250,000 but
under $500,000 2.50% 2.56% 2.00%
$500,000 but
under $1 million 2.00% 2.04% 1.60%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
As shown below, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial adviser is paid a
commission on your purchase, you will have to pay a limited contingent deferred
sales charge of 1% if you redeem these shares within the first year after your
purchase and 0.50% if you redeem them within the second year after your
purchase, unless a specific waiver of the charge applies.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Sales charge as % Sales charge as % of Dealer's commission as %
Amount of purchase of offering price amount invested of offering price
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1 million up to $5 million none none 1.00%
Next $20 million
up to $25 million none none 0.50%
Amount over $25 million none none 0.25%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity NASD Regulation, Inc. (NASDR(SM)) Nationally recognized statistical rating organization (NRSRO)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The length of time The independent subsidiary of the A company that assesses the credit quality of bonds,
until a bond issuer National Association of Securities commercial paper, preferred and common stocks and
must repay the Dealers, Inc. responsible for regulating municipal short-term issues, rating the probability
underlying loan the securities industry. that the issuer of the debt will meet the scheduled
principal interest payments and repay the principal. Ratings are
to bondholders. published by such companies as Moody's Investors
Service, Inc. (Moody's), Standard & Poor's (S&P), Duff
& Phelps, Inc. (Duff), and Fitch IBCA, Inc. (Fitch).
</TABLE>
11
<PAGE>
About your account (continued)
Class B
o Class B shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge if you redeem your shares within six years after you
buy them.
o If you redeem Class B shares during the two years after you buy them, the
shares will be subject to a contingent deferred sales charge of 4%. The
contingent deferred sales charge is 3% during the third and fourth years,
2% during the fifth year, 1% during the sixth year, and 0% thereafter.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o For approximately eight years after you buy your Class B shares, they are
subject to annual 12b-1 fees no greater than 1% of average daily net
assets, of which 0.25% are service fees paid to the distributor, dealers or
others for providing services and maintaining accounts.
o Because of the higher 12b-1 fees, Class B shares have higher expenses and
any dividends paid on these shares are lower than dividends on Class A
shares.
o Approximately eight years after you buy them, Class B shares automatically
convert into Class A shares with a 12b-1 fee of no more than 0.30%.
Conversion may occur as late as three months after the eighth anniversary
of purchase, during which time Class B's higher 12b-1 fees apply.
o You may purchase up to $250,000 of Class B shares at any one time. The
limitation on maximum purchases varies for retirement plans.
Class C
o Class C shares have no up-front sales charge, so the full amount of your
purchase is invested in the Fund. However, you will pay a contingent
deferred sales charge of 1% if you redeem your shares within 12 months
after you buy them.
o Under certain circumstances the contingent deferred sales charge may be
waived; please see the Statement of Additional Information.
o Class C shares are subject to an annual 12b-1 fee which may not be greater
than 1% of average daily net assets, of which 0.25% are service fees paid
to the distributor, dealers or others for providing services and
maintaining shareholder accounts.
o Because of the higher 12b-1 fees, Class C shares have higher expenses and
pay lower dividends than Class A shares.
o Unlike Class B shares, Class C shares do not automatically convert into
another class.
o You may purchase any amount less than $1,000,000 of Class C shares at any
one time. The limitation on maximum purchases varies for retirement plans.
Each share class of the Fund has adopted a separate 12b-1 plan that allows it to
pay distribution fees for the sales and distribution of its shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
<TABLE>
<CAPTION>
N-S Net asset value (NAV) Preferred stock Principal Prospectus
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The daily dollar value of one Preferred stock has preference Amount of money you invest The official offering document
mutual fund share. Equal to a over common stock in the (also called capital). Also that describes a mutual fund,
fund's net assets divided by payment of dividends and refers to a bond's original containing information
the number of shares liquidation of assets. face value, due to be repaid required by the SEC, such as
outstanding. Preferred stocks also often at maturity. investment objectives,
pay dividends at a fixed rate policies, services and fees.
and are sometimes convertible
into common stock.
</TABLE>
12
<PAGE>
How to reduce your sales charge
We offer a number of ways to reduce or eliminate the sales charge on shares.
Please refer to the Statement of Additional Information for detailed information
and eligibility requirements. You can also get additional information from your
financial adviser. You or your financial adviser must notify us at the time you
purchase shares if you are eligible for any of these programs.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Share class
Program How it works A B C
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Letter of Intent Through a Letter of Intent you X Although the Letter of Intent
agree to invest a certain and Rights of Accumulation do
amount in Delaware Investments not apply to the purchase of
Funds (except money market Class B and Class C shares,
funds with no sales charge) you can combine your purchase
over a 13-month period to of Class A shares with your
qualify for reduced front-end purchase of Class B and Class
sales charges. C shares to fulfill your
Letter of Intent or qualify
for Rights of Accumulation.
Rights of Accumulation You can combine your holdings X
or purchases of all funds in
the Delaware Investments
family (except money market
funds with no sales charge) as
well as the holdings and
purchases of your spouse and
children under 21 to qualify
for reduced front-end sales
charges.
Reinvestment of Redeemed Up to 12 months after you For Class A, you will For Class B, your Not available.
Shares redeem shares, you can not have to pay an account will be
reinvest the proceeds without additional front-end credited with the
paying a sales charge as noted sales charge. contingent deferred
to the right. sales charge you
previously paid on
the amount you are
reinvesting. Your
schedule for
contingent deferred
sales charges and
conversion to Class
A will not start
over again; it will
pick up from the
point at which you
redeemed your
shares.
SIMPLE IRA, SEP IRA, SARSEP, These investment plans may X There is no reduction in sales
Prototype Profit Sharing, qualify for reduced sales charges for Class B or Class C
Pension, 401(k), SIMPLE charges by combining the shares for group purchases by
401(k), 403(b)(7), and 457 purchases of all members of retirement plans.
Retirement Plans the group. Members of these
groups may also qualify to
purchase shares without a
front-end sales charge and may
qualify for a waiver of any
contingent deferred sales
charges.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SEC (Securities and
Redeem Risk Sales charge Exchange Commission) Share classes
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
To cash in Generally defined as variability Charge on the purchase or Federal agency established Different
your shares by of value; also credit risk, redemption of fund shares by Congress to administer classifications of
selling them inflation risk, currency and sold through financial advisers. the laws governing the shares; mutual fund
back to the interest rate risk. Different May vary with the amount securities industry, share classes offer
mutual fund. investments involve different invested. Typically used to including mutual a variety of sales
types and degrees of risk. compensate advisers for fund companies. charge choices.
advice and service provided.
</TABLE>
13
<PAGE>
About your account (continued)
How to buy shares
[man graphic]
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
[envelope graphic]
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
[wire graphic]
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014 12893 4013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us so we can assign you an account number.
[exchange graphic]
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that under most circumstances you are allowed to exchange only
between like classes of shares. To open an account by exchange, call the
Shareholder Service Center at 800.523.1918.
[automated graphic]
Through automated shareholder services
You can purchase or exchange shares through Delaphone, our automated telephone
service, or through our web site, www.delawareinvestments.com. For more
information about how to sign up for these services, call our Shareholder
Service Center at 800.523.1918.
<TABLE>
<CAPTION>
Statement of Additional
S-V Signature guarantee Standard deviation Information (SAI) Total return
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certification by a A measure of an The document serving An investment
bank, brokerage firm investment's as "Part B" of a performance
or other financial volatility; for fund's prospectus measurement,
institution that a mutual funds, that provides more expressed as a
customer's signature measures how much a detailed information percentage, based on
is valid; signature fund's total return about the fund's the combined
guarantees can be has typically varied organization, earnings from
provided by members from its historical investments, dividends, capital
of the STAMP average. policies and risks. gains and change in
program. price over a given
period.
</TABLE>
14
<PAGE>
How to buy shares (continued)
Once you have completed an application, you can generally open an account with
an initial investment of $1,000 and make additional investments at any time for
as little as $100. If you are buying shares in an IRA or Roth IRA, under the
Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, or through
an Automatic Investing Plan, the minimum purchase is $250, and you can make
additional investments of $25 or more. The minimum for an Education IRA is $500.
The minimums vary for retirement plans other than IRAs, Roth IRAs or Education
IRAs.
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on a
business day, you will pay that day's closing share price which is based on the
Fund's net asset value. If we receive your order after the close of regular
trading, you will pay the next business day's price. A business day is any day
that the New York Stock Exchange is open for business.We reserve the right to
reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of regular
trading of the New York Stock Exchange each business day that the Exchange is
open. We calculate this value by adding the market value of all the securities
and assets in the Fund's portfolio, deducting all liabilities, and dividing the
resulting number by the number of shares outstanding. The result is the net
asset value per share. We price securities and other assets for which market
quotations are available at their market value. We price fixed-income securities
on the basis of valuations provided to us by an independent pricing service that
uses methods approved by the Board of Trustees. Any fixed-income securities that
have a maturity of less than 60 days we price at amortized cost. For all other
securities, we use methods approved by the Board of Trustees that are designed
to price securities at their fair market value.
Retirement plans
In addition to being an appropriate investment for your Individual Retirement
Account (IRA), Roth IRA and Education IRA, shares in the Fund may be suitable
for group retirement plans. You may establish your IRA account even if you are
already a participant in an employer-sponsored retirement plan. For more
information on how shares in the Fund can play an important role in your
retirement planning or for details about group plans, please consult your
financial adviser, or call 800.523.1918.
<TABLE>
<CAPTION>
Uniform Gift to Minors Act and
Treasury bills Treasury bonds Treasury notes Uniform Transfers to Minors Act Volatility
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities issued Securities issued by Securities issued Federal and state laws that provide The tendency of an investment
by the U.S. the U.S. Treasury by the U.S. a simple way to transfer property to to go up or down in value by
Treasury with with maturities of Treasury with a minor with special tax advantages. different magnitudes.
maturities of one 10 years or longer. maturities of Investments that generally go
year or less. one to 10 years. up or down in value in
relatively small amounts are
considered "low volatility"
investments, whereas those
investments that generally go
up or down in value in
relatively large amounts are
considered "high volatility"
investments.
</TABLE>
15
<PAGE>
About your account (continued)
How to redeem shares
[man graphic]
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
[envelope graphic]
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of more than
$50,000, you must include a signature guarantee for each owner. Signature
guarantees are also required when you request redemption proceeds to be sent to
an address other than the address of record on an account.
[telephone graphic]
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
[wire graphic]
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. If you request a wire deposit, a bank wire fee may be deducted from
your proceeds. Bank information must be on file before you request a wire
redemption.
[automated graphic]
Through automated shareholder services
You can redeem shares through Delaphone, our automated telephone service, or
through our web site, www.delawareinvestments.com. For more information about
how to sign up for these services, call our Shareholder Service Center at
800.523.1918.
[hand graphic]
Through checkwriting
You may redeem Class A shares by writing checks of $500 or more. Checks must be
signed by all owners of the account unless you indicate otherwise on your
Investment Application. The checkwriting feature is not available for retirement
plans or for Class B or Class C shares. Also, because dividends are declared
daily, you may not close your account by writing a check. When you write checks
you are subject to bank regulations and may be subject to a charge if the check
amount exceeds the value of your account.
16
<PAGE>
How to redeem shares
(continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. Eastern time), you will receive the net asset value as determined on
the business day we receive your request. We will deduct any applicable
contingent deferred sales charges. You may also have to pay taxes on the
proceeds from your sale of shares. We will send you a check, normally the next
business day, but no later than seven days after we receive your request to sell
your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
If you are required to pay a contingent deferred sales charge when you redeem
your shares, the amount subject to the fee will be based on the shares' net
asset value when you purchased them or their net asset value when you redeem
them, whichever is less. This arrangement assures that you will not pay a
contingent deferred sales charge on any increase in the value of your shares.
You also will not pay the charge on any shares acquired by reinvesting dividends
or capital gains. If you exchange shares of one fund for shares of another, you
do not pay a contingent deferred sales charge at the time of the exchange. If
you later redeem those shares, the purchase price for purposes of the contingent
deferred sales charge formula will be the price you paid for the original
shares, not the exchange price. The redemption price for purposes of this
formula will be the NAV of the shares you are actually redeeming.
Account minimums
If you redeem shares and your account balance falls below the required account
minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gift to Minors Act
accounts or accounts with automatic investing plans and $500 for Education IRAs)
for three or more consecutive months, you will have until the end of the current
calendar quarter to raise the balance to the minimum. If your account is not at
the minimum by the required time, you will be charged a $9 fee for that quarter
and each quarter after that until your account reaches the minimum balance. If
your account does not reach the minimum balance, your Fund may redeem your
account after 60 days' written notice to you.
Special services
To help make investing with us as easy as possible, and to help you build your
investments, we offer the following special services.
--------------------------------------------------------------------------------
Automatic Investing Plan
The Automatic Investing Plan allows you to make regular monthly or quarterly
investments directly from your checking account.
Direct Deposit
With Direct Deposit you can make additional investments through payroll
deductions, recurring government or private payments such as Social Security or
direct transfers from your bank account.
Wealth Builder Option
With the Wealth Builder Option you can arrange automatic monthly exchanges
between your shares in one or more Delaware Investments Funds. Wealth Builder
exchanges are subject to the same rules as regular exchanges (see below) and
require a minimum monthly exchange of $100 per fund.
17
<PAGE>
About your account (continued)
Special services
(continued)
--------------------------------------------------------------------------------
Dividend Reinvestment Plan
Through our Dividend Reinvestment Plan, you can have your distributions
reinvested in your account or the same share class in another fund in the
Delaware Investments family. The shares that you purchase through the Dividend
Reinvestment Plan are not subject to a front-end sales charge or to a contingent
deferred sales charge. Under most circumstances, you may reinvest dividends only
into like classes of shares.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments fund without paying a front-end sales charge or a
contingent deferred sales charge at the time of the exchange. However, if you
exchange shares from a money market fund that does not have a sales charge you
will pay any applicable sales charges on your new shares. When exchanging Class
B and Class C shares of one fund for the same class of shares in other funds,
your new shares will be subject to the same contingent deferred sales charge as
the shares you originally purchased. The holding period for the contingent
deferred sales charge will also remain the same, with the amount of time you
held your original shares being credited toward the holding period of your new
shares. You don't pay sales charges on shares that you acquired through the
reinvestment of dividends. You may have to pay taxes on your exchange. When you
exchange shares, you are purchasing shares in another fund so you should be sure
to get a copy of the fund's prospectus and read it carefully before buying
shares through an exchange.
MoneyLine(SM) On Demand Service
Through our MoneyLine(SM) On Demand Service, you or your financial adviser may
transfer money between your Fund account and your predesignated bank account by
telephone request. This service is not available for retirement plans, except
for purchases into IRAs. MoneyLine has a minimum transfer of $25 and a maximum
transfer of $50,000. Delaware Investments does not charge a fee for this
service; however, your bank may assess one.
MoneyLine Direct Deposit Service
Through our MoneyLine Direct Deposit Service you can have $25 or more in
dividends and distributions deposited directly to your bank account. Delaware
Investments does not charge a fee for this service; however, your bank may
assess one. This service is not available for retirement plans.
Systematic Withdrawal Plan
Through our Systematic Withdrawal Plan you can arrange a regular monthly or
quarterly payment from your account made to you or someone you designate. If the
value of your account is $5,000 or more, you can make withdrawals of at least
$25 monthly, or $75 quarterly. You may also have your withdrawals deposited
directly to your bank account through our MoneyLine Direct Deposit Service.
18
<PAGE>
Special services
(continued)
--------------------------------------------------------------------------------
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains, unless you tell us otherwise.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
Certain management considerations
Investments by fund of funds
The Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, the Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, 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
transaction costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on both the
Fund and Foundation Funds as a result of these transactions.
19
<PAGE>
Financial highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
Delaware American 7/31
The Financial Government Bond Fund 2000 1999 1998 1997 1996
highlights tables are ------------------------------------------------------------------------------------------------------
intended to help you Net asset value, beginning of period $7.300 $7.720 $7.760 $7.590 $7.860
understand the Fund's Income (loss) from investment operations:
financial performance. Net investment income 0.469 0.474 0.528 0.544 0.588
All "per share" Net realized and unrealized gain (loss)
information reflects on investments (0.128) (0.420) (0.040) 0.170 (0.270)
financial results for a ------ ------ ------ ------ ------
single Fund share. This Total from investment operations 0.341 0.054 0.488 0.714 0.318
information has been ------ ------ ------ ------ ------
audited by Ernst & Less dividends:
Young LLP, whose Dividends from net investment income (0.471) (0.474) (0.528) (0.544) (0.588)
report, along with the ------ ------ ------ ------ ------
Fund's financial Total dividends (0.471) (0.474) (0.528) (0.544) (0.588)
statements, is included ------ ------ ------ ------ ------
in the Fund's annual Net asset value, end of period $7.170 $7.300 $7.720 $7.760 $7.590
report, which is ------ ------ ------ ------ ------
available upon request Total return(2) 4.88% 0.59% 6.50% 9.77% 4.09%
by calling ====== ====== ====== ====== ======
800.523.1918. Ratios and supplemental data:
Net assets, end of period (000 omitted) $92,100 $114,027 $127,001 $138,844 $164,156
Ratio of expenses to average net assets 1.34% 1.25% 1.20% 1.16% 1.20%
Ratio of net investment income to
average net assets 6.55% 6.16% 6.80% 7.13% 7.55%
Portfolio turnover 223% 142% 119% 63% 81%
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
<TABLE>
<CAPTION>
Net realized and unrealized gain (loss)
How to read the Net investment income on investments Net asset value (NAV)
Financial highlights ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment A realized gain on investments occurs when we sell This is the value of
income includes an investment at a profit, while a realized loss a mutual fund share,
dividend and on investments occurs when we sell an investment calculated by
interest income at a loss. When an investment increases or dividing the net
earned from a fund's decreases in value but we do not sell it, we assets by the number
investments; it is record an unrealized gain or loss. The amount of of shares
after expenses have realized gain per share that we pay to outstanding.
been deducted. shareholders is listed under "Less
dividends-Dividends from net investment income."
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------- ----------------------------------------------------------
Class B Class C
---------------------------------------------------------------- ----------------------------------------------------------
Period
Year ended 11/29/95(1)
7/31 through
2000 1999 1998 1997 1996 2000 1999 1998 1997 7/31/96
---------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$7.300 $7.720 $7.760 $7.590 $7.860 $7.300 $7.720 $7.760 $7.590 $7.950
0.419 0.421 0.474 0.490 0.533 0.420 0.422 0.474 0.491 0.348
(0.128) (0.421) (0.040) 0.170 (0.270) (0.129) (0.422) (0.040) 0.170 (0.360)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
0.291 0.000 0.434 0.660 0.263 0.291 0.000 0.434 0.661 (0.012)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.421) (0.420) (0.474) (0.490) (0.533) (0.421) (0.420) (0.474) (0.491) (0.348)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(0.421) (0.420) (0.474) (0.490) (0.533) (0.421) (0.420) (0.474) (0.491) (0.348)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$7.170 $7.300 $7.720 $7.760 $7.590 $7.170 $7.300 $7.720 $7.760 $7.590
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
4.15% (0.11%) 5.76% 9.01% 3.36% 4.15% (0.11%) 5.76% 9.01% (0.17%)
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$15,855 $19,147 $13,642 $10,695 $9,754 $2,434 $4,077 $2,047 $1,308 $1,029
2.04% 1.95% 1.90% 1.86% 1.90% 2.04% 1.95% 1.90% 1.86% 1.90%
5.85% 5.46% 6.10% 6.43% 6.85% 5.85% 5.46% 6.10% 6.43% 6.85%
223% 142% 119% 63% 81% 223% 142% 119% 63% 81%
---------------------------------------------------------------- ----------------------------------------------------------
Ratio of net
Ratio of expenses to investment income
Total return Net assets average net assets to average net assets Portfolio turnover
----------------------------------------------------------------------------------------------------------------------------------
This represents the rate that Net assets represent The expense ratio is We determine this This figure tells
an investor would have earned the total value of the percentage of ratio by dividing you the amount of
or lost on an investment in a all the assets in a net assets that a net investment trading activity in
fund. In calculating this fund's portfolio, fund pays annually income by average a fund's portfolio.
figure for the financial less any for operating net assets. For example, a fund
highlights table, we include liabilities, that expenses and with a 50% turnover
applicable fee waivers, are attributable to management fees. has bought and sold
exclude front-end and that class of the These expenses half of the value of
contingent deferred sales fund. include accounting its total investment
charges, and assume the and administration portfolio during the
shareholder has reinvested all expenses, services stated period.
dividends and realized gains. for shareholders,
and similar
expenses.
</TABLE>
21
<PAGE>
Delaware American Government Bond Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual report to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with the
Securities and Exchange Commission (SEC) and which is legally a part of this
Prospectus. If you want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any questions about investing
in the Fund, you can write to us at 1818 Market Street, Philadelphia, PA
19103-3682, or call toll-free 800.523.1918. You may also obtain additional
information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the EDGAR database
on the SEC web site (http://www.sec.gov). You can also get copies of this
information, after payment of a duplicating fee, by e-mailing the SEC at
[email protected] or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You can get information on the Public
Reference Room by calling the SEC at 202.942.8090.
Web site
www.delawareinvestments.com
E-mail
[email protected]
Shareholder Service Center
800.523.1918
Call the Shareholder Service Center Monday to Friday, 8 a.m. to 8 p.m.
Eastern time:
oFor fund information; literature; price, yield and performance figures.
oFor information on existing regular investment accounts and retirement plan
accounts including wire investments; wire redemptions; telephone redemptions
and telephone exchanges.
Delaphone Service
800.362.FUND (800.362.3863)
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-4304
Delaware American Government Bond Fund Symbols
CUSIP NASDAQ
----- ------
Class A 246094205 DEGGX
Class B 246094601 DEGBX
Class C 246094700 DUGCX
DELAWARE(SM)
IVNESTMENTS
---------------------
Philadelphia o London
P-023 [--] PP 9/00
<PAGE>
DELAWARE(SM)
INVESTMENTS
---------------------
Philadelphia o London
Delaware American Government Bond Fund
Institutional Class
Prospectus September 29, 2000
Current Income Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this Prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of contents
.................................................................
Fund profile page 2
Delaware American Government Bond Fund 2
.................................................................
How we manage the Fund page 4
Our investment strategies 4
The securities we typically invest in 5
The risks of investing in the Fund 7
.................................................................
Who manages the Fund page 8
Investment manager 8
Portfolio managers 8
Fund administration (Who's who) 9
.................................................................
About your account page 10
Investing in the Fund 10
How to buy shares 11
How to redeem shares 13
Account minimum 14
Exchanges 14
Dividends, distributions and taxes 14
Certain management considerations 15
.................................................................
Financial highlights page 16
1
<PAGE>
Profile: Delaware American Government Bond Fund
What is the Fund's goal?
The Fund seeks 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. Although the Fund will strive to
achieve its investment goal, there is no assurance that it will.
What are the Fund's main investment strategies? We invest primarily in U.S.
government securities including:
o U.S. Treasury bills, notes and bonds;
o other debt securities issued or unconditionally guaranteed by the U.S.
government or backed by the full faith and credit of the U.S. government; and
o debt issued or guaranteed by U.S. government agencies or instrumentalities,
including debt obligations guaranteed by the Government National Mortgage
Association, also known as GNMA, Federal Home Loan Mortgage Corporation
(Freddie Mac) and Federal National Mortgage Association (Fannie Mae) and
other mortgage-backed securities.
We may also invest up to 20% of our net assets in high quality non-government
fixed-income securities.
What are the main risks of investing in the Fund? Investing in any mutual fund
involves risk, including the risk that you may lose part or all of the money you
invest. The price of Fund shares will increase and decrease according to changes
in the value of the Fund's investments. This Fund will be affected by changes in
bond prices, particularly as a result of changes in interest rates.
Mortgage-backed securities may experience increased pre-payments on the
underlying mortgages if interest rates decline, which may require the Fund to
reinvest in lower yielding securities. The Fund may also experience portfolio
turnover in excess of 100%, which could result in higher transaction costs and
tax liability for investors. For a more complete discussion of risk, please turn
to page 7.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
Who should invest in the Fund
o Investors with medium- or long-range goals.
o Investors looking for regular income from their investments.
o Investors looking for a bond investment to help balance their investments in
stocks or more aggressive securities.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
sometimes significantly, over the short-term.
o Investors seeking long-term growth of capital.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial adviser to
determine whether it is an appropriate choice for you.
<PAGE>
How has the Fund performed?
--------------------------------------------------------------------------------
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how returns for the Fund's Institutional Class shares have varied
over the past ten calendar years, as well as the average annual returns of all
shares for the one-, five- and ten-year periods. The Institutional Class
commenced operations on June 1, 1992. Return information for the Institutional
Class for the periods prior to the time it commenced operations is calculated by
taking the performance of the Fund's Class A shares and eliminating all sales
and asset based charges that apply to Class A shares. The Fund's past
performance does not necessarily indicate how it will perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (Institutional Class)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.05% 15.42% 6.67% 8.12% -5.53% 14.04% 3.12% 8.76% 7.40% -2.30%
------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
</TABLE>
As of June 30, 2000, the Fund's Institutional Class shares had a calendar
year-to-date return of 4.05%. During the periods illustrated in this bar chart,
the Institutional Class' highest quarterly return was 5.49% for the quarter
ended September 30, 1991 and its lowest quarterly return was -3.71% for the
quarter ended March 31, 1994.
2
<PAGE>
How has the Fund performed? (continued)
--------------------------------------------------------------------------------
Average annual returns for periods ending 12/31/99
Institutional Lehman Brothers
Class Government Bond Index
1 year -2.30% -2.23%
5 years 6.06% 7.44%
10 years 6.91% 7.48%
The table above shows the Fund's average annual returns over various time
periods compared to the performance of the Lehman Brothers Government Bond
Index. You should remember that unlike the Fund, the index is unmanaged and
doesn't reflect the costs of operating a mutual fund, such as the costs of
buying, selling and holding securities.
What are the Fund's fees and expenses?
--------------------------------------------------------------------------------
You do not pay sales charges directly from your investments when you buy or sell
shares of the Institutional Class.
Maximum sales charge (load) imposed on
purchases as a percentage of offering price none
Maximum contingent deferred sales charge (load)
as a percentage of original purchase price or
redemption price, whichever is lower none
Maximum sales charge (load) imposed on
reinvested dividends none
Redemption fees none
Exchange fees(1) none
--------------------------------------------------------------------------------
Annual fund operating expenses are deducted from the Fund's assets.
Management fees 0.55%
Distribution and service (12b-1) fees none
Other expenses 0.49%
Total operating expenses 1.04%
--------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds with similar investment
objectives. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 with an annual 5% return over the time shown.(2) This is
an example only, and does not represent future expenses, which may be greater or
less than those shown here.
1 year $106
3 years $331
5 years $574
10 years $1,271
(1) Exchanges are subject to the requirements of each fund in the Delaware
Investments family. A front-end sales charge may apply if you exchange your
shares into a fund that has a front-end sales charge.
(2) The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. Also, this example assumes that the
Fund's total operating expenses remain unchanged in each of the periods we
show.
3
<PAGE>
How we manage the Fund
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for the Fund. Following
are descriptions of how the portfolio managers pursue the Fund's investment
goals.
The Fund invests in a mix of fixed-income securities, primarily those that are
issued or guaranteed by the U.S. government. The Fund may also invest a portion
of its assets in high-quality non-government securities. Through careful
selection of bonds, we strive to provide high current income with emphasis on
stability of principal.
We typically invest a significant portion of the Fund's assets in
mortgage-related securities. When selecting mortgage-related securities for the
portfolio, we carefully evaluate them based on their income potential but we
generally also look for mortgages with characteristics that reduce the
likelihood of prepayment by homeowners. Such characteristics might include low
remaining balances, interest rates that are lower than current rates, or failure
to prepay in a previous period of low interest rates.
The weighted average maturity of the Fund will typically be between seven and 10
years. This is considered an intermediate range maturity. By keeping the average
maturity in this intermediate range, we aim to reduce the Fund's sensitivity to
changes in interest rates. When interest rates rise, prices of bonds and bond
funds generally decline and when interest rates decline, prices generally rise.
We believe intermediate-maturity bonds generally offer us attractive income
potential with lower price fluctuations than longer-term bonds.
The Fund's investment objective is non-fundamental. This means that the Board of
Trustees may change the objective without obtaining shareholder approval. If the
objective were changed, we would notify shareholders before the change in the
objective became effective.
How to use this glossary
The glossary includes definitions of investment terms used throughout the
Prospectus. If you would like to know the meaning of an investment term that is
not explained in the text please check the glossary.
<TABLE>
<CAPTION>
Glossary A-C Amortized cost Average maturity
------------------------------------------------------------------------------------------------
<S> <C> <C>
Amortized cost is a method used to value a fixed-income An average of when the
security that starts with the face value of the security and individual bonds and other debt
then adds or subtracts from that value depending on securities held in a portfolio
whether the purchase price was greater or less than the will mature.
value of the security at maturity. The amount greater or
less than the par value is divided equally over the time
remaining until maturity.
</TABLE>
4
<PAGE>
The securities we typically invest in
Fixed-income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
------------------------------------------------------------------------------------------------------------------------------------
Delaware American Government Bond Fund
---------------------------------------------------------------
<S> <C>
U.S. Treasury obligations: Treasury bills, notes and bonds of We may invest without limit in U.S. Treasury securities.
varying maturities. U.S. Treasury securities are backed by the
"full faith and credit" of the United States.
------------------------------------------------------------------------------------------------------------------------------------
Government agency obligations: Securities issued or backed by U.S. We may invest without limit in the debt securities of U.S.
government agencies or government-sponsored corporations such as government agencies or instrumentalities.
the Federal Housing Authority or the Export-Import Bank. These
securities may or may not be backed by the full faith and credit
of the U.S. government.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities: Fixed-income securities that represent We may invest without limit in government-related
pools of mortgages, with investors receiving principal and mortgage-backed securities.
interest payments as the underlying mortgage loans are paid back.
Many are issued and guaranteed against default by the U.S. We may also invest without limit in privately issued
government or its agencies or instrumentalities, such as the mortgage-backed securities if they are 100% collateralized
Federal Home Loan Mortgage Corporation, Federal National Mortgage at the time of issuance by securities issued or guaranteed
Association and the Government National Mortgage Association. by the U.S. government, its agencies or instrumentalities.
Others are issued by private financial institutions, with some These privately issued mortgage-backed securities we
fully collateralized by certificates issued or guaranteed by the invest in are either collateralized mortgage obligations
U.S. government or its agencies or instrumentalities. (CMOs) or real estate mortgage investment conduits
(REMICs). We currently invest in these government-backed
privately issued CMOs and REMICs only if they are rated in the
two highest grades by a nationally recognized statistical
rating organization (NRSRO) at the time of purchase.
We may also invest in privately issued mortgage-backed
securities that are not collateralized by U.S. government
securities and are not directly guaranteed by the U.S.
government in any way. They are secured by the underlying
collateral of the private issuer. These include CMOs, REMICs
and commercial mortgage-backed securities. We may invest in
these securities only if they are rated in the highest quality
category by an NRSRO. However, the Fund may not invest more
than 20% of its net assets in high quality non-government
securities, which include these non-agency mortgage-backed
securities.
------------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities: Bonds or notes backed by accounts We may invest only in asset-backed securities rated in the
receivable, including home equity, automobile or credit loans. highest quality category, such as AAA, by an NRSRO. However,
we may not invest more than 20% of the Fund's net assets in
high quality securities (including these asset-backed
securities) that are not government securities or do not use
government securities as collateral.
------------------------------------------------------------------------------------------------------------------------------------
Corporate notes and bonds: Debt obligations issued by a We may invest in corporate notes and bonds that are rated A or
corporation. above by an NRSRO. Our total holdings of high quality
non-government securities, including corporate notes and
bonds, may not exceed 20% of net assets.
------------------------------------------------------------------------------------------------------------------------------------
Certificates of deposit and obligations of U.S. and foreign banks: We may invest in certificates of deposit and obligations from
Interest paying debt instruments issued by a bank. banks that have assets of at least one billion dollars. These
instruments are subject to our 20% limit on non-government
securities.
------------------------------------------------------------------------------------------------------------------------------------
Corporate commercial paper: Short-term debt obligations with We may invest in commercial paper that is rated P-1 by Moody's
maturities ranging from two to 270 days, issued by companies. and/or A-1 by S&P. These securities are subject to our 20%
limit on non-government securities.
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements: An agreement between a buyer of securities, Typically, we use repurchase agreements as a short-term
such as the Fund, and a seller of securities, in which the seller investment for the Fund's cash position. In order to enter
agrees to buy the securities back within a specified time at the into these repurchase agreements, the Fund must have
same price the buyer paid for them, plus an amount equal to an collateral of 102% of the repurchase price. The Fund will only
agreed upon interest rate. Repurchase agreements are often viewed enter into repurchase agreements in which the collateral is
as equivalent to cash. comprised of U.S. government securities.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond Bond ratings Capital
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A debt security, like an IOU, issued by a company, Independent evaluations of creditworthiness, The amount of money you
municipality or government agency. In return for ranging from Aaa/AAA (highest quality) to D invest.
lending money to the issuer, a bond buyer (lowest quality). Bonds rated Baa/BBB or
generally receives fixed periodic interest better are considered investment grade. Bonds
payments and repayment of the loan amount on a rated Ba/BB or lower are commonly known as
specified maturity date. A bond's price changes junk bonds. See also Nationally recognized
prior to maturity and typically is inversely statistical rating organization.
related to current interest rates. Generally, when
interest rates rise, bond prices fall, and when
interest rates fall, bond prices rise.
</TABLE>
5
<PAGE>
How we manage the Fund (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Securities How we use them
------------------------------------------------------------------------------------------------------------------------------------
Delaware American Government Bond Fund
---------------------------------------------------------------
<S> <C>
Options and futures: Options represent a right to buy or sell a At times when we anticipate adverse conditions, we may want to
security or a group of securities at an agreed upon price at a protect gains on securities without actually selling them. We
future date. The purchaser of an option may or may not choose to might use options or futures to neutralize the effect of any
go through with the transaction. The seller of an option, however, price declines, without selling a bond or bonds, or as a hedge
must go through with the transaction if its purchaser exercises against changes in interest rates. We may also sell an option
the option. contract (often referred to as "writing" an option) to earn
additional income for the Fund.
Futures contracts are agreements for the purchase or sale of a
security or a group of securities at a specified price, on a Use of these strategies can increase the operating costs of
specified date. Unlike purchasing an option, a futures contract the Fund and can lead to loss of principal.
must be executed unless it is sold before the settlement date.
Certain options and futures may be considered to be derivative
securities.
------------------------------------------------------------------------------------------------------------------------------------
Restricted securities: Privately placed securities whose resale is We may invest in privately placed securities including those
restricted under securities law. that are eligible for resale only among certain institutional
buyers without registration, which are commonly known as Rule
144A Securities. Restricted securities that are determined to
be illiquid may not exceed the Fund's 10% limit on illiquid
securities, which is described below.
------------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps agreements: In an interest rate swap, a fund Interest rate swaps may be used to adjust the Fund's
receives payments from another party based on a floating interest sensitivity to interest rates or to hedge against changes in
rate, in return for making payments based on a fixed interest interest rates.
rate. An interest rate swap can also work in reverse with a fund
receiving payments based on a fixed interest rate and making Interest rate swaps will be considered illiquid securities
payments based on a floating interest rate. (see below).
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities: Securities that do not have a ready market We may invest up to 10% of total assets in illiquid
and cannot be easily sold within seven days at approximately the securities.
price that a fund has valued them.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please see the Statement of Additional Information for additional descriptions
on the securities listed in the table above.
Borrowing from banks The Fund may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. To the extent that it does
so, the Fund may be unable to meet its investment objective.
Lending securities The Fund may lend up to 25% of its assets to qualified
brokers, dealers and institutional investors for their use in securities
transactions. These transactions, if any, will generate additional income for
the Fund.
Temporary defensive positions For temporary defensive purposes, we may hold a
substantial part of the Fund's assets in cash or cash equivalents. To the extent
that it holds these securities, the Fund may be unable to achieve its investment
objective.
Portfolio turnover The Fund's annual portfolio turnover may exceed 100%. A
turnover rate of 100% would occur if the Fund sold and replaced securities
valued at 100% of its net assets within one year. High turnover can result in
increased transaction costs and tax liability for investors.
<TABLE>
<CAPTION>
C-D Capital appreciation Capital gains distributions Compounding Consumer Price Index (CPI)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An increase in the Payments to mutual fund Earnings on an investment's Measurement of U.S.
value of an shareholders of profits (realized previous earnings. inflation; represents the price
investment. gains) from the sale of a fund's of a basket of commonly
portfolio securities. Usually purchased goods.
paid once a year; may be
either short-term gains or
long-term gains.
</TABLE>
6
<PAGE>
The risks of investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in the Fund you should
carefully evaluate the risks. You should consider an investment in the Fund to
be a long-term investment that typically provides the best results when held for
a number of years. Following are the chief risks you assume when investing in
the Fund. Please see the Statement of Additional Information for further
discussion of these risks and other risks not discussed here.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Risks How we strive to manage them
------------------------------------------------------------------------------------------------------------------------------------
Delaware American Government Bond Fund
---------------------------------------------------------------
<S> <C>
Interest rate risk is the risk that securities will decrease in Interest rate risk is the most significant risk for this Fund.
value if interest rates rise. The risk is greater for bonds with In striving to manage this risk, we monitor economic
longer maturities than for those with shorter maturities. conditions and the interest rate environment. We keep the
average maturity of the portfolio as short as is prudent, in
Swaps may be particularly sensitive to interest rate changes. keeping with our objective to provide high current income.
Depending on the actual movements of interest rates and how well
the portfolio manager anticipates them, a fund could experience a The Fund will not invest in interest rate swaps with
higher or lower return than originally expected. maturities of more than two years. Each business day we will
calculate the amount the Fund must pay for any swaps it holds
and will segregate enough cash or other liquid securities to
cover that amount.
------------------------------------------------------------------------------------------------------------------------------------
Market risk is the risk that all or a majority of the securities We maintain a long-term investment approach and focus on high
in a certain market - like the stock or bond market - will decline quality individual bonds that we believe can provide a steady
in value because of factors such as economic conditions, future stream of income regardless of interim fluctuations in the
expectations or investor confidence. bond market. We do not buy and sell securities for short-term
purposes.
------------------------------------------------------------------------------------------------------------------------------------
Credit risk is the possibility that a bond's issuer (or an entity By focusing primarily on U.S. Treasury securities and other
that insures the bond) will be unable to make timely payments of securities that are backed by the U.S. government, we minimize
interest and principal. the possibility that any of the securities in our portfolio
will not pay interest or principal. U.S. government securities
are generally considered to be of the highest quality.
When selecting non-government securities and the dealers with
whom we do interest rate swaps, we focus on those with high
quality ratings and do careful credit analysis before
investing.
------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk is the possibility that securities cannot be U.S. Treasuries and other U.S. government debt securities are
readily sold within seven days at approximately the price that a typically the most liquid securities available. Therefore,
fund has valued them. liquidity risk is not a significant risk for this Fund.
Swap agreements will be treated as illiquid securities, but
most swap dealers will be willing to repurchase interest rate
swaps.
------------------------------------------------------------------------------------------------------------------------------------
Prepayment risk is the risk that the principal on a bond that a Prepayment risk can be a significant risk to this Fund because
fund owns will be prepaid prior to maturity at a time when we may invest a large percentage of our holdings in mortgage
interest rates are lower than what that bond was paying. The Fund securities. Homeowners or others who have mortgages are more
would then have to reinvest that money at a lower interest rate. likely to prepay them when interest rates are relatively low.
In order to manage this risk, when interest rates are low or
when we anticipate that rates will be declining, we look for
mortgage securities that we believe are less likely to be
prepaid, such as those that have interest rates lower than
current rates or have low remaining loan balances.
------------------------------------------------------------------------------------------------------------------------------------
Futures and options risk is the possibility that a fund may We will use options and futures for defensive purposes, such
experience a significant loss if it employs an options or futures as to protect gains in the portfolio without actually selling
strategy related to a security or a market index and that security a security, to neutralize the impact of interest rate changes
or index moves in the opposite direction from what the portfolio or to earn additional income. We will not use futures and
manager anticipated. Futures and options also involve additional options for speculative reasons or in an effort to enhance
expenses, which could reduce any benefit or increase any loss to a return.
fund from using the strategy.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Corporate bond Depreciation Diversification Dividend distribution Duration
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A debt security issued by A decline in an The process of Payments to mutual A measurement of a
a corporation. See Bond. investment's value. spreading investments fund shareholders of fixed-income investment's
among a number of dividends passed price volatility. The
different securities, along from the larger the number, the
asset classes or fund's portfolio of greater the likely price
investment styles to securities. change for a given change
reduce the risks of in interest rates.
investing.
</TABLE>
7
<PAGE>
Who manages the Fund
Investment manager
The Fund is managed by Delaware Management Company, a series of Delaware
Management Business Trust, which is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. Delaware Management Company makes investment
decisions for the Fund, manages the Fund's business affairs and provides daily
administrative services. For these services to the Fund, the manager was paid
0.55% of average daily net assets for the last fiscal year.
Portfolio managers
Paul A. Grillo has responsibility for making day-to-day investment decisions for
the Fund. When making decisions for the Fund, Mr. Grillo regularly consults with
Jude T. Driscoll.
Paul A. Grillo, Vice President/Portfolio Manager, 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.
Mr. Grillo has been managing the Fund since February 21, 1997.
Jude T. Driscoll, Executive Vice President/Head of Fixed-Income, received a
bachelor's degree in Economics from the University of Pennsylvania. Prior to
joining Delaware Investments in July 2000, Mr. Driscoll was Senior Vice
President, Director of Fixed-Income Process at Conseco Capital Management,
where he managed bank loan, high-yield and general insurance portfolios. He
previously held management positions at NationsBanc Montgomery Securities and
Goldman Sachs & Co.
<TABLE>
<CAPTION>
E-L Expense ratio Fixed-income securities
-------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A mutual fund's total operating expenses, expressed as a percentage With fixed-income securities, the money you
of its total net assets. Operating expenses are the costs of running a originally invest is paid back at a pre-specified
mutual fund, including management fees, offices, staff, equipment maturity date. These securities, which include
and expenses related to maintaining the fund's portfolio of securities government, corporate or municipal bonds, as well
and distributing its shares. They are paid from the fund's assets before as money market securities, typically pay a fixed
any earnings are distributed to shareholders. rate of return (often referred to as interest).
See Bond.
</TABLE>
8
<PAGE>
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Board of Trustees
Investment manager
Delaware Management Company Custodian
One Commerce Square The Fund The Chase Manhattan Bank
Philadelphia, PA 19103 4 Chase Metrotech Center
Brooklyn, NY 11245
Distributor Service agent
Portfolio managers Delaware Distributors, L.P. Delaware Service Company, Inc.
(see page 8 for details) 1818 Market Street 1818 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Shareholders
</TABLE>
Board of Trustees A mutual fund is governed by a Board of Trustees which has
oversight responsibility for the management of the fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. At least 40% of the Board of Trustees must be independent of the fund's
investment manager and distributor. These independent fund trustees, in
particular, are advocates for shareholder interests.
Investment manager An investment manager is a company responsible for selecting
portfolio investments consistent with the objective and policies stated in the
mutual fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers Portfolio managers are employed by the investment manager to
make investment decisions for individual portfolios on a day-to-day basis.
Custodian Mutual funds are legally required to protect their portfolio
securities and most funds place them with a qualified bank custodian who
segregates fund securities from other bank assets.
Distributor Most mutual funds continuously offer new shares to the public
through distributors who are regulated as broker-dealers and are subject to NASD
Regulation, Inc. (NASDR(SM)) rules governing mutual fund sales practices.
Service agent Mutual fund companies employ service agents (sometimes called
transfer agents) to maintain records of shareholder accounts, calculate and
disburse dividends and capital gains and prepare and mail shareholder statements
and tax information, among other functions. Many service agents also provide
customer service to shareholders.
Shareholders Like shareholders of other companies, mutual fund shareholders have
specific voting rights, including the right to elect trustees. Material changes
in the terms of a fund's management contract must be approved by a shareholder
vote, and funds seeking to change fundamental investment objectives or policies
must also seek shareholder approval.
<TABLE>
<CAPTION>
Government securities Inflation Investment goal Lehman Brothers Government Bond Index
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by the U.S. The increase in the The objective, such An index composed of The Treasury Bond Index
government or its agencies. They cost of goods and as long-term capital (all public obligations of the U.S.
include Treasuries as well as services over time. growth or high Treasury, excluding flower bonds and
agency-backed securities such as U.S. inflation is current income, that foreign-targeted issues) and the Agency Bond
Fannie Maes. frequently measured a mutual fund Index (all publicly issued debt of U.S.
by changes in the pursues. government agencies and quasi-federal
Consumer Price Index corporations, and corporate debt guaranteed
(CPI). by the U.S. government).
</TABLE>
9
<PAGE>
About your account
Investing in the Fund
Institutional Class shares are available for purchase only by the following:
o 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;
o tax-exempt employee benefit plans of the Fund's manager or its affiliates and
securities dealer firms with a selling agreement with the distributor;
o institutional advisory accounts of the Fund's manager, or its affiliates and
those having client relationships with Delaware Investment Advisers, an
affiliate 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;
o 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;
o 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. Use of
Institutional Class shares is restricted to advisers who are not affiliated
or associated with a broker or dealer and who derive compensation for their
services exclusively from their advisory clients.
<TABLE>
<CAPTION>
M-N Management fee Market capitalization Maturity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The amount paid by a mutual The value of a corporation determined by The length of time until a bond
fund to the investment adviser for multiplying the current market price of a share of issuer must repay the underlying
management services, expressed common stock by the number of shares held by loan principal to bondholders.
as an annual percentage of the shareholders. A corporation with one million
fund's average daily net assets. shares outstanding and the market price per share
of $10 has a market capitalization of $10 million.
</TABLE>
10
<PAGE>
How to buy shares
(GRAPHIC OMITTED: ENVELOPE)
By mail
Complete an investment slip and mail it with your check, made payable to the
fund and class of shares you wish to purchase, to Delaware Investments, 1818
Market Street, Philadelphia, PA 19103-3682. If you are making an initial
purchase by mail, you must include a completed investment application (or an
appropriate retirement plan application if you are opening a retirement account)
with your check.
(GRAPHIC OMITTED: WIRE)
By wire
Ask your bank to wire the amount you want to invest to First Union Bank, ABA
#031201467, Bank Account number 2014128934013. Include your account number and
the name of the fund in which you want to invest. If you are making an initial
purchase by wire, you must call us at 800.510.4015 so we can assign you an
account number.
(GRAPHIC OMITTED: EXCHANGE)
By exchange
You can exchange all or part of your investment in one or more funds in the
Delaware Investments family for shares of other funds in the family. Please keep
in mind, however, that you may not exchange your shares for Class B or Class C
shares. To open an account by exchange, call your Client Services Representative
at 800.510.4015.
(GRAPHIC OMITTED: PERSON)
Through your financial adviser
Your financial adviser can handle all the details of purchasing shares,
including opening an account. Your adviser may charge a separate fee for this
service.
<TABLE>
<CAPTION>
Nationally recognized statistical rating
NASD Regulation, Inc. (NASDR(SM)) organization (NRSRO) Net asset value (NAV)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The independent subsidiary of the A company that assesses the credit quality of The daily dollar value of one mutual
National Association of Securities bonds, commercial paper, preferred and common fund share. Equal to a fund's net
Dealers, Inc. responsible for regulating stocks and municipal short-term issues, rating assets divided by the number of
the securities industry. the probability that the issuer of the debt will shares outstanding.
meet the scheduled interest payments and repay
the principal. Ratings are published by such
companies as Moody's Investors Service, Inc.
(Moody's), Standard & Poor's (S&P), Duff &
Phelps, Inc. (Duff), and Fitch IBCA, Inc.
(Fitch).
</TABLE>
11
<PAGE>
About your account (continued)
How to buy shares (continued)
The price you pay for shares will depend on when we receive your purchase order.
If we or an authorized agent receives your order before the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on a
business day, you will pay that day's closing share price which is based on the
Fund's net asset value. If we receive your order after the close of regular
trading, you will pay the next business day's price. A business day is any day
that the New York Stock Exchange is open for business. We reserve the right to
reject any purchase order.
We determine the Fund's net asset value (NAV) per share at the close of regular
trading of the New York Stock Exchange each business day that the Exchange is
open. We calculate this value by adding the market value of all the securities
and assets in the Fund's portfolio, deducting all liabilities, and dividing the
resulting number by the number of shares outstanding. The result is the net
asset value per share. We price securities and other assets for which market
quotations are available at their market value. We price fixed-income securities
on the basis of valuations provided to us by an independent pricing service that
uses methods approved by the Board of Trustees. Any fixed-income securities that
have a maturity of less than 60 days we price at amortized cost. For all other
securities, we use methods approved by the Board of Trustees that are designed
to price securities at their fair market value.
<TABLE>
<CAPTION>
P-S Preferred stock Principal Prospectus Redeem
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred stock has preference Amount of money you The official offering To cash in your shares by
over common stock in the invest (also called document that describes a selling them back to the
payment of dividends and capital). Also refers to mutual fund, containing mutual fund.
liquidation of assets. a bond's original face information required by the
Preferred stocks also often value, due to be repaid SEC, such as investment
pay dividends at a fixed rate at maturity. objectives, policies,
and are sometimes convertible services and fees.
into common stock.
</TABLE>
12
<PAGE>
How to redeem shares
(GRAPHIC OMITTED: ENVELOPE)
By mail
You can redeem your shares (sell them back to the fund) by mail by writing to:
Delaware Investments, 1818 Market Street, Philadelphia, PA 19103-3682. All
owners of the account must sign the request, and for redemptions of more than
$50,000, you must include a signature guarantee for each owner. You can also fax
your written request to 215.255.8864. Signature guarantees are also required
when you request redemption proceeds to be sent to an address other than the
address of record on an account.
(GRAPHIC OMITTED: TELEPHONE)
By telephone
You can redeem up to $50,000 of your shares by telephone. You may have the
proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you
may have the proceeds sent directly to your bank by wire. Bank information must
be on file before you request a wire redemption.
(GRAPHIC OMITTED: WIRE)
By wire
You can redeem $1,000 or more of your shares and have the proceeds deposited
directly to your bank account the next business day after we receive your
request. Bank information must be on file before you request a wire redemption.
(GRAPHIC OMITTED: PERSON)
Through your financial adviser
Your financial adviser can handle all the details of redeeming your shares. Your
adviser may charge a separate fee for this service.
(GRAPHIC OMITTED: HAND WRITING CHECK)
Through checkwriting
You may redeem shares by writing checks of $500 or more. Checks must be signed
by all owners of the account unless you indicate otherwise on your Investment
Application. The checkwriting feature is not available for retirement plans.
Also, because dividends are declared daily, you may not close your account by
writing a check. When you write checks you are subject to bank regulations and
may be subject to a charge if the check amount exceeds the value of your
account.
<TABLE>
<CAPTION>
SEC (Securities and
Risk Sales charge Exchange Commission) Share classes
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Generally defined as variability Charge on the purchase or redemption Federal agency established Different
of value; also credit risk, of fund shares sold through financial by Congress to administer classifications of
inflation risk, currency and advisers. May vary with the amount the laws governing the shares; mutual fund
interest rate risk. Different invested. Typically used to compensate securities industry, share classes offer a
investments involve different advisers for advice and service including mutual fund variety of sales
types and degrees of risk. provided. companies. charge choices.
</TABLE>
13
<PAGE>
About your account (continued)
How to redeem shares
(continued)
If you hold your shares in certificates, you must submit the certificates with
your request to sell the shares. We recommend that you send your certificates by
certified mail.
When you send us a properly completed request to redeem or exchange shares
before the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. Eastern time), you will receive the net asset value as determined on
the business day we receive your request. We will send you a check, normally the
next business day, but no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we will wait until your
check has cleared, which can take up to 15 days, before we send your redemption
proceeds.
Account minimum
If you redeem shares and your account balance falls below $250, the Fund may
redeem your account after 60 days' written notice to you.
Exchanges
You can exchange all or part of your shares for shares of the same class in
another Delaware Investments Fund. If you exchange shares to a fund that has a
sales charge you will pay any applicable sales charges on your new shares. You
don't pay sales charges on shares that are acquired through the reinvestment of
dividends. You may have to pay taxes on your exchange. When you exchange shares,
you are purchasing shares in another fund so you should be sure to get a copy of
the fund's prospectus and read it carefully before buying shares through an
exchange. You may not exchange your shares for Class B and Class C shares of the
funds in the Delaware Investments family.
Dividends, distributions and taxes
Dividends, if any, are declared daily and paid monthly. Capital gains, if any,
are paid twice a year. We automatically reinvest all dividends and any capital
gains.
Tax laws are subject to change, so we urge you to consult your tax adviser about
your particular tax situation and how it might be affected by current tax law.
The tax status of your dividends from the Fund is the same whether you reinvest
your dividends or receive them in cash. Distributions from the Fund's long-term
capital gains are taxable as capital gains, while distributions from short-term
capital gains and net investment income are generally taxable as ordinary
income. Any capital gains may be taxable at different rates depending on the
length of time the Fund held the assets. In addition, you may be subject to
state and local taxes on distributions.
We will send you a statement each year by January 31 detailing the amount and
nature of all dividends and capital gains that you were paid for the prior year.
<TABLE>
<CAPTION>
Statement of Additional
S-V Signature guarantee Standard deviation Information (SAI) Total return
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certification by a bank, A measure of an The document serving as An investment performance
brokerage firm or other investment's volatility; "Part B" of a fund's measurement, expressed as a
financial institution that a for mutual funds, prospectus that provides percentage, based on the
customer's signature is valid; measures how much a more detailed information combined earnings from
signature guarantees can be fund's total return has about the fund's dividends, capital gains and
provided by members of the typically varied from organization, investments, change in price over a given
STAMP program. its historical average. policies and risks. period.
</TABLE>
14
<PAGE>
Certain management considerations
Investments by fund of funds
The Fund accepts investments from the series portfolios of Delaware Group
Foundation Funds, a fund of funds. From time to time, the Fund may experience
large investments or redemptions due to allocations or rebalancings by
Foundation Funds. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management.
For example, 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
transaction costs or portfolio turnover. The manager will monitor transactions
by Foundation Funds and will attempt to minimize any adverse effects on both the
Fund and Foundation Funds as a result of these transactions.
<TABLE>
<CAPTION>
Treasury bills Treasury bonds Treasury notes Volatility
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities issued by Securities issued by Securities issued by The tendency of an investment to go up or down in
the U.S. Treasury with the U.S. Treasury with the U.S. Treasury with value by different magnitudes. Investments that
maturities of one year maturities of 10 years maturities of one to generally go up or down in value in relatively
or less. or longer. 10 years. small amounts are considered "low volatility"
investments, whereas those investments that
generally go up or down in value in relatively
large amounts are considered "high volatility"
investments.
</TABLE>
15
<PAGE>
Financial highlights
<TABLE>
<CAPTION>
Institutional Class
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
Delaware American 7/31
The Financial Government Bond Fund 2000 1999 1998 1997 1996
highlights table is --------------------------------------------------------------------------------------------------------
intended to help you Net asset value, beginning of period $7.300 $7.720 $7.760 $7.590 $7.860
understand the Fund's Income (loss) from investment operations:
financial performance. Net investment income 0.492 0.495 0.550 0.567 0.611
All "per share" Net realized and unrealized gain (loss)
information reflects on investments (0.130) (0.418) (0.040) 0.170 (0.270)
financial results for a ------ ------ ------ ------ ------
single Fund share. This Total from investment operations 0.362 0.077 0.510 0.737 0.341
information has been ------ ------ ------ ------ ------
audited by Ernst & Less dividends:
Young LLP, whose Dividends from net investment income (0.492) (0.497) (0.550) (0.567) (0.611)
report, along with the ------ ------ ------ ------ ------
Fund's financial Total dividends (0.492) (0.497) (0.550) (0.567) (0.611)
statements, is included ------ ------ ------ ------ ------
in the Fund's annual Net asset value, end of period $7.170 $7.300 $7.720 $7.760 $7.590
report, which is ====== ====== ====== ====== ======
available upon Total return(1) 5.19% 0.89% 6.80% 10.10% 4.39%
request by calling
800.523.1918. Ratios and supplemental data:
Net assets, end of period (000 omitted) $32,609 $30,883 $17,865 $12,053 $10,780
Ratio of expenses to average net assets 1.04% 0.95% 0.90% 0.86% 0.90%
Ratio of net investment income to
average net assets 6.85% 6.46% 7.10% 7.43% 7.85%
Portfolio turnover 223% 142% 119% 63% 81%
--------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
How to read the
Financial highlights
------------------------------------------------------------------------------------------------------------
Net investment income Net asset value (NAV) Ratio of expenses to Portfolio turnover
Net investment This is the value of average net assets This figure tells
income includes a mutual fund share, The expense ratio is you the amount of
dividend and calculated by the percentage of trading activity in
interest income dividing the net net assets that a a fund's portfolio.
earned from a fund's assets by the number fund pays annually For example, a fund
investments; it is of shares for operating with a 50% turnover
after expenses have outstanding. expenses and has bought and sold
been deducted. management fees. half of the value of
Total return These expenses its total investment
Net realized and unrealized This represents the include accounting portfolio during the
gain (loss) on investments rate that an and administration stated period.
A realized gain on investor would have expenses, services
investments occurs earned or lost on an for shareholders,
when we sell an investment in a and similar
investment at a fund. In calculating expenses.
profit, while a this figure for the
realized loss on financial highlights Ratio of net investment
investments occurs table, we include income to average
when we sell an applicable fee net assets
investment at a waivers, exclude We determine this
loss. When an front-end and ratio by dividing
investment increases contingent deferred net investment
or decreases in sales charges, and income by average
value but we do not assume the net assets.
sell it, we record shareholder has
an unrealized gain reinvested all
or loss. The amount dividends and
of realized gain per realized gains.
share that we pay to
shareholders is Net assets
listed under "Less Net assets represent
dividends-Dividends the total value of
from net investment all the assets in a
income." fund's portfolio,
less any
liabilities, that
are attributable to
that class of the
fund.
</TABLE>
17
<PAGE>
Delaware
American
Government
Bond Fund
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual report to shareholders. In the Fund's shareholder
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the report
period. You can find more detailed information about the Fund in the current
Statement of Additional Information, which we have filed electronically with
the Securities and Exchange Commission (SEC) and which is legally a part of
this Prospectus. If you want a free copy of the Statement of Additional
Information, the annual or semi-annual report, or if you have any questions
about investing in this Fund, you can write to us at 1818 Market Street,
Philadelphia, PA 19103-3682, or call toll-free 800.523.1918. You may also
obtain additional information about the Fund from your financial adviser.
You can find reports and other information about the Fund on the EDGAR Database
on the SEC web site (http://www.sec.gov). You can also get copies of this
information, after payment of a duplicating fee, by e-mailing the SEC at
[email protected] or by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-0102. Information about the Fund, including its
Statement of Additional Information, can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. You can get information on the Public
Reference Room by calling the SEC at 202.942.8090.
Web site
www.delawareinvestments.com
E-mail
[email protected]
Client Service Representative
800.510.4015
oFor convenient access to account information or current performance information
on all Delaware Investments Funds seven days a week, 24 hours a day, use this
Touch-Tone(R) service.
Investment Company Act file number: 811-4304
Delaware American Government Bond Fund Symbols
CUSIP NASDAQ
----- ------
Institutional Class 246094502 DUGIX
DELAWARE(SM)
INVESTMENTS
---------------------
Philadelphia o London
P-041 [--] PP 9/00
<PAGE>
<TABLE>
<S> <C>
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, DELAWARE GROUP GOVERNMENT FUND
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, DELAWARE AMERICAN GOVERNMENT BOND FUND
shareholders of the Class A, B and C Shares should
contact their financial adviser or call Delaware A CLASS
Investments at 800-523-1918, and shareholders of the B CLASS
Institutional Class should contact Delaware Investments at C CLASS
800-510-4015. INSTITUTIONAL CLASS
-----------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
PART B
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING, STATEMENT OF
ACCOUNTING SERVICES ADDITIONAL INFORMATION
AND TRANSFER AGENT
Delaware Service Company, Inc. -----------------------------------------------------
1818 Market Street
Philadelphia, PA 19103
SEPTEMBER 29, 2000
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 DELAWARE(SM)
Brooklyn, NY 11245 INVESTMENTS
------------
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 29, 2000
DELAWARE GROUP GOVERNMENT FUND
Delaware American Government Bond Fund
1818 Market Street
Philadelphia, PA 19103
For more information about the Institutional Class: 800-510-4015
For Prospectus, Performance and Information on Existing Accounts of
Class A Shares, Class B Shares and Class C Shares: Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Government Fund ("Government Fund") is a
professionally-managed mutual fund of the series type which currently offers one
series of shares: Delaware American Government Bond Fund ("the Fund"). The Fund
offers Class A Shares, Class B Shares and Class C Shares (together referred to
as the "Fund Classes"). The Fund also offers an Institutional Class (the
"Institutional Class"). All references to "shares" in this Part B refer to all
Classes of shares of Government Fund, except where noted.
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus for
the Fund Classes dated September 29, 2000 and the current Prospectus for the
Institutional Class dated September 29, 2000, as they may be amended from time
to time. Part B 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. A prospectus relating to
the Fund Classes and a prospectus relating to the Institutional Class may be
obtained by writing or calling your investment dealer or by contacting the
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at
the above address or by calling the above phone numbers. The Fund's financial
statements, the notes relating thereto, the financial highlights and the report
of independent auditors are incorporated by reference from the Annual Report
into this Part B. The Annual Report will accompany any request for Part B. The
Annual Report can be obtained, without charge, by calling 800-523-1918.
<TABLE>
<CAPTION>
---------------------------------------------------- ------- ------------------------------------------------------ ------
TABLE OF CONTENTS
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Cover Page Redemption and Exchange
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Investment Policies Dividends and Realized Securities Profits
Distributions
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Accounting and Tax Issues Taxes
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Performance Information Investment Management Agreement
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Trading Practices and Brokerage Officers and Trustees
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Purchasing Shares General Information
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Investment Plans Financial Statements
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Determining Offering Price and Net Asset Value
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INVESTMENT POLICIES
Investment Restrictions
Fundamental Investment Restrictions--Government Fund has adopted the
following restrictions for the Fund which 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 may not:
1. Make investments that will result in the concentration (as that term
may be defined in the Investment Company Act of 1940 (the "1940 Act") any rule
or order thereunder, or U.S. Securities and Exchange Commission ("SEC") staff
interpretation thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this restriction does not
limit the Fund from investing in obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or in tax-exempt securities or
certificates of deposit.
2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.
3. Underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933 (the "1933 Act").
4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.
6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.
Non-Fundamental Investment Restrictions--In addition to the fundamental
policies and investment restrictions described above, and the various general
investment policies described in the Prospectuses, the Fund will be subject to
the following investment restrictions, which are considered non-fundamental and
may be changed by the Board of Trustees without shareholder approval.
1. The Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection with a merger, reorganization, consolidation or other
similar transaction. However, the Fund may not operate as a "fund of funds"
which invests primarily in the shares of other investment companies as permitted
by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as
investments by such a "fund of funds."
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<PAGE>
2. The Fund may not invest more than 15% of its net assets in
securities which it cannot sell or dispose of in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
investment.
The following are additional non-fundamental investment restrictions:
The Fund may 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 1940 Act.
Government Fund has been advised by the staff of the SEC 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 SEC 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 1933 Act.
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.
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<PAGE>
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, trustees or security holders is a trustee or officer of Government
Fund or of its investment manager if or so long as the trustees and officers of
Government Fund 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 SEC 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.
The following provides additional information regarding the Fund's
investment policies.
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 ("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.
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<PAGE>
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.
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.
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<PAGE>
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--In addition to mortgage-backed securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
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 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.
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 security'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.
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<PAGE>
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 and certain REMICs also may be stripped.
The Fund may also invest in CMOs, REMICs and commercial mortgage-backed
securities ("CMBSs") that are not issued or guaranteed by, or fully
collateralized by securities issued or guaranteed by, the U.S. government, its
agencies or instrumentalities ("non-agency mortgage-backed securities"). These
securities are secured by the underlying collateral of the private issuer. The
Fund may invest its assets in such privately-issued CMOs, REMICs and CMBSs only
if the securities are rated in the top rating category by a nationally
recognized statistical rating organization (e.g., AAA by S&P or Aaa by Moody's).
The Fund may not invest more than 20% of its assets in securities, including
CMOs, REMICs and CMBSs, that are not issued or guaranteed by, or fully
collateralized by securities issued or guaranteed by, the U.S. government, its
agencies or instrumentalities.
CMBSs are issued by special purpose entities that represent an
undivided interest in a portfolio of mortgage loans backed by commercial
properties. The loans are collateralized by various types of commercial
property, which include, but are not limited to, multi-family housing, retail
shopping centers, office space, hotels and health care facilities. Private
lenders, such as banks or insurance companies, originate these loans and then
sell the loans directly into a CMBS trust or other entity. CMBSs are subject to
credit risk, prepayment risk and extension risk. The Manager addresses credit
risk by investing in CMBSs that are rated in the top rating category by a
nationally recognized statistical rating organization. Although prepayment risk
is present, it is of a lesser degree in CMBSs than in the residential mortgage
market. Unlike other asset classes, commercial loans have structural impediments
to refinancing that include lockout periods, prepayment penalties, yield
maintenance and defeasance. These devices reduce the uncertainty introduced by
prepayment options. The Manager carefully analyzes the composition and
proportions of various prepayment provisions to protect against unscheduled
payments. Extension risk is the risk that balloon payments (i.e., the final
payment on commercial mortgages, which are substantially larger than other
periodic payments under the mortgage) are deferred beyond their originally
scheduled date for payment. Extension risk measures the impact of a borrower's
ability to pay the balloon payment in a timely fashion, while maintaining loan
payments in accordance with the terms specified in the loan. For the investor,
extension will increase the average life of the security, generally resulting in
lower yield for discount bonds and a higher yield for premium bonds. The Manager
models and stress tests extension risk and invests only in structures where
extension risk is acceptable under various scenarios.
Asset-Backed Securities--The Fund may invest a portion of its assets in
asset-backed 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 (i.e. receivables on
loans to car dealers for cars used in their showrooms) 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.
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.
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<PAGE>
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.
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 the Manager that the staff of the SEC
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 trustees 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 trustees to vote the
proxy.
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<PAGE>
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 Trustees, 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.
Interest Rate Swaps --The Fund may invest in interest rate swaps to the
extent consistent with its investment objective and strategies. The Fund will
only invest in swaps in which all the reference rates are related to or derived
from instruments or markets in which the Fund is otherwise eligible to invest,
and subject to the investment limitations on the instruments to which the
purchased reference rate relates.
Swaps are agreements to exchange payment streams over a period of time
with another party, called a counterparty. Each payment stream is based on a
specified rate, which could be a fixed or variable interest rate, the rate of
return on an index, or some other reference rate. The payment streams are
calculated with reference to a hypothetical principal amount, called the
notional principal or the notional amount. For example, in an interest rate swap
one party may agree to pay a fixed interest rate to a counterparty and to
receive in return variable interest rate payments from the counterparty. The
amount that each party pays is calculated by multiplying the fixed and variable
rates, respectively, by the notional amount. The payment streams may thus be
thought of as interest payments on the notional amount. The notional amount does
not actually change hands at any point in the swap transaction; it is used only
to calculate the value of the payment streams.
When two counterparties each wish to swap interest rate payments, they
typically each enter into a separate interest rate swap contract with a
broker/dealer intermediary, who is the counterparty in both transactions, rather
than entering into a swap contract with each other directly. The broker/dealer
intermediary enters into numerous transactions of this sort, and attempts to
mange its portfolio of swaps so as to match and offset its payment receipts and
obligations.
The typical minimum notional amount is $5 million. Variable interest
rates are usually set by reference to the London Inter-Bank Offered Rate
(LIBOR). The typical maximum term of an interest rate swap agreement ranges from
one to 12 years. The Manager presently intends to purchase swaps with maturities
of six to twelve months, and in no event greater than two years.
Swap transactions provide several benefits to the Fund. Interest rate
swaps may be used as a duration management tool. Duration is a measure of a
bond's interest-rate sensitivity, expressed in terms of years because it is
related to the length of time remaining on the life of a bond. In general, the
longer a bond's duration, the more sensitive the bond's price will be to changes
in interest rates. The average duration of a fund is the weighted average of the
durations of the fund's fixed income securities.
If a Fund wished to shorten the duration of certain of its assets,
longer term assets could be sold and shorter term assets acquired, but these
transactions have potential tax and return differential consequences. By using
an interest rate swap, the Fund could agree to make semi-annual fixed rate
payments and receive semi-annual floating rate LIBOR payments adjusted every six
months. The duration of the floating rate payments received by the fund will now
be six months. In effect, the Fund has reduced the duration of the notional
amount invested from a longer term to six months over the life of the swap
agreement.
Other uses of swaps could help permit the Fund to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against an increase in the price of securities the Fund anticipates purchasing
at a later date. Interest rate swaps may also be considered as a substitute for
interest rate futures in many cases where the hedging horizon is longer than the
maturity of the typical futures contract, and may be considered to provide more
liquidity than similar forward contracts, particularly long-term forward
contracts.
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<PAGE>
The primary risk of swap transactions is the creditworthiness of the
counterparty, since the integrity of the transaction depends on the willingness
and ability of the counterparty to maintain the agreed upon payment stream. This
risk is often referred to as counterparty risk. If there is a default by a
counterparty in a swap transaction, the Fund's potential loss is the net amount
of payments the Fund is contractually entitled to receive for one payment period
(if any - the Fund could be in a net payment position), not the entire notional
amount, which does not change hands in a swap transaction. Swaps do not involve
the delivery of securities or other underlying assets or principal as collateral
for the transaction. The Fund will have contractual remedies pursuant to the
swap agreement but, as with any contractual remedy, there is no guarantee that
the Fund would be successful in pursuing them -- the counterparty may be
judgement proof due to insolvency, for example. The Fund thus assumes the risk
that it will be delayed or prevented from obtaining payments owed to them. The
standard industry swap agreements do, however, permit the Fund to terminate a
swap agreement (and thus avoid making additional payments) in the event that a
counterparty fails to make a timely payment to the Fund.
In response to this counterparty risk, several securities firms have
established separately capitalized subsidiaries that have a higher credit
rating, permitting them to enter into swap transactions as a dealer. The Fund
will not be permitted to enter into any swap transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the actual
counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or is determined to be of equivalent credit quality by the Manager.
In addition, the Manager will closely monitor the ongoing creditworthiness of
swap counterparties in order to minimize the risk of swaps.
In addition to counterparty risk, the use of swaps also involves risks
similar to those associated with ordinary portfolio security transactions. If
the portfolio manager is incorrect in his or her forecast of market values or
interest rates, the investment performance of the Fund which has entered into a
swap transaction could be less favorable than it would have been if this
investment technique were not used. It is important to note, however, that there
is no upper limit on the amount the Fund might theoretically be required to pay
in a swap transaction.
In order to ensure that the Fund will only engage in swap transactions
to the extent consistent with its investment objectives and strategies, the Fund
will only engage in a swap transaction if all of the reference rates used in the
swap are related to or derived from securities, instruments or markets that are
otherwise eligible investments for the Fund. Similarly, the extent to which the
Fund may invest in a swap, as measured by the notional amount, will be subject
to the same limitations as the eligible investments to which the purchased
reference rate relates.
The Fund will, consistent with industry practice, segregate and
mark-to-market daily cash or other liquid assets having an aggregate market
value at least equal to the net amount of the excess, if any, of the Fund's
payment obligations over its entitled payments with respect to each swap
contract. To the extent that the Fund is obligated by a swap to pay a fixed or
variable interest rate, the Fund may segregate securities that are expected to
generate income sufficient to meet the Fund's net payment obligations.
There is not a well developed secondary market for interest rate swaps.
Most interest rate swaps are nonetheless relatively liquid because they can be
sold back to the counterparty/dealer relatively quickly at a determinable price.
The Fund will therefore treat all swaps as subject to their limitation on
illiquid investments. For purposes of calculating these percentage limitations,
the Fund will refer to the notional amount of the swap.
Swaps will be priced using fair value pricing. The income provided by a
swap should be qualifying income for purposes of Subchapter M of the Internal
Revenue Code. Swaps should not otherwise result in any significant
diversification or valuation issues under Subchapter M.
11
<PAGE>
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 Trustees. 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
Trustees 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 The
Chase Manhattan Bank ("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 certain 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.
12
<PAGE>
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.
13
<PAGE>
C. Secured Put Writing--A put option gives the purchaser of the option
the right to sell, and the writer, in this case the Fund, the obligation to buy
the underlying security at the exercise price during the option period. During
the option period, the writer of a put option may be assigned an exercise notice
by the broker/dealer through whom the option was sold requiring the writer to
make payment of the exercise price against delivery of the underlying security.
In this event, the exercise price will usually exceed the then market value of
the underlying security. This obligation terminates upon expiration of the put
option or at such earlier time at which the writer effects a closing purchase
transaction. The operation of put options in other respects is substantially
identical to that of call options. Premiums on outstanding put options written
or purchased by the Fund may not exceed 2% of its total assets.
The advantage to the Fund of writing such options is that it receives
premium income. The disadvantage is that the Fund may have to purchase
securities at higher prices than the current market price if the put is
exercised.
Put options will be written only on a secured basis, which means that
the Fund will maintain in a segregated account with its Custodian cash or U.S.
government securities in an amount not less than the exercise price of the
option at all times during the option period. The amount of cash or U.S.
government securities held in the segregated account will be adjusted on a daily
basis to reflect changes in the market value of the securities covered by the
put option written by the Fund. Secured put options will generally be written in
circumstances where the Manager wishes to purchase the underlying security for
the Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay.
D. Purchasing Put Options--The Fund may purchase put options to the
extent that premiums paid for such options do not exceed 2% of the Fund's total
assets. The Fund will, at all times during which it holds a put option, own the
security covered by such option.
The Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow the Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund will continue to receive interest income on the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. The Fund may sell a put option which it has previously purchased prior to
the sale of the securities underlying such option. Such sales will result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold.
Futures--The Fund may invest in futures contracts and options on such
futures contracts subject to certain limitations. Futures contracts are
agreements for the purchase or sale for future delivery of securities. When a
futures contract is sold, the Fund incurs a contractual obligation to deliver
the securities underlying the contract at a specified price on a specified date
during a specified future month. A purchase of a futures contract means the
acquisition of a contractual right to obtain delivery to the Fund of the
securities called for by the contract at a specified price during a specified
future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When the Fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the Fund an
amount referred to as "initial margin." This amount is maintained by the futures
commission merchant in an account at the Fund's Custodian bank. Thereafter, a
"variation margin" may be paid by the Fund to, or drawn by the Fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.
14
<PAGE>
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.
15
<PAGE>
Restricted Securities--While maintaining oversight, the Board of
Trustees 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.
Concentration
In applying the Fund's policy on concentration; (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance, and diversified
finance will each be considered a separate industry; and (iii) asset-backed
securities will be classified according to the underlying assets securing such
securities.
ACCOUNTING AND TAX ISSUES
The following supplements the information supplied in the Funds'
Prospectuses.
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 could be affected by such a purchase.
16
<PAGE>
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;
17
<PAGE>
(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.
18
<PAGE>
The average annual total rate of return for each Class will be based on
a hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the maximum
front-end sales charge, if any, is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares and Class C Shares.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable to only certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the Fund
Classes for a description of the Limited CDSC and the instances in which it
applies. All references to a CDSC in this Performance Information section will
apply to Class B Shares or Class C Shares.
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 also reflect, as applicable, the maximum
front-end sales charge, or CDSC, paid with respect to the illustrated investment
amount, but not 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.
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 each Class, as shown below, is the average annual
total return quotations through July 31, 2000, 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. 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 and
asset based charges. 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, 2000.
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, 2000 and
therefore does not reflect the deduction of a CDSC.
19
<PAGE>
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
Average Annual Total Return
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
1 year ended 3 years ended 5 years ended 10 years ended Life of Fund
7/31/00 7/31/00 7/31/00 7/31/00
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (at offer) 0.05% 2.27% 4.11% 5.51% 6.38%
(Inception 8/16/85)
----------------------------------------------------------------------------------------------------------------------------
Class A (at NAV) 4.88% 3.96% 5.12% 6.03% 6.73%
(Inception 8/16/85)
--------------------------------------------------------------------------------------------------------------------------
Class B (including CDSC) 0.22% 2.36% 4.08% N/A 4.40%
(Inception 5/2/94)
--------------------------------------------------------------------------------------------------------------------------
Class B (excluding CDSC) 4.15% 3.23% 4.39% N/A 4.40%
(Inception 5/2/94)
--------------------------------------------------------------------------------------------------------------------------
Class C (including CDSC) 3.17% 3.23% N/A N/A 3.93%
(Inception 11/29/95)
--------------------------------------------------------------------------------------------------------------------------
Class C (excluding CDSC) 4.15% 3.23% N/A N/A 3.93%
(Inception 11/29/95)
--------------------------------------------------------------------------------------------------------------------------
Institutional Class 5.19% 4.26% 5.43% 6.33% 6.97%
(Inception 6/1/92)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 2000 using this formula were 5.62%, 5.20%,
5.20% and 6.21%, 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.
20
<PAGE>
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, 2000 was 16
years.
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.
21
<PAGE>
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 table is an example, for purposes of illustration only,
of cumulative total return performance for each Class of the Fund through July
31, 2000. 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 and is also 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.
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
22
<PAGE>
respective Class A Shares and adjusting it to reflect the elimination of all
sales charges and asset based charges. Performance shown for short periods of
time may not be representative of longer term results.
Cumulative Total Return
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
3 months 6 months 9 months 1 year 3 years 5 years 10 years Life of
ended ended ended ended ended ended ended Fund
7/31/00 7/31/00 7/31/00 7/31/00 7/31/00 7/31/00 7/31/00
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (at offer) 2.23% -0.21% -1.04% -0.05% 6.97% 22.30% 70.97% 152.24%
(Inception 8/16/85)
--------------------------------------------------------------------------------------------------------------------------------
Class A (at NAV) 2.59% 4.73% 3.88% 4.88% 12.35% 28.37% 79.53% 164.95%
(Inception 8/16/85)
--------------------------------------------------------------------------------------------------------------------------------
Class B 1.59% 0.37% -0.62% 0.22% 7.25% 22.14% N/A 30.89%
(including CDSC)
(Inception 5/2/94)
--------------------------------------------------------------------------------------------------------------------------------
Class B 2.41% 4.37% 3.33% 4.15% 10.02% 23.97% N/A 30.89%
(excluding CDSC)
(Inception 5/2/94)
--------------------------------------------------------------------------------------------------------------------------------
Class C 1.41% 3.37% 2.35% 3.17% 10.02% N/A N/A 19.74%
(including CDSC)
(Inception 11/29/95)
--------------------------------------------------------------------------------------------------------------------------------
Class C 2.41% 4.37% 3.33% 4.15% 10.02% N/A N/A 19.74%
(excluding CDSC)
(Inception (1/29/95)
--------------------------------------------------------------------------------------------------------------------------------
Institutional Class 2.66% 4.89% 4.11% 5.19% 13.35% 30.27% 84.76% 174.02%
(Inception 6/1/92)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
23
<PAGE>
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 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 execution. Best
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
24
<PAGE>
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 the Manager's 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, 2000, 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 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 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's Board of Trustees that the advantages of combined orders outweigh the
possible disadvantages of separate transactions.
25
<PAGE>
Consistent with the Conduct Rules of NASD Regulation, Inc. (the
"NASD"), and subject to seeking best 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, 1999 and 2000, the portfolio
turnover rates for the Fund were 142% and 223%, 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
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, trustees 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 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.
26
<PAGE>
Selling dealers are responsible for transmitting orders promptly.
Government Fund 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. 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
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.
The NASD has adopted amendments to its Conduct Rules, as amended,
relating to investment company sales charges. Government Fund and the
Distributor intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table in the Fund Classes' Prospectus.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to annual 12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against Class B Shares for
approximately eight years after purchase. See Automatic Conversion of Class B
Shares, below.
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.
27
<PAGE>
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 Plans Under Rule 12b-1 for the Fund Classes under
Purchasing Shares, and Determining Offering Price and Net Asset Value 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 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 or Institutional Class 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 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 Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% of the average daily net assets of Class A Shares, or to purchase either
Class B or Class C Shares and have the entire initial purchase amount invested
in the Fund with the investment thereafter subject to a CDSC and annual 12b-1
Plan expenses. Class B Shares are subject to a CDSC if the shares are redeemed
within six years of purchase, and Class C Shares are subject to a CDSC if the
shares are redeemed within 12 months of purchase. Class B and Class C Shares are
each subject to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of
which are service fees to be paid to the Distributor, dealers or others for
providing personal service and/or maintaining shareholder accounts) of average
daily net assets of the respective Class. Class B Shares will automatically
convert to Class A Shares at the end of approximately eight years after purchase
and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of
0.30% of average daily net assets of such shares. Unlike Class B Shares, Class C
Shares do not convert to another Class.
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. In addition, the effect of any return earned on such additional money
will diminish over time. In comparing Class B Shares to Class C Shares,
investors should also consider the duration of the annual 12b-1 Plan expenses to
which each of the Classes is subject and 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 Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
28
<PAGE>
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 Shares, Class B Shares 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 Plans Under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B, Class C Shares and
Institutional Class Shares will be calculated in the same manner, at the same
time and on the same day and will be in the same amount, except that the amount
of 12b-1 Plan expenses relating to Class A Shares, Class B Shares and Class C
Shares will be borne exclusively by such shares. See Determining Offering Price
and Net Asset Value.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectus, and may include a series of purchases over a 13-month period under a
Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
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. 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 Delaware Investments funds may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectus, 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.
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 Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of
the Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
29
<PAGE>
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares 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 above, 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. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or 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. See Waivers of
Contingent Deferred Sales Charge under Redemption and Exchange 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 same
Fund. See Automatic Conversion of Class B Shares below. Such conversion will
constitute a tax-free exchange for federal income tax purposes. See Taxes.
Investors are reminded that the Class A Shares into which 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.
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.
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<PAGE>
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for 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 18th day or next
business day 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, the Delaware Cash Reserve Fund Consultant Class)
pro-rata with Class B Shares of the 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, 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 Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Government Fund has adopted
a separate plan for each of the Class A Shares, Class B Shares and Class C
Shares (the "Plans"). Each Plan permits Government Fund 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
31
<PAGE>
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'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's Board of Trustees 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 Trustees 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 Trustees 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 execution,
Government Fund 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 have been approved by the
Board of Trustees of Government Fund, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of Government Fund 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 must be
approved annually by the Board of Trustees in the same manner as specified
above.
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<PAGE>
Each year, the trustees 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 may be terminated at any time
without penalty by a majority of those trustees 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
trustees 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 trustees including a majority of the noninterested trustees of Government
Fund having no interest in the Plans. In addition, in order for the Plans to
remain effective, the selection and nomination of trustees who are not
"interested persons" of Government Fund must be effected by the trustees 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 Trustees
for their review.
For the fiscal year ended July 31, 2000, 12b-1 Plan payments from the
Class A Shares, Class B Shares and Class C Shares amounted to $313,722, $186,289
and $34,808, respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising $24 --- ---
------------------------------------------------------------------------------------------------------
Annual/Semi-Annual Reports $1,909 $317 ---
------------------------------------------------------------------------------------------------------
Broker Trails $242,120 $46,874 $15,006
------------------------------------------------------------------------------------------------------
Broker Sales Charges --- $60,931 $18,961
------------------------------------------------------------------------------------------------------
Interest on Broker Sales Charges --- $69,474 $310
------------------------------------------------------------------------------------------------------
Commissions to Wholesalers $37,622 $6,672 $531
------------------------------------------------------------------------------------------------------
Promotional-Broker Meetings $3,017 $112 ---
------------------------------------------------------------------------------------------------------
Promotional-Other $20,322 $453 ---
------------------------------------------------------------------------------------------------------
Prospectus Printing $4,156 $125 ---
------------------------------------------------------------------------------------------------------
Wholesaler Expenses $4,552 $1,331 ---
------------------------------------------------------------------------------------------------------
</TABLE>
Other Payments to Dealers -- Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
33
<PAGE>
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, trustees/directors and employees of
Government Fund, 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, trustees 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 may reasonably require to establish
eligibility for purchase 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.
Purchases of Class A Shares at net asset value may also be made by any
group retirement plan (excluding defined benefit pension plans) that purchases
shares through a retirement plan alliance program that requires shares to be
available at net asset value, provided Retirement Financial Services, Inc.
either is the sponsor of the alliance program or has a product participation
agreement with the sponsor of the alliance program.
34
<PAGE>
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares or purchase interests in a collective trust as a result of a change
in distribution arrangements.
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.
Additionally Class A Shares 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 a 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.
Government Fund must be notified in advance that the trade qualifies for
purchase at net asset value.
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. See Combined
Purchases Privilege, below.
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 under Investment Plans.
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.
35
<PAGE>
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 by
any such purchaser previously enumerated 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 Equity Funds III which
provides for the holding in escrow by the Transfer Agent, of 5% of the total
amount of 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
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. Those purchasers may include the value (at
offering price at the level designated in their Letter of Intention) of all
Classes of shares of the Fund and of the other mutual funds in Delaware
Investments previously purchased and still held as of the date of their Letter
of Intention toward the completion of such Letter, except as described below.
Those purchasers cannot include shares that did not carry a front-end sales
charge, CDSC or Limited CDSC , unless the purchaser acquired those shares
through an exchange from a Delaware Investments fund that did carry a front-end
sales charge, CDSC or Limited CDSC.
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 Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not fulfilled within the 13-month period, the
plan level will be adjusted (without completing another Letter of Intention) and
the employer will be billed for the difference in front-end sales charges due,
based on the plan's assets under management at that time. Employers may also
include the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of the Fund and other Delaware Investments funds which offer
corresponding classes of shares may also be aggregated for this purpose.
Combined Purchases Privilege
When you determine the availability of the reduced front-end sales
charges on Class A Shares, you can include, subject to the exceptions described
below, the total amount of any Class of shares you own of the Fund and all other
Delaware Investments mutual funds. In addition, if you are an investment
advisory client of the Manager's affiliates you may include assets held in a
stable value account in the total amount. However, you cannot include mutual
fund shares that do not carry a front-end sales charge, CDSC or Limited CDSC,
unless you acquired those shares through an exchange from a Delaware Investments
mutual fund that did carry a front-end sales charge, CDSC or Limited CDSC.
36
<PAGE>
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
When you determine the availability of the reduced front-end sales
charges on Class A Shares, you can include, subject to the exceptions described
below, the total amount of any Class of shares you own of the Fund and all other
Delaware Investments mutual funds. However, you cannot include mutual fund
shares that do not carry a front-end sales charge, CDSC or Limited CDSC, unless
you acquired those shares through an exchange from a Delaware Investments mutual
fund that did carry 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 $10,000 and subsequently purchases $40,000 at offering
price of additional shares of Class A Shares, the charge applicable to the
$10,000 purchase would currently be 4.75%. 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 and Class B 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 the same
Class of the Fund or in the same Class of any of the other funds in the Delaware
Investments family. In the case of Class A Shares, the reinvestment will not be
assessed a front-end sales charge and in the case of Class B Shares, the amount
of the CDSC previously charged on the redemption will be reimbursed by the
Distributor. The reinvestment will be subject to applicable eligibility and
minimum purchase requirements and must be in states where shares of such other
funds may be sold. This reinvestment 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 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. In the case of
Class B Shares, the time that the previous investment was held will be included
in determining any applicable CDSC due upon redemptions as well as the automatic
conversion into Class A Shares.
A redemption and reinvestment of Class B Shares could have income tax
consequences. Shareholders will receive from the Distributor the amount of the
CDSC paid at the time of redemption as part of the reinvested shares, which may
be treated as a capital gain to the shareholder for tax purposes. 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.
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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 Class A Limited CDSC 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, 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 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 investment
accounts if they so notify the Fund in which they are investing in connection
with each purchase. See Retirement Plans for the Fund Classes under Investment
Plans for information about Retirement Plans.
The Limited CDSC is generally applicable to any redemptions of net
asset value purchases made on behalf of a 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. Notwithstanding the
foregoing, the Limited CDSC for Class A Shares on which a dealer's commission
has been paid will be waived in connection with redemptions by certain group
defined contribution retirement plans that purchase shares through a retirement
plan alliance program which requires that shares will be available at net asset
value, provided that Retirement Financial Services, Inc. either is the sponsor
of the alliance program or has a product participation agreement with the
sponsor of the alliance program that specifies that the Limited CDSC will be
waived.
Institutional Class
The Institutional Class of the Fund 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, an affiliate of the Manager, or its other
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 of 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.
Shares of the Institutional Class are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be 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 dividend
payment from net investment income and of distributions 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 specific
Class in which shares are being purchased. Such purchases, which must meet the
minimum subsequent purchase requirements set forth in the Prospectuses and this
Part B, are made for Class A Shares at the public offering price, and for Class
B Shares, Class C Shares and Institutional Class at the net asset value, at the
end of the day of receipt. A reinvestment plan may be terminated at any time.
This plan does not assure a profit nor protect against depreciation in a
declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds in the Delaware Investments, including
the Fund, 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
the 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.
Subject to the following limitations, dividends and/or distributions
from other funds in Delaware Investments 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.
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.
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 the Fund's prospectus. See Redemption and Exchange for more complete
information concerning your exchange privileges.
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Holders of Class A Shares of the Fund 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 Delaware Investments funds. Similarly, holders of Class C Shares
of the Fund are permitted to exchange all or part of their Class C Shares only
into Class C Shares of other Delaware 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 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.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Fund to
accept for investment in Class A Shares, Class B Shares 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 Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly or quarterly 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, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $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.
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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 account. 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 Government Fund for proper
instructions.
MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone 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) 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 $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this 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 this service; however, your bank may charge a fee.
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
elect to invest in one or more of the other mutual funds in Delaware Investments
family through the Wealth Builder Option. 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.
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
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purchase of shares of the fund into which investments are made through the
program. See Redemption and Exchange for a brief summary of the tax consequences
of exchanges. Shareholders can terminate their participation in Wealth Builder
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, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Class.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an 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 Delaware Investments funds. With the help of a financial adviser,
you may also design a customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange. Also see
Buying Class A Shares at Net Asset Value. 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 Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is 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 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize 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) Defined Contribution Plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.
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Among the retirement plans that Delaware Investments offers, Class B
Shares are available only by Individual Retirement Accounts, SIMPLE IRAs, Roth
IRAs, Education IRAs, Simplified Employee Pension Plans, Salary Reduction
Simplified Employee Pension Plans, and 403(b)(7) and 457 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 Shares and
Class C Shares under Redemption and Exchange 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, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such Plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
shares. See 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 ("IRA")
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.
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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 $32,000 ($52,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $52,000 and $62,000, and for
single individuals with incomes between $32,000 and $42,000. 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:
(1) 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;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
(4) 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
(5) A distribution of after-tax contributions which is not includable
in income.
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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 includable in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
education 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.
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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. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares.
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 are 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 continue to 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 the Prospectus for the Fund Classes.
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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 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 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 the Fund. 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 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 100 or fewer employees and, in exchange for mandatory plan
sponsor contributions, discrimination testing is no longer required. Class B
Shares are not available for purchase by such plans.
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, its agent or certain
other authorized persons. See Distribution and Service under Investment
Management Agreement. 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.
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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. For all other securities, we use methods approved by the
Board of Trustees of that are designed to price securities at their fair market
value.
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 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 equity funds, tax-advantaged funds, bond
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into the Fund
that has the checkwriting feature. Exchanges are subject to the requirements of
the Fund and all exchanges of shares constitute taxable events. 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. An exchange
constitutes, for tax purposes, the sale of one fund and the purchase of another.
The sale may involve a capital gain or loss to the shareholder for federal tax
purposes. You may want to consult your financial adviser or investment dealer to
discuss which funds in Delaware Investments will best meet your changing
objectives, and the consequences of any exchange transaction. You may also call
the Delaware Investments directly for fund information.
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 will be
processed on the next business day. See the Prospectus. 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 Shares 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.
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Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund 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.
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 authorized persons, subject to 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.
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 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 purchase 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.
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 SEC 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.
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Payment for shares redeemed or repurchased may be made either in 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 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 such 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.
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, below.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Purchasing Shares. 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, a bank wire
fee may be deducted, 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.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (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 Part B 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.
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"). 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. If your Class A Shares or Institutional Class 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 and Institutional Class
shares only if a shareholder submits a specific request. Certificates are not
issued for Class B Shares or Class C Shares.
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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 Delaware Investments, 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 or Institutional Class shares in
certificate form, you may redeem or exchange only by written request and you
must return your certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
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, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes 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. 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. A bank wire fee may be deducted from
Fund Class 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.
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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 Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of the Fund, as described above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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.
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 Delaware Group Government
Fund-Delaware American Government Bond Fund account with The Bank of New York.
Normally, it takes two weeks from the date the shareholder's initial purchase
check clears to receive the ten-check book. 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 with respect to the Class B Shares, Class
C Shares or for retirement plans.
(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. A hold period against a recent purchase
may be up to but not in excess of 15 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 otherwise in the Fund's best interest.
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Shareholders will be subject to The Bank of New York's rules and
regulations governing similar accounts. This service may be terminated or
suspended at any time by The Bank of New York, 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 reasonable efforts to effect stop-payment
instructions, but does not promise or guarantee that such instructions will be
effective.
Return of Checks--Shareholders needing a copy of a redemption check can
contact Delaware Service Company, Inc. at 800-523-1918.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize the Fund to accept such
requests from you or your investment dealer, funds will be 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 $50,000 maximum limit for MoneyLine (SM) On Demand transactions. See
MoneyLine (SM) On Demand under Investment Plans.
Timing Accounts
Right to Refuse Timing Accounts--With regard to accounts that are
administered by market timing services ("Timing Firms") to purchase or redeem
shares based on changing economic and market conditions ("Timing Accounts"), the
Fund will refuse any new timing arrangements, as well as any new purchases (as
opposed to exchanges) in Delaware Investments funds from Timing Firms. The Fund
reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any person whose
transactions seem to follow a timing pattern who: (i) makes an exchange request
out of the Fund within two weeks of an earlier exchange request out of the Fund,
or (ii) makes more than two exchanges out of the Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or more than 1/4
of 1% of the Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated for purposes of the
exchange limits.
Redemptions of Timing Accounts--Redemption requests made from Timing
Accounts will be made only by check. Redemption proceeds from these accounts
will not be wired to shareholder bank accounts. Such checks will be sent no
later than seven days after receipt of a redemption request in good order.
Restrictions on Timed Exchanges--Timing Accounts operating under
existing timing agreements may only execute exchanges between the following
eight Delaware Investments funds: (1) Delaware Decatur Equity Income Fund, (2)
Delaware Growth and Income Fund, (3) Delaware Balanced Fund, (4) Delaware
Limited-Term Government Fund, (5) Delaware Tax-Free USA Fund, (6) Delaware Cash
Reserve Fund, (7) Delaware Delchester Fund and (8) Delaware Tax-Free
Pennsylvania Fund. No other Delaware Investments funds are available for timed
exchanges. Assets redeemed or exchanged out of Timing Accounts in Delaware
Investments funds not listed above may not be reinvested back into that Timing
Account. The Fund reserves the right to apply these same restrictions to the
account(s) of any person whose transactions seem to follow a time pattern (as
described above).
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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.
Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares 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 is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. 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.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
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 the 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 Investments 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. The
applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares
redeemed via a Systematic Withdrawal Plan will be waived if the annual amount
withdrawn in each year is less than 12% of the account balance on the date that
the Plan is established. If the annual amount withdrawn in any year exceeds 12%
of the account balance on the date that the Systematic Withdrawal Plan is
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established, all redemptions under the Plan will be subjected to the applicable
contingent deferred sales charge, including an assessment for previously
redeemed amounts under the Plan. Whether a waiver of the contingent deferred
sales charge is available or not, the first shares to be redeemed for each
Systematic Withdrawal Plan payment will be those not subject to a contingent
deferred sales charge because they have either satisfied the required holding
period or were acquired through the reinvestment of distributions. See Waiver of
Contingent Deferred Sales Charges, below.
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.
Systematic Withdrawal Plan 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. It may take up to four business days for the transactions to
be completed. You can initiate this 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 this service; however, your bank may charge a fee. This service is
not available for retirement plans.
The Systematic Withdrawal Plan is not available for the Institutional
Class. Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 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) according to the following
schedule: (1) 1.00% if shares are redeemed during the first year after the
purchase; and (2) 0.50% if such 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 described above.
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 Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the 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.
55
<PAGE>
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.
Waivers of Contingent Deferred Sales Charges
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; (viii) distributions form an account if the redemption results
from a death of a registered owner, or a registered joint owner, 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 disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed; (ix) redemptions by certain group defined contribution
retirement plans that purchase shares through a retirement plan alliance program
which requires that shares will be available at net asset value, provided that
Retirement Financial Services, Inc. either is the sponsor of the alliance
program or has a product participation agreement with the sponsor of the
alliance program that specifies that the Limited CDSC will be waived; and (x)
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 Purchasing 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, 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; and (iv) distributions from an account if the redemption results from the
death of a registered owner, or a registered joint owner, 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)
56
<PAGE>
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 Plan, 401(k) Defined Contribution Plan 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) or 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) or 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 a registered owner, or a
registered joint owner, 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 A Shares, Class B Shares
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 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
57
<PAGE>
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.
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 certain retirement plans. 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 on your designated bank
account 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 charge a fee. Please call the Shareholder
Service Center for additional information about these 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, 2000, the Fund had a capital loss of $5,367,428. The Fund had
accumulated capital losses at July 31, 2000 of $40,347,056, which may be carried
forward and applied against future capital gains. The capital loss carry forward
expires as follows: 2001 -- $1,341,943; 2002 -- $17,400,711; 2003 -- $9,205,797;
2004 -- $4,166,601; 2005 -- $2,371,574; 2007 -- $4,062,003; and 2008 --
5,331,597.
58
<PAGE>
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, as revised by the Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act") and the
Omnibus Consolidated and Emergency Supplemental Appropriations 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:
"Long-term capital gains": gains on securities sold after December 31,
1997 and held for more than 12 months as capital assets in the hands of
the holders are taxed at the 20% rate when distributed to shareholders
(10% for individual investors in the 15% bracket).
"Short-term capital gains": gains on securities sold by a Fund that do
not meet the long-term holding period are considered short-term capital
gains and are taxed as ordinary income.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-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 five-year gains are net gains
on securities which are purchased after December 31, 2000 and are held
for more than five years. Taxpayers subject to tax at a higher rate
brackets may also make an election for held on January 1, 2001 to
recognize gain on their shares in order to qualify such shares as
qualified five-year property. 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 five-year
holding period.
Any loss incurred on the redemption or exchange of shares held for six
months or less will be disallowed to the extent of any exempt-interest dividends
distributed to you with respect to the Fund shares and any remaining loss will
be treated as a long-term capital loss to the extent of any long-term capital
gains distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of
the Fund shares will be disallowed to the extent that you buy other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new shares you buy.
If you redeem some or all of your shares in the Fund, and then reinvest
the sales proceeds in such Fund or in another Delaware Investments fund within
90 days of buying the original shares, the sales charge that would otherwise
apply to your reinvestment may be reduced or eliminated. The IRS will require
you to report gain or loss on the redemption of your original shares in the
Fund. In doing so, all or a portion of the sales charge that you paid for your
original shares in the Fund will be excluded from your tax basis in the shares
sold (for the purpose of determining gain or loss upon the sale of such shares).
The portion of the sales charge excluded will equal the amount that the sales
charge is reduced on your reinvestment. Any portion of the sales charge excluded
from your tax basis in the shares sold will be added to the tax basis of the
shares you acquire from your reinvestment.
59
<PAGE>
Shareholders will be notified annually by Government Fund as to the
federal income tax status of dividends and distributions paid by the Fund.
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 also Other Tax Requirements under Accounting and Tax Issues.
60
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of Government Fund's Board of Trustees.
The Manager and its predecessors have been managing the funds in the
Delaware Investments family since 1938. On July 31, 2000 the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $44 billion in assets in
the various institutional or separately managed (approximately $25,199,290,000)
and investment company ($19,329,060,000) accounts.
The Investment Management Agreement for the Fund is dated September 29,
1999 and was approved by the initial shareholder on that date. The Agreement has
an initial term of two years and may be renewed each year only so long as such
renewal and continuance are specifically approved at least annually by the Board
of Trustees 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 trustees of Government Fund 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 trustees of Government Fund 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 an annual management fee as a percentage of average daily net assets
equal to:
-------------------------------------------------
| 0.55% on the first $500 million |
| 0.50% on the next $500 million |
| 0.45% on the next $1,500 million |
| 0.425% on assets in excess of $2,500 million |
-------------------------------------------------
On July 31, 2000, the total net assets of the Fund were $142,997,725.
Under the general supervision of the Board of Trustees, the Manager makes all
investment decisions which are implemented by the Fund. The Manager pays the
salaries of all trustees, officers and employees who are affiliated with both
the Manager and Government Fund. The investment management fees paid by the Fund
for the fiscal years ended July 31, 1998, 1999 and 2000 were $991,089,
$1,053,858 and $849,675 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 September 29, 1999. 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.
61
<PAGE>
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 September 29, 1999. 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 TRUSTEES
The business and affairs of Government Fund are managed under the
direction of its Board of Trustees.
Certain officers and trustees of Government Fund hold identical positions
in each of the other funds in the Delaware Investments family. On August 31,
2000, Government Fund's officers and trustees 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, 2000, management believes the following accounts held 5%
or more of the outstanding shares of a Class. The management does not have
knowledge of beneficial owners.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Name and Address of Account Share Amount Percentage
----- --------------------------- ------------ ----------
------------------------------ ---------------------------------------------------- ------------------ ---------------
<S> <C> <C> <C>
Class B Shares MLPF&S for the sole benefit of its customers 501,529.990 22.72%
Attn: Fund Administration SEC #97D25
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
------------------------------ ---------------------------------------------------- ------------------ ---------------
Class C Shares MLPF&S for the sole benefit of its customers 86,861.660 24.02%
Attn: Fund Administration SEC #97H03
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, FL 32246-6484
------------------------------ ---------------------------------------------------- ------------------ ---------------
Christine Gartland 26,649.950 7.36%
TOD Ruth C. Watson etal
2863 Lake Diane Ct.
New Brighton, MN 55112-1723
------------------------------ ---------------------------------------------------- ------------------ ---------------
Prudential Securities Inc., FBO 25,876.330 7.15%
Mrs. Ruth Edson Piper
350 Ponca Pl. #436
Boulder, CO 80303-3802
------------------------------ ---------------------------------------------------- ------------------ ---------------
RS DMTC 401(k) Plan 21,543.670 5.95%
Rommel Electric Co.
P.O. Box 3236
Salisbury, MD 21802
----------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Class Name and Address of Account Share Amount Percentage
----- --------------------------- ------------ ----------
------------------------------ ---------------------------------------------------- ------------------ ---------------
<S> <C> <C> <C>
Institutional Class Chase Manhattan Bank C/F 1,331,279.600 29.41%
Delaware Group Foundation Fund
Balanced Portfolio
Attn: Marisol Gordon
Global Investment Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
------------------------------ ---------------------------------------------------- ------------------ ---------------
Chase Manhattan Bank C/F 1,146,620.810 25.33%
Delaware Group Foundation Fund
Income Portfolio
Attn: Marisol Gordon
Global Investment Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
------------------------------ ---------------------------------------------------- ------------------ ---------------
Federated Life Insurance Co. 1,083,415.480 23.94%
Separate Account A
7 Attn: Debbie Miller
8 P.O. Box 328
Owatonna, MN 55060-0328
------------------------------ ---------------------------------------------------- ------------------ ---------------
Chase Manhattan Bank C/F 246,778.620 5.45%
Delaware Group Foundation Fund
Growth Portfolio
Attn: Marisol Gordon
Global Investment Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
----------------------------------------------------------------------------------------------------------------------
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc., Delaware General
Management, Inc. and Retirement Financial 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 Philadelphia,
Pennsylvania, is a diversified organization with operations in many aspects of
the financial services industry, including insurance and investment management.
63
<PAGE>
Trustees and principal officers of Government Fund 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.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
*Wayne A. Stork (63) Chairman, Trustee/Director of Government Fund and each of the other 32
investment companies in the Delaware Investments family.
Prior to January 1, 1999, Mr. Stork was Director of Delaware Capital Management,
Inc.; Chairman, President and Chief Executive Officer and Director/Trustee 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
and Chief Executive Officer of Delaware International Advisers Ltd.; Chairman,
Chief Executive Officer and Director of Delaware International Holdings Ltd.;
Chief Executive Officer of 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 Retirement Financial Services,
Inc.
Prior to January 1, 2000, Mr. Stork was Chairman and Director of Delaware
Management Holdings, Inc. and a Director of Delaware International Advisers Ltd.
In addition, during the five years prior to January 1, 2000, Mr. Stork has
served in various executive capacities at different times within Delaware
Investments.
--------------------------------------------------------------------------------------------------------------------------------
*Trustee affiliated with Government Fund's investment manager and considered an "interested person" as defined in the 1940 Act.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
*David K. Downes (60) President, Chief Executive Officer, Chief Financial Officer and Trustee/Director
of Government Fund and each of the other 32 investment companies in the
Delaware Investments family.
President and Director of Delaware Management Company, Inc.
President of Delaware Management Company (a series of Delaware Management
Business Trust)
President, Chief Executive Officer and Director of Delaware Capital Management,
Inc.
Chairman, President, Chief Executive Officer and Director of Delaware Service
Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware International Holdings Ltd.
President, Chief Operating Officer, and Director of Delaware General Management,
Inc.
Chairman and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer of
Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware
Distributors, L.P. and Delaware Investment Advisers (a series of Delaware
Management Business Trust)
Executive Vice President, Chief Financial Officer, Chief Operating Officer and
Trustee of Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of DMH Corp., Delaware Distributors, Inc., Founders Holdings, Inc. and
Delvoy, Inc.
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of Vantage Global Advisors, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various executive
capacities at different times within Delaware Investments.
--------------------------------------------------------------------------------------------------------------------------------
*Trustee affiliated with Government Fund's investment manager and considered an "interested person" as defined in the 1940 Act.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
Walter P. Babich (72) Trustee/Director of Government Fund and each of the other 32 investment
companies in the Delaware Investments 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 (63) Trustee/Director of Government Fund and each of the other 32 investment companies
in the Delaware Investments family
Private Investor.
P.O. Box 819, Gwynedd Valley, PA 19437
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. He was also a
Partner of Complete Care Services from 1995 to 1999.
------------------------------------------- ------------------------------------------------------------------------------------
Anthony D. Knerr (61) Trustee/Director of Government Fund and each of the 32 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 (59) Trustee/Director of Government Fund and each of the other 32 other investment
companies in the Delaware Investments family
785 Park Avenue, New York, NY 10021
Retired Treasurer, National Gallery of Art
From 1994 to 1999, Ms. Leven was the Treasurer of the National Gallery of Art
and from 1990 to 1994, Ms. Leven was Deputy Treasurer of the National Gallery
of Art. In addition, 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.
------------------------------------------- ------------------------------------------------------------------------------------
Thomas F. Madison (64) Trustee/Director of Government Fund and each of the other 32 investment companies
in the Delaware Investments family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
From 1996 to 1999, Mr. Madison was Chairman of the Board of Communications Holdings,
Inc. 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.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Trustee/Officer Business Experience
------------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
Charles E. Peck (74) Trustee/Director of Government Fund and each of the other 32 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.
------------------------------------------- ------------------------------------------------------------------------------------
Janet L. Yeomans (52) Trustee/Director of Government Fund and each of the other 32 investment companies
in the Delaware Investments family.
Building 220-13W-37, St. Paul, MN 55144
Vice President and Treasurer, 3M Corporation.
From 1987-1994, Ms. Yeomans was Director of Benefit Funds and Financial Markets
for the 3M Corporation; Manager of Benefit Fund Investments for the 3M
Corporation, 1985-1987; Manager of Pension Funds for the 3M Corporation,
1983-1985; Consultant--Investment Technology Group of Chase Econometrics,
1982-1983; Consultant for Data Resources, 1980-1982; Programmer for the Federal
Reserve Bank of Chicago, 1970-1974.
------------------------------------------- ------------------------------------------------------------------------------------
William E. Dodge (51) Executive Vice President and Chief Investment Officer, Equity of Government Fund
and each of the other 32 investment companies in the Delaware Investments family
and Delaware Management Company (a series of Delaware Management Business Trust)
Executive Vice President of Delaware Management Business Trust and Delaware Capital
Management, Inc.
Executive Vice President, Equity and Director of Vantage Global Advisors, Inc.
President and Chief Investment Officer, Equity of Delaware Investment Advisers (a
series of Delaware Management Business Trust)
Prior to joining Delaware Investments in 1999, Mr. Dodge was President, Director of
Marketing and Senior Portfolio Manager for Marvin & Palmer Associates.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
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Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Jude T. Driscoll (37) Executive Vice President/Head of Fixed Income of Income Funds, each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Before joining Delaware Investments in 2000, Mr. Driscoll was Senior Vice
President, Director of Fixed Income Process at Conseco Capital Management from
June 1998 to August 2000. Prior to that, he was Managing Director for
NationsBanc Capital Markets from 1996 to 1998, Vice President of Goldman Sachs
from 1991-1995 and Assistant Vice President of Conseco Capital Management from
1989 to 1990.
------------------------------------------- -------------------------------------------------------------------------------
Richard J. Flannery (42) Executive Vice President/General Counsel of Government Fund and each of the
other 32 investment companies in the Delaware Investments family, Delaware
Management Holdings, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P. and Founders CBO
Corporation.
Executive Vice President/General Counsel and Director of Delaware
International Holdings Ltd., Founders Holdings, Inc., Delvoy, Inc., DMH Corp.,
Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Retirement Financial Services, Inc., Delaware
Distributors, Inc., Delaware General Management, Inc. and Delaware Management
Business Trust Company.
Executive Vice President/General Counsel and Trustee of Delaware Management
Business Trust.
Executive Vice President/General Counsel and Director of Vantage Global
Advisors, Inc.
Director of Delaware International Advisers Ltd.
Director of HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various executive
capacities at different times within Delaware Investments.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Officer Business Experience
------------------------------------------- -------------------------------------------------------------------------------
<S> <C>
Joseph H. Hastings (50) Senior Vice President/Corporate Controller of Government Fund and each of
the other 32 investment companies in the Delaware Investments family and
Delaware Investment Advisers (a series of Delaware Management Business
Trust).
Senior Vice President/Corporate Controller of Vantage Global Advisors, 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., Founders Holdings, Inc., Delaware General
Management, Inc. and Delaware Management Business Trust
Chief Financial Officer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
During the past five years, Mr. Hastings has served in various executive
capacities at different times within Delaware Investments.
------------------------------------------- -------------------------------------------------------------------------------
Michael P. Bishof (38) Senior Vice President and Treasurer of Government Fund and each of the other 32
investment companies in the Delaware Investments family.
Senior Vice President/Investment Accounting of Delaware Service Company,
Inc. and Delaware Capital Management, Inc., Delaware Distributors, L.P.,
Delaware Management Company (a series of Delaware Management Business Trust)
and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Vantage Global Advisors, Inc.
Senior Vice President and Treasurer/ Investment Accounting of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Senior Vice President/Manager of Investment Accounting of Delaware
International Holdings, Inc.
Senior Vice President and Assistant Treasurer of Founders CBO Corporation
Prior to 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 (41) Vice President/Portfolio Manager of Government Fund and the other 32 investment
companies in the Delaware Investments family, Delaware Management Company (a
series of Delaware Management Business Trust) and Delaware Investment Advisers
(a series of Delaware Management Business Trust).
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.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from Government
Fund 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, 2000 and an estimate of annual benefits to be
received upon retirement under the Delaware Investments Retirement Plan for
Directors/Trustees as of July 31, 2000. Only the independent trustees of
Government Fund receive compensation from the Fund.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits Estimated from all
Accrued Annual Investment
Aggregate as Part of Benefits Companies
Compensation from Government Fund, Upon in Delaware
Name (3) Government Fund Expenses Retirement(1) Investments(2)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John H. Durham $996 None $38,000 $53,553
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Ann R. Leven $1,048 None $38,000 $66,001
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Walter P. Babich $996 None $38,000 $66,001
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Anthony D. Knerr $1,040 None $38,000 $65,001
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Thomas F. Madison $1,040 None $38,000 $65,001
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Charles E. Peck $1,040 None $38,000 $65,001
---------------------------- ----------------------- ------------------------ ------------------------ -----------------------
Janet L. Yeomans(4) $996 None $38,000 $60,001
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested trustee/director who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family for
which he or she serves as a trustee or director for a period equal to the
lesser of the number of years that such person served as a trustee or
director or the remainder of such person's life. The amount of such payments
will be equal, on an annual basis, to the amount of the annual retainer that
is paid to trustees/directors of each investment company at the time of such
person's retirement. If an eligible trustee/director retired as of July 31,
2000, 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 trustee/director currently receives a total annual retainer
fee of $38,000 for serving as a trustee/director for all 33 investment
companies in Delaware Investments, plus $3,143 for each Board Meeting
attended. Prior to May 1, 2000, John H. Durham served as a trustee/director
for 19 investment companies in Delaware Investments and as such received a
total annual retainer fee of $32,180, plus $1,810 for each Board Meeting
attended. Ann R. Leven, Charles E. Peck, Anthony D. Knerr and Thomas F.
Madison serve on Government 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.
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<PAGE>
GENERAL INFORMATION
Government Fund was originally organized as a Maryland corporation in
1985 and reorganized as a Delaware business trust on September 29, 1999. It is
an open-end management investment company. The Fund's portfolio of assets is
diversified as defined by the 1940 Act.
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. An affiliate of the Manager 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.
Delaware or Delaware International Advisers Ltd. also manages the
investment options for Delaware-Lincoln ChoicePlus and Delaware Medallion (SM)
III Variable Annuities. ChoicePlus is issued and distributed by Lincoln National
Life Insurance Company. ChoicePlus offers a variety of different investment
styles managed by leading money managers. 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 various
investment series ranging from domestic equity funds, international equity and
bond funds and domestic fixed income funds. Each investment series available
through ChoicePlus and Medallion utilizes an investment strategy and discipline
the same as or similar to one of the Delaware Investments mutual funds available
outside the annuity, although actual performance will differ due to such factors
as different expense levels, asset size and its timing of purchases and
redemptions. See Delaware Group Premium Fund, in Appendix A.
The Delaware Investments Family of Funds, the Manager and the Distributor, in
compliance with SEC Rule 17j-1 under the 1940 Act, have adopted Codes of Ethics
which govern personal securities transactions. Under the Codes of Ethics,
persons subject to the Codes are permitted to engage in personal securities
transactions , including securities that may be purchased or held by the
Portfolios, subject to the requirements set forth in Rule 17j-1 and certain
other procedures set forth in the applicable Code of Ethics. The Codes of Ethics
for the Delaware Investments Family of Funds, the Manager and the Distributor
are on public file with, and are available from, the SEC.
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:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Class A Shares
----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended Total Amount of Underwriting Amounts Reallowed Net Commission
Commission to Dealers to the Distributor
----------------------------- ------------------------------------ ------------------------------- -------------------------------
<S> <C> <C> <C> <C>
July 31, 2000 $405,891 $393,017 $12,874
----------------------------- ------------------------------------ ------------------------------- -------------------------------
July 31, 1999 319,791 279,614 40,177
----------------------------- ------------------------------------ ------------------------------- -------------------------------
July 31, 1998 190,148 157,506 32,642
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Distributor received Limited CDSC payments with respect to Class A
Shares and CDSC payments with respect to Class B and C Shares as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Class A Class B Class C
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7/31/00 $76,244 $97,152 $8,441
----------------------------- ----------------------------------- -------------------------------- -------------------------------
7/31/99 -0- 98,328 5,999
----------------------------- ----------------------------------- -------------------------------- -------------------------------
7/31/98 1,015 73,001 519
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
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 Trustees,
including a majority of the unaffiliated trustees. 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's advisory
relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Government Fund to
delete the words "Delaware Group" from Government Fund's name.
The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245, is custodian of the Fund's securities and cash. As custodian for the
Fund, Chase maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; receives and
disburses money on behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.
Capitalization
Government Fund has a present unlimited authorized number of shares of
beneficial interest with no par value allocated to each 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
72
<PAGE>
class was changed to U.S. Government Fund class. Effective May 2, 1994, the U.S.
Government Fund class became known as the U.S. Government Fund A Class and the
U.S. Government Fund (Institutional) class became known as the U.S. Government
Fund Institutional Class. Effective as of August 16, 1999, the name of
Government Income Series (known as U.S. Government Fund) was changed to Delaware
American Government Bond Fund. Corresponding changes were also made to the names
of the Classes. Effective as of September 29, 1999, the name of Delaware Group
Government Fund, Inc. changed to Delaware Group Government Fund.
Noncumulative Voting
Fund shares have noncumulative voting rights which means that the
holders of more than 50% of the shares of Government Fund voting for the
election of trustees can elect all the trustees if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
trustees.
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 - Delaware American Government Bond Fund and, in its capacity as
such, audits the financial statements contained in the Fund's Annual Report. The
Fund's Statement of Net Assets, Statement of Operations, Statement of Changes in
Net Assets, 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, 2000, 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.
73
<PAGE>
APPENDIX A--INVESTMENT OBJECTIVES OF THE FUNDS IN THE DELAWARE INVESTMENTS
FAMILY
Delaware Balanced Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. As a balanced fund, the fund
invests at least 25% of its assets in fixed-income securities and the remaining
in equity securities. Delaware 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.
Delaware Trend Fund seeks capital appreciation by investing in common
stocks issued by emerging growth companies exhibiting strong capital
appreciation potential. Delaware Technology and Innovation Fund seeks to provide
long-term capital growth by investing primarily in stocks the investment adviser
believes will benefit from technological advances and improvements.
Delaware 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.
Delaware Growth Opportunities 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.
Delaware Decatur Equity 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. Delaware Growth
and Income Fund seeks long-term growth by investing primarily in securities that
provide the potential for income and capital appreciation without undue risk to
principal. Delaware 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. Delaware Social Awareness 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.
Delaware 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. Delaware 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. Delaware High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Delaware Corporate Bond Fund seeks to provide investors with total return by
investing primarily in corporate bonds. Delaware Extended Duration Bond Fund
seeks to provide investors with total return by investing primarily in corporate
bonds
Delaware American Government Bond Fund seeks high current income by
investing primarily in long-term debt obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
Delaware 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.
74
<PAGE>
Delaware Cash Reserve Fund 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.
Delaware 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.
Delaware Tax-Free USA Fund seeks high current income exempt from
federal income tax by investing in municipal bonds of geographically-diverse
issuers. Delaware 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. Delaware 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.
Delaware Tax-Free Pennsylvania Fund seeks a high level of current
interest income exempt from federal and, to the extent possible, certain
Pennsylvania state and local taxes, consistent with the preservation of capital.
Delaware 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.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Delaware 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 Delaware 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 Delaware
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.
Delaware 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.
Delaware 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.
Delaware Global Equity Fund seeks to achieve long-term total return by investing
in global securities that provide the potential for capital appreciation and
income. Delaware Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries.
Delaware 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. Delaware Overseas Equity Fund seeks to maximize total return (capital
appreciation and income), principally through investments in an internationally
diversified portfolio of equity securities. Delaware 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.
75
<PAGE>
Delaware Group Premium Fund offers various funds available exclusively
as funding vehicles for certain insurance company separate accounts. Balanced
Series seeks a balance of capital appreciation, income and preservation of
capital. As a "balanced" fund, the Series invests at least 25% of its assets in
fixed-income securities and the remainder primarily in equity securities.
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 is a money market
fund which seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Convertible Securities Series--seeks a high level of total return
on its assets through a combination of capital appreciation and current income.
The Series intends to pursue its investment objective by investing primarily in
convertible securities. Devon Series seeks current income and capital
appreciation. The Series will seek to achieve its objective 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. The Series seeks to achieve its objective by investing primarily
in equity securities of issuers located or operating in emerging countries.
Global Bond Series seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that may also
provide the potential for capital appreciation. The Series will invest in
fixed-income securities of issuers from at least three different countries, one
of which may be the United States. Growth and Income Series seeks the highest
possible total rate of return by selecting issues that exhibit the potential for
capital appreciation while providing higher than average dividend income. Growth
Opportunities Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. High Yield Series seeks total return and, as a secondary
objective, high current income. It seeks to achieve its objective by investing
primarily in high-yield corporate bonds. These are commonly known as junk bonds.
An investment in this Series may involve greater risks than an investment in a
portfolio comprised primarily of investment grade bonds. International Equity
Series seeks long-term growth without undue risk to principal by investing
primarily in equity securities of foreign issuers providing the potential for
capital appreciation and income. REIT Series seeks to achieve maximum long-term
total return. Capital appreciation is a secondary objective. It seeks to achieve
its objectives by investing in securities of companies primarily engaged in the
real estate industry. Select Growth Series seeks long-term capital appreciation.
The Series attempts to achieve its investment objective by investing primarily
in equity securities of companies of all sizes which the manager believes have
the potential for high earnings growth. Small Cap Value Series seeks capital
appreciation by investing primarily in small cap common stocks whose market
value appears low relative to their underlying value or future earnings and
growth potential. Social Awareness Series seeks to achieve long-term capital
appreciation. The Series seeks to achieve its objective by investing primarily
in equity securities of medium- to large-sized companies expected to grow over
time that meet the Series' "Social Criteria" strategy. Strategic Income Series
seeks high current income and total return. The Series seeks to achieve its
objective 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. Technology and Innovation Series seeks to
provide long-term capital growth. The Series invest primarily in stocks that the
manager believes will benefit from technological advances and improvements.
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. U.S. Growth Series seeks to maximize capital
appreciation. The Series seeks to achieve its objective by investing primarily
in stocks of companies of all sizes. We look for stocks with low dividend
yields, strong balance sheets and high expected earnings growth rates as
compared to other companies in the same industry.
76
<PAGE>
Delaware U.S. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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
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. Delaware 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 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 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 Montana Municipal Bond Fund seeks as high a level of current
income exempt from federal income tax and from the Montana personal income tax,
as is consistent with preservation of capital.
77
<PAGE>
Delaware 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.
Delaware Select 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. Delaware 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. Delaware 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 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 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 the funds' prospectus(es).
78
<PAGE>
PART C
Other Information
Item 23. Exhibits
(a) Agreement and Declaration of Trust.
(1) Agreement and Declaration of Trust (December 17, 1998)
incorporated into this filing by reference to Post-Effective
Amendment No. 21 filed July 29, 1999.
(2) Certificate of Trust (December 17, 1998) incorporated into
this filing by reference to Post-Effective Amendment No. 21
filed July 29, 1999.
(b) By-Laws. By-Laws (December 17, 1998) incorporated into this filing
by reference to Post-Effective Amendment No. 21 filed July 29,
1999.
(c) Copies of All Instruments Defining the Rights of Holders.
(1) Agreement and Declaration of Trust. Articles III, IV, V and
VI of Agreement and Declaration of Trust incorporated into
this filing by reference to Post-Effective Amendment No. 21
filed July 29, 1999.
(2) By-Laws. Article II of By-Laws incorporated into this filing
by reference to Post-Effective Amendment No. 21 filed July
29, 1999.
(d) Investment Management Agreement.
(1) Form of Investment Management Agreement (September 29, 1999)
between Delaware Management Company and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 21 filed July 29, 1999.
(e) (1) Distribution Agreement.
(i) Form of Distribution Agreement (September 1999)
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
(September 1999) incorporated into this filing by
reference to Post-Effective Amendment No. 17 filed
November 20, 1995.
(2) 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.
(3) Dealer's Agreement. Attached as Exhibit.
<PAGE>
(4) 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.
(f) Inapplicable.
(g) Custodian Agreement.
(1) Custodian Agreement (May 1996) between the Registrant and
The Chase Manhattan Bank incorporated into this filing by
reference to Post-Effective Amendment No. 20 filed September
29, 1998.
(2) Securities Lending Agreement (1996) between the Registrant
and The Chase Manhattan Bank incorporated into this filing
by reference to Post-Effective Amendment No. 20 filed
September 29, 1998.
(3) Letter to The Chase Manhattan Bank to add Delaware American
Government Bond Fund to Schedule A of the Global Custody
Agreement.
(h) Other Material Contracts.
(1) Form of Shareholders Services Agreement (September 1999)
between Delaware Service Company, Inc. and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 18 filed September 27, 1996.
(2) Form of Delaware Group of Funds Fund Accounting Agreement
(September 1999) between Delaware Service Company, Inc. and
the Registrant incorporated into this filing by reference to
Post-Effective Amendment No. 18 filed September 27, 1996 and
Post-Effective Amendment No. 20 filed September 29, 1998.
(i) Opinion of Counsel. Incorporated into this filing by reference to
Post-Effective Amendment No. 21 filed July 29, 1999.
(j) Consent and Report of Auditors. Attached as Exhibit.
(k-l) Inapplicable.
(m) Plans under Rule 12b-1.
(1) Form of Plan under Rule 12b-1 for Class A (September 1999)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed November 20, 1995.
(2) Form of Plan under Rule 12b-1 for Class B (September 1999)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed November 20, 1995.
(3) Form of Plan under Rule 12b-1 for Class C (September 1999)
incorporated into this filing by reference to Post-Effective
Amendment No. 17 filed November 20, 1995.
(n) Inapplicable.
(o) Other: Powers of Attorney. Incorporated into this filing by
reference to Post-Effective Amendment No. 21 filed July 29, 1999.
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant. None.
Item 25. Indemnification. Article VI of the By-Laws incorporated into this
filing by reference to Post-Effective Amendment No. 21 filed
July 29, 1999.
Item 26. 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 Investments family (Delaware Group Equity Funds I, Delaware Group
Equity Funds II, Delaware Group Equity Funds III, Delaware Group Equity Funds
IV, Delaware Group Equity Funds V, Delaware Group Income Funds, Delaware Group
Limited-Term Government Funds, Delaware Group Cash Reserve, Delaware Group
Tax-Free Fund, Delaware Group State Tax-Free Income Trust, Delaware Group
Tax-Free Money Fund, Delaware Group Premium Fund, Delaware Group Global &
International Funds, Delaware Pooled Trust, Delaware Group Adviser Funds,
Delaware Group Dividend and Income Fund, Inc., Delaware Group Global Dividend
and Income Fund, Inc., Delaware Group Foundation Funds, Voyageur Intermediate
Tax-Free Funds, Voyageur Tax-Free Funds, Voyageur Funds, Voyageur Insured Funds,
Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II,
Voyageur Mutual Funds III, 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.) as well as to certain non-affiliated registered investment companies. In
addition, certain officers of the Manager also serve as trustees of the other
Delaware Investments funds, and certain officers are also officers of these
other funds. A company indirectly owned by the Manager's parent company acts as
principal underwriter to the mutual funds in the Delaware Investments family
(see Item 27 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.
<PAGE>
The following persons serving as directors or officers of the Manager have
held the following positions during the past two years:
<TABLE>
<CAPTION>
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Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Charles E. Haldeman, Jr. (1) Chief Executive Officer of Delaware Management Company (a series of Delaware
Management Business Trust); President, Chief Executive Officer and Director of
Delaware Management Holdings, Inc.; Chief Executive Officer and Director of
DMH Corp.; Chief Executive Officer and Director of Delvoy, Inc.; Chief
Executive Officer and Director of Delaware Management Company, Inc.; Chief
Executive Officer and Trustee of Delaware Management Business Trust, Director
of Delaware Service Company, Inc.; Director of Delaware Capital Management,
Inc.; Director of Retirement Financial Services, Inc.; Director of Delaware
Distributors, Inc.; Chairman and Director of Delaware International Advisers
Ltd.; Chief Executive Officer of Delaware General Management, Inc.
Chairman, Chief Executive Officer and Director of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
David K. Downes President of Delaware Management Company (a series of Delaware Management
Business Trust); President and Director of Delaware Management Company, Inc.;
President, Chief Executive Officer and Director of Delaware Capital
Management, Inc.; Chairman, President, Chief Executive Officer and Director of
Delaware Service Company, Inc.; President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware International Holdings Ltd.;
President, Chief Operating Officer and Director of Delaware General
Management, Inc.; Chairman and Director of Delaware Management Trust Company;
Chairman and Director of Retirement Financial Services, Inc.; Executive Vice
President, Chief Operating Officer, Chief Financial Officer of Delaware
Management Holdings, Inc.; Executive Vice President, Chief Operating Officer,
Chief Financial Officer of Founders CBO Corporation; Executive Vice President,
Chief Operating Officer, Chief Financial Officer of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Executive Vice
President, Chief Operating Officer, Chief Financial Officer and Director of
DMH Corp.; Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Distributors, Inc.; Executive Vice President,
Chief Operating Officer, Chief Financial Officer of Delaware Distributors,
L.P.; Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Founders Holdings, Inc.; Executive Vice President,
Chief Operating Officer, Chief Financial Officer and Director of Delvoy, Inc.;
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Trustee of Delaware Management Business Trust; Director of Delaware
International Advisers Ltd.; President, Chief Executive Officer, Chief
Financial Officer, Principle Finance Officer and Trustee/Director of each fund
in the Delaware Investments family
Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of Vantage Global Advisors, Inc.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton
Place, Newtown Square, PA
------------------------------------------------- --------------------------------------------------------------------------------
John C. E. Campbell Executive Vice President/Global Marketing & Client Services of Delaware
Management Company (a series of Delaware Management Business Trust); Executive
Vice President/Global Marketing & Client Services of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Director of Delaware
International Advisers Ltd.
Executive Vice President/Marketing and Client Services of Vantage Global
Advisors, Inc.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
William E. Dodge (2) Executive Vice President and Chief Investment Officer, Equity of Delaware
Management Company (a series of Delaware Management Business Trust); Executive
Vice President of Delaware Management Business Trust; President and Chief
Investment Officer, Equity of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Executive Vice President of Delaware
Capital Management, Inc.; Executive Vice President and Chief Investment
Officer, Equity of each fund in the Delaware Investments family.
Executive Vice President/Equities and Director of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Jude T. Driscoll (3) Executive Vice President/Head of Fixed-Income of Delaware Management Company
(a series of Delaware Management Business Trust); Delaware Investment Advisers
(a series of Delaware Management Business Trust); Executive Vice
President/Head of Fixed-Income of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Richard J. Flannery Executive Vice President/General Counsel of Delaware Management Company (a
series of Delaware Management Business Trust); Executive Vice
President/General Counsel of Delaware Management Holdings, Inc.; Executive
Vice President/General Counsel of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Executive Vice President/General Counsel
of Founders CBO Corporation; Executive Vice President/General Counsel and
Director of Delaware International Holdings Ltd.; Executive Vice
President/General Counsel and Director of Founders Holdings, Inc.; Executive
Vice President/General Counsel and Director of Delvoy, Inc.; Executive Vice
President/General Counsel and Director of DMH Corp.; Executive Vice
President/General Counsel and Director of Delaware Management Company, Inc.;
Executive Vice President/General Counsel and Trustee of Delaware Management
Business Trust; Executive Vice President/General Counsel and Director of
Delaware Service Company, Inc.; Executive Vice President/General Counsel and
Director of Delaware Capital Management, Inc.; Executive Vice
President/General Counsel and Director of Retirement Financial Services, Inc.;
Executive Vice President/General Counsel and Director of Delaware
Distributors, Inc.; Executive Vice President/General Counsel of Delaware
Distributors, L.P.; Executive Vice President/General Counsel and Director of
Delaware Management Trust Company; Executive Vice President/General Counsel
and Director of Delaware General Management, Inc.; Director of Delaware
International Advisers Ltd.; Director of HYPPCO Finance Company Ltd.;
Executive Vice President and General Counsel of each fund in the Delaware
Investments family
Executive Vice President/General Counsel and Director of Vantage Global
Advisors, Inc.
Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverson,
PA; Director and Member of Executive Committee of Stonewall Links, Inc. since
1991, Bulltown Rd., Elverson, PA
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Richard G. Unruh, Jr. Executive Vice President/Chief Investment Officer of Delaware Management
Company (a series of Delaware Management Business Trust); Director of Delaware
International Advisers Ltd.; Chief Executive Officer/Chief Investment Officer
of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Executive Vice President of Delaware Management Holdings, Inc.;
Executive Vice President of Delaware Capital Management, Inc.; Executive Vice
President and Trustee of Delaware Management Business Trust; Executive Vice
President and Chief Investment Officer, Fixed-Income of each fund in the
Delaware Investments family
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
------------------------------------------------- --------------------------------------------------------------------------------
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of
Delaware Management Business Trust; Senior Vice President/Operations of
Delaware Service Company, Inc.; Senior Vice President/Operations of Retirement
Financial Services, Inc.; Senior Vice President/Operations and Director of
Delaware Management Trust Company.
------------------------------------------------- --------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President/Investment Accounting of Delaware Management Company (a
series of Delaware Management Business Trust), Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Delaware Distributors L.P. and Founders
Holdings, Inc.; Senior Vice President/Treasurer/ Investment Accounting of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President/Manager of Investment Accounting of Delaware
International Holdings, Inc.; Senior Vice President/Assistant Treasurer of
Founders CBO Corporation; Senior Vice President/Treasurer of each fund in the
Delaware Investments family
Senior Vice President/Investment Accounting of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Lisa O. Brinkley Senior Vice President/Compliance Director of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice
President/Compliance Director of Delaware Management Holdings, Inc.; Senior
Vice President/Compliance Director of DMH Corp.; Senior Vice
President/Compliance Director of Delvoy, Inc.; Senior Vice
President/Compliance Director of Delaware Management Company, Inc.; Senior
Vice President/Compliance Director of Delaware Management Business Trust;
Senior Vice President/Compliance Director of Delaware Investment Advisers (a
series of Delaware Management Business Trust); Senior Vice
President/Compliance Director of Delaware Service Company, Inc.; Senior Vice
President/Compliance Director of Delaware Capital Management, Inc.; Senior
Vice President/Compliance Director of Retirement Financial Services, Inc.;
Senior Vice President/Compliance Director/Assistant Secretary of Delaware
Management Trust Company; Senior Vice President/Compliance Director of
Delaware Distributors, Inc.; Senior Vice President/Compliance Director of
Delaware Distributors, L.P.; Senior Vice President/Compliance Director of
Delaware General Management, Inc.; Senior Vice President/Compliance Director
of each fund in the Delaware Investments family
Senior Vice President of Vantage Global Advisors, Inc.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Joshua Brooks Senior Vice President/Deputy To Chief Executive Officer of Delaware Management
Company (a series of Delaware Management Business Trust); Senior Vice
President/Deputy To Chief Executive Officer of Delaware Investment Advisers (a
series of Delaware Management Business Trust); Senior Vice President/Deputy To
Chief Executive Officer of Delaware Management Holdings, Inc.
Managing Director of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President/Head of
Equity Trading of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Senior Vice President/Head of Equity Trading of
Delaware Capital Management, Inc.
Senior Vice President/Equity Trading of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Roger A. Early Senior Vice President/Senior Portfolio Manager of Delaware Management Company
(a series of Delaware Management Business Trust); Senior Vice President/Senior
Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Senior Vice President/Senior Portfolio Manager of
each fund in the Delaware Investments family
Vice President of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company
(a series of Delaware Management Business Trust); Trustee of Delaware
Management Business Trust; Senior Vice President/Senior Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Senior Vice President/Senior Portfolio Manager of Delaware Capital Management,
Inc.; Senior Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Gerald S. Frey Senior Vice President/Senior Portfolio Manager of Delaware Management Company
(a series of Delaware Management Business Trust); Senior Vice President/Senior
Portfolio Manager of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Senior Vice President/Senior Portfolio Manager of
Delaware Capital Management, Inc.; Senior Vice President/Senior Portfolio
Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Susan L. Hanson Senior Vice President/Global Marketing & Client Services of Delaware
Management Company (a series of Delaware Management Business Trust); Senior
Vice President/Global Marketing & Client Services of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Company (a series of Delaware Management Business Trust); Senior
Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc.; Senior Vice President/Corporate Controller and Treasurer of
DMH Corp.; Senior Vice President/Corporate Controller and Treasurer of
Delaware Management Company, Inc.; Senior Vice President/Corporate Controller
and Treasurer of Delaware Distributors, L.P.; Senior Vice President/Corporate
Controller and Treasurer of Delaware Distributors, Inc.; Senior Vice
President/Corporate Controller and Treasurer of Delaware Service Company,
Inc.; Senior Vice President/Corporate Controller and Treasurer of Delaware
Capital Management, Inc.; Senior Vice President/Corporate Controller and
Treasurer of Delaware International Holdings Ltd.; Senior Vice
President/Corporate Controller and Treasurer of Delvoy, Inc.; Senior Vice
President/Corporate Controller and Treasurer of Founders Holdings, Inc.;
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Business Trust; Senior Vice President/Corporate Controller and
Treasurer of Delaware General Management, Inc.; Executive Vice President/Chief
Financial Officer/Treasurer of Delaware Management Trust Company; Chief
Financial Officer of Retirement Financial Services, Inc.; Senior Vice
President/Assistant Treasurer of Founders CBO Corporation; Senior Vice
President/Corporate Controller of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Senior Vice President/Corporate
Controller of each fund in the Delaware Investments family
Senior Vice President/Corporate Controller of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources of Delaware Management Company (a
series of Delaware Management Business Trust); Senior Vice President/Human
Resources of Delaware Management Holdings, Inc.; Senior Vice President/Human
Resources of DMH Corp.; Senior Vice President/Human Resources of Delvoy, Inc.;
Senior Vice President/Human Resources of Delaware Management Company, Inc.;
Senior Vice President/Human Resources of Delaware Management Business Trust;
Senior Vice President/Human Resources of Delaware Investment Advisers (a
series of Delaware Management Business Trust); Senior Vice President/Human
Resources of Delaware Service Company, Inc.; Senior Vice President/Human
Resources of Delaware Capital Management, Inc.; Senior Vice President/Human
Resources of Retirement Financial Services, Inc.; Senior Vice President/Human
Resources of Delaware Management Trust Company; Senior Vice President/Human
Resources of Delaware Distributors, Inc.; Senior Vice President/Human
Resources of Delaware Distributors, L.P.; Senior Vice President/Human
Resources of Delaware General Management, Inc.; Senior Vice President/Human
Resources of each fund in the Delaware Investments family
Senior Vice President/Human Resources of Vantage Global Advisors, Inc.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Richelle S. Maestro Senior Vice President, Secretary and Deputy General Counsel of Delaware
Management Company (a series of Delaware Management Business Trust); Senior
Vice President, Secretary and Deputy General Counsel of Delaware Management
Holdings, Inc.; Senior Vice President, Secretary and Deputy General Counsel of
DMH Corp.; Senior Vice President, Secretary and Deputy General Counsel of
Delvoy, Inc.; Senior Vice President, Secretary and Deputy General Counsel of
Delaware Management Company, Inc.; Senior Vice President, Secretary and Deputy
General Counsel of Delaware Management Business Trust; Senior Vice President,
Secretary and Deputy General Counsel of Delaware Investment Advisers (a series
of Delaware Management Business Trust); Senior Vice President, Secretary and
Deputy General Counsel of Delaware Service Company, Inc.; Senior Vice
President, Secretary and Deputy General Counsel of Delaware Capital
Management, Inc.; Senior Vice President, Secretary and Deputy General Counsel
of Retirement Financial Services, Inc.; Senior Vice President, Secretary and
Deputy General Counsel of Delaware Distributors, Inc.; Senior Vice President,
Secretary and Deputy General Counsel of Delaware Distributors, L.P.; Senior
Vice President and Secretary of Delaware International Holdings Ltd.; Senior
Vice President, Secretary and Deputy General Counsel of Founders Holdings,
Inc.; Secretary of Founders CBO Corporation; Senior Vice President, Secretary
and Deputy General Counsel of Delaware Management Trust Company; Senior Vice
President, Secretary and Deputy General Counsel of Delaware General
Management, Inc.; Senior Vice President, Assistant Secretary and Deputy
General Counsel of each fund in the Delaware Investments family
General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane,
Philadelphia, PA.
------------------------------------------------- --------------------------------------------------------------------------------
Paul M. Ross Senior Vice President/Global Marketing & Client Services of Delaware
Management Company (a series of Delaware Management Business Trust); Senior
Vice President/Global Marketing & Client Services of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
James L. Shields Senior Vice President, Chief Information Officer of Delaware Management
Company (a series of Delaware Management Business Trust); Senior Vice
President, Chief Information Officer of Delaware Investment Advisers (a series
of Delaware Management Business Trust); Senior Vice President, Chief
Information Officer of Delaware Service Company, Inc.; Senior Vice President,
Chief Information Officer of Delaware Capital Management Company, Inc.; Senior
Vice President, Chief Information Officer of Retirement Financial Services,
Inc.; Senior Vice President, Chief Information Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Information Officer of Vantage Global Advisors,
Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Gary T. Abrams Vice President/Equity Trader of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Equity Trader of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Vice President/Equity Trading of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Christopher S. Adams Vice President/Equity Analyst of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Equity Analyst of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Vice President of Vantage Global Advisors, Inc.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Peter C. Andersen Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust; Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Damon J. Andres Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of Delaware Capital Management, Inc.; Vice
President/Portfolio Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Robert L. Arnold Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc., Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Marshall T. Bassett Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Joseph Baxter (4) Vice President/Senior Municipal bond Trader of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Municipal
bond Trader of Delaware Investment Advisers (a series of Delaware Management
Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Christopher S. Beck Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
Trustee of New Castle County Pension Board since October 1992, Wilmington, DE
------------------------------------------------- --------------------------------------------------------------------------------
Richard E. Biester Vice President/Trading Operations of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Trading Operations of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
Vice President/Equity Trading of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Gregory J. Blackburn (5) Vice President/Senior High-Yield Analyst of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior
High-Yield Analyst of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Senior High-Yield Analyst of each
fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Vincent A. Brancaccio Vice President/Senior Equity Trader of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Senior Equity Trader of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Ryan K. Brist (6) Vice President/Head of Trading of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Michael P. Buckley Vice President/Portfolio Manager and Senior Municipal Bond Analyst of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President/Portfolio Manager and Senior Municipal Bond Analyst of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Vice
President/Portfolio Manager and Senior Municipal Bond Analyst of each fund in
the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company (a series of
Delaware Management Business Trust);Vice President/Client Services of Delaware
Investment Advisers (a series of Delaware Management Business Trust); Vice
President/Client Services of Delaware Distributors, Inc.; Vice
President/Client Services of Delaware General Management, Inc.; Vice
President/Client Services of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Stephen R. Cianci Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Donald M. Cobin (7) Vice President/Director of Research of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Director of Research of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Mitchell L. Conery Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
David F. Connor (8) Vice President/Deputy General Counsel/Assistant Secretary of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President/Deputy General Counsel/Assistant Secretary of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Timothy G. Connors Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager for each fund in the
Delaware Investments family
Managing Director of Vantage Investment Advisers
------------------------------------------------- --------------------------------------------------------------------------------
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Delaware Capital
Management, Inc.; Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
George E. Deming Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Director of Delaware International Advisers Ltd.; Vice
President/Senior Portfolio Manager of each fund in the Delaware Investments
family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
James Paul Dokas Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
Managing Director of Vantage Investment Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Michael J. Dugan Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Joel A. Ettinger Vice President/Taxation of Delaware Management Company (a series of Delaware
Management Business Trust);Vice President/Taxation of Delaware Management
Holdings, Inc.; Vice President/Taxation of DMH Corp.; Vice President/Taxation
of Delvoy, Inc.; Vice President/Taxation of Delaware Management Company, Inc.;
Vice President/Taxation of Delaware Management Business Trust; Vice
President/Taxation of Delaware Investment Advisers (a series of Delaware
Management Business Trust);Vice President/Taxation of Delaware Service
Company, Inc.; Vice President/Taxation of Delaware Capital Management, Inc.;
Vice President/Taxation of Retirement Financial Services, Inc.; Vice
President/Taxation of Delaware Distributors, Inc.; Vice President/Taxation of
Delaware Distributors, L.P.; Vice President/Taxation of Founders Holdings,
Inc.; Vice President/Taxation of Founders CBO Corporation; Vice
President/Taxation of Delaware General Management, Inc.; Vice
President/Taxation of each fund in the Delaware Investments family
Vice President/Taxation and Assistant Secretary of Vantage Global Advisors,
Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Joseph Fiorilla Vice President/Senior Business Analyst of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Business
Analyst of Delaware Investment Advisers (a series of Delaware Management
Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Charles E. Fish Vice President/Senior Equity Trader of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Senior Equity Trader of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
James A. Furgele Vice President/Investment Accounting of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Investment Accounting
of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Vice President/Investment Accounting of Delaware Service Company,
Inc.; Vice President/Investment Accounting of each fund in the Delaware
Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Stuart M. George Vice President/Equity Trader of Delaware Management Company (a series of
Delaware Management Business Trust);Vice President/Equity Trader of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
Vice President/Equity Trading of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Andrea Giles Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of Delaware Capital Management, Inc.; Vice
President/Portfolio Manager of each fund in the Delaware Investments family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Barry Gladstein Vice President/Business Manager, Equity of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Business
Manager, Equity of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Business Manager, Equity of
Delaware Capital Management, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of Delaware Capital Management, Inc.; Vice
President/Portfolio Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Brian T. Hannon Vice President/Equity Analyst of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Equity Analyst of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
John A. Heffern Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Stuart N. Hosansky Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Francis J. Houghton, Jr. (9) Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family; Executive Vice President of Delaware General
Management, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Elizabeth H. Howell Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Christian Hyldahl (10) Vice President/Senior Equity Analyst of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Senior Equity Analyst
of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Vice President/Senior Equity Analyst of each fund in the Delaware
Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Jeffrey W. Hynoski Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
John B. Jares (11) Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Audrey E. Kohart Vice President/Assistant Controller, Corporate Accounting of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President/Assistant Controller, Corporate Accounting of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Steven T. Lampe Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of Delaware Capital Management, Inc.; Vice
President/Portfolio Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Philip Y. Lin Vice President, Assistant Secretary and Associate General Counsel of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President, Assistant Secretary and Associate General Counsel of Delaware
Investment Advisers (a series of Delaware Management Business Trust);Vice
President, Assistant Secretary and Associate General Counsel of Delaware
Service Company, Inc.; Vice President, Assistant Secretary and Associate
General Counsel of Delaware Capital Management, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Retirement Financial
Services, Inc.; Vice President, Assistant Secretary and Associate General
Counsel of Delaware Management Trust Company; Vice President, Assistant
Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of each fund in
the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Michael D. Mabry Vice President, Assistant Secretary and Associate General Counsel of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President, Assistant Secretary and Associate General Counsel of Delaware
Management Holdings, Inc.; Vice President, Assistant Secretary and Associate
General Counsel of Delvoy, Inc.; Vice President, Assistant Secretary and
Associate General Counsel of Delaware Investment Advisers (a series of
Delaware Management Business Trust);Vice President, Assistant Secretary and
Associate General Counsel of Delaware Service Company, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital
Management, Inc.; Vice President, Assistant Secretary and Associate General
Counsel of Retirement Financial Services, Inc.; Vice President, Assistant
Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of DMH Corp.;
Vice President, Assistant Secretary and Associate General Counsel of Delaware
Management Company, Inc.; Vice President, Assistant Secretary and Associate
General Counsel of Delaware Management Business Trust; Vice President,
Assistant Secretary and Associate General Counsel of each fund in the Delaware
Investments family
------------------------------------------------- --------------------------------------------------------------------------------
John P. McCarthy Vice President/Senior High-Yield Analyst of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior
High-Yield Analyst of Delaware Investment Advisers (a series of Delaware
Management Business Trust); Vice President/Senior High-Yield Analyst of each
fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Andrew M. McCullagh, Jr. Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Francis X. Morris Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of each fund in the
Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Portfolio
Manager of Delaware Investment Advisers (a series of Delaware Management
Business Trust); Vice President/Senior Portfolio Manager of Founders Holdings,
Inc., Treasurer, Assistant Secretary and Director of Founders CBO
Corporation; Director of HYPPCO Finance Company Ltd.; Vice President/Senior
Portfolio Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Robert A. Norton, Jr. Vice President/Equity Analyst of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Equity Analyst of Delaware
Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
David P. O'Connor Vice President, Assistant Secretary and Associate General Counsel of Delaware
Management Company (a series of Delaware Management Business Trust); Vice
President, Assistant Secretary and Associate General Counsel of Delaware
Management Holdings, Inc.; Vice President, Assistant Secretary and Associate
General Counsel of Delvoy, Inc.; Vice President, Assistant Secretary and
Associate General Counsel of Delaware Investment Advisers (a series of
Delaware Management Business Trust);Vice President, Assistant Secretary and
Associate General Counsel of Delaware Service Company, Inc.; Vice President,
Assistant Secretary and Associate General Counsel of Delaware Capital
Management, Inc.; Vice President, Assistant Secretary and Associate General
Counsel of Retirement Financial Services, Inc.; Vice President, Assistant
Secretary and Associate General Counsel of Delaware Distributors, L.P.; Vice
President, Assistant Secretary and Associate General Counsel of DMH Corp.;
Vice President, Assistant Secretary and Associate General Counsel of Delaware
Management Company, Inc.; Vice President, Assistant Secretary and Associate
General Counsel of Delaware Management Business Trust; Vice President,
Assistant Secretary and Associate General Counsel of each fund in the Delaware
Investments family
Vice President, Assistant Secretary and Associate General Counsel of Vantage
Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
John J. O'Connor Vice President/Investment Accounting of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Investment
Accounting/Assistant Treasurer of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Investment Accounting of
Delaware Service Company, Inc.; Vice President/Assistant Treasurer of each
fund in the Delaware Investments family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Donald G. Padilla Vice President/Assistant Controller/Assistant Treasurer of Delaware Management
Company (a series of Delaware Management Business Trust); Vice
President/Assistant Controller/Assistant Treasurer of DMH Corp.; Vice
President/Assistant Controller/Assistant Treasurer of Delvoy, Inc.; Vice
President/Assistant Controller/Assistant Treasurer of Delaware Management
Company, Inc.; Vice President/Assistant Controller/Assistant Treasurer of
Delaware Management Business Trust; Vice President/Assistant
Controller/Assistant Treasurer of Delaware Investment Advisers (a series of
Delaware Management Business Trust); Vice President/Assistant
Controller/Assistant Treasurer of Delaware Service Company, Inc.; Vice
President/Assistant Controller/Assistant Treasurer of Delaware Capital
Management, Inc.; Vice President/Assistant Controller/Assistant Treasurer of
Retirement Financial Services, Inc.; Vice President/Assistant
Controller/Assistant Treasurer of Delaware Management Trust Company; Vice
President/Assistant Controller/Assistant Treasurer of Delaware Distributors,
L.P.; Assistant Vice President/Assistant Controller of Founders Holdings,
Inc.; Vice President/Assistant Controller/Assistant Treasurer of Delaware
General Management, Inc.; Vice President/Assistant Controller/Assistant
Treasurer of Delaware Management Holdings, Inc.; Vice President/Assistant
Controller/Assistant Treasurer of Delaware Distributors, Inc.
Vice President/Assistant Controller/Assistant Treasurer of Vantage Global
Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Tim Rabe (12) Vice President/High-Yield Trader of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/High-Yield Trader of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Richard Salus Vice President/Assistant Controller of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Assistant Controller of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Assistant Controller of Delaware Management Trust Company; Vice
President/Assistant Controller of Delaware Management Business Trust; Vice
President/Assistant Controller of Delaware Service Company, Inc.; Vice
President/Assistant Controller of Delaware Capital Management, Inc.; Vice
President/Assistant Controller of Retirement Financial Services, Inc.; Vice
President/Assistant Controller of Delaware Distributors, L.P.; Vice
President/Assistant Controller of Delaware Distributors, Inc.; Vice
President/Assistant Controller of Delaware International Holdings Ltd.; Vice
President/Assistant Controller of Delaware General Management, Inc.; Vice
President/Assistant Controller of Delaware Management Holdings, Inc.; Vice
President/Assistant Controller of DMH Corp.
Vice President/Assistant Controller of Vantage Global Advisors, Inc.
------------------------------------------------- --------------------------------------------------------------------------------
Robert D. Schwartz (13) Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Assistant Secretary of Delaware General Management, Inc.; Vice
President/Portfolio Manager of each fund in the Delaware Investments family
------------------------------------------------- --------------------------------------------------------------------------------
Richard D. Seidel Vice President/Assistant Controller/Manager, Payroll of Delaware Management
Company (a series of Delaware Management Business Trust); Vice
President/Assistant Controller/Manager, Payroll of Delaware Investment
Advisers (a series of Delaware Management Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Frank M. Staves Vice President/Client Services of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Client Services of
Delaware Investment Advisers (a series of Delaware Management Business Trust)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Delaware Management Company and its affiliates and
other Positions and Offices Held
------------------------------------------------- --------------------------------------------------------------------------------
<S> <C>
Michael T. Taggart Vice President/Facilities and Administrative Services of Delaware Management
Company (a series of Delaware Management Business Trust);Vice
President/Facilities and Administrative Services of Delaware Investment
Advisers (a series of Delaware Management Business Trust); Vice
President/Facilities and Administrative Services of Delaware Service Company,
Inc.; Vice President/Facilities and Administrative Services of Delaware
Distributors, L.P.
------------------------------------------------- --------------------------------------------------------------------------------
Ward W. Tatge (14) Vice President/Senior Research Analyst of Delaware Management Company (a
series of Delaware Management Business Trust); Vice President/Senior Research
Analyst of Delaware Investment Advisers (a series of Delaware Management
Business Trust)
------------------------------------------------- --------------------------------------------------------------------------------
Thomas J. Trotman Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
Lori P. Wachs Vice President/Portfolio Manager of Delaware Management Company (a series of
Delaware Management Business Trust); Vice President/Portfolio Manager of
Delaware Investment Advisers (a series of Delaware Management Business Trust);
Vice President/Portfolio Manager of each fund in the Delaware Investments
family
------------------------------------------------- --------------------------------------------------------------------------------
James J. Wright (15) Vice President/Senior Equity Analyst of Delaware Management Company (a series
of Delaware Management Business Trust); Vice President/Senior Equity Analyst
of Delaware Investment Advisers (a series of Delaware Management Business
Trust); Vice President/Senior Equity Analyst of each fund in the Delaware
Investments family
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Business Address is 1818 Market Street, Philadelphia, PA 19103.
--------------------------------------------------------------------------------
(1) PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR, United Asset Management,
Boston, MA, March 1998-January 2000.
(2) PRESIDENT, DIRECTOR OF MARKETING AND SENIOR PORTFOLIO MANAGER, Marvin &
Palmer Associates, Wilmington, DE, 1996-1998.
(3) SENIOR VICE PRESIDENT AND DIRECTOR, Conseco Capital Management,
Indianapolis, IN, June 1998 to August 2000.
(4) VICE PRESIDENT/PORTFOLIO MANAGER, First Union National Bank, Philadelphia,
PA, May 1982 to August 1999.
(5) SENIOR INVESTMENT ANALYST, Metlife, Convent Station, NJ, July 1993 to
September 1998.
(6) SENIOR TRADER/CORPORATE SPECIALIST, Conseco Capital Management,
Indianapolis, IN, August 1995 to August 2000.
(7) ASSISTANT VICE PRESIDENT/SENIOR SECURITIES ANALYST, Conseco Capital
Management, Indianapolis, IN, 1997 to August 2000.
(8) ASSISTANT GENERAL COUNSEL, Prudential Investments, Newark, NJ, March 1998
to July 2000.
(9) PRESIDENT AND PORTFOLIO MANAGER, Lynch and Mayer, Inc., New York, NY,
January 1990-February 2000.
(10) REGIONAL CONSULTANT/SUMMER INTERN, Merrill Lynch, Los Angeles, CA and New
York, NY, 1994 to 1997. STUDENT 1997-1999.
(11) VICE PRESIDENT AND PORTFOLIO MANAGER, Berger Funds, LLC, Denver, CO,
1997-February 2000.
(12) PORTFOLIO MANAGER, Conseco Capital Management, Indianapolis, IN, June 1996
to July 2000.
(13) VICE PRESIDENT, Lynch and Mayer, Inc., New York, NY, February 1993 to
February 2000.
(14) HIGH-YIELD ANALYST, Credit Suisse First Boston, New York, NY, 1997 to 1998.
HIGH-YIELD ANALYST, Conseco Capital Management, Indianapolis, IN 1999 to
2000.
(15) MANAGING DIRECTOR-RESEARCH, Schuylkill Capital Management, Philadelphia,
PA, 1997 to May 2000.
--------------------------------------------------------------------------------
<PAGE>
Item 27. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter for
all the mutual funds in the Delaware Investments family.
(b) Information with respect to each officer or partner of principal
underwriter:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Underwriter Positions and Offices with Registrant
------------------------------------------ -------------------------------------------- --------------------------------------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
------------------------------------------ -------------------------------------------- --------------------------------------------
Delaware Investment Advisers Limited Partner None
------------------------------------------ -------------------------------------------- --------------------------------------------
Delaware Capital Management, Inc. Limited Partner None
------------------------------------------ -------------------------------------------- --------------------------------------------
Mary R. Barneby Vice Chairman None
------------------------------------------ -------------------------------------------- --------------------------------------------
Westley V. Thompson Vice Chairman None
------------------------------------------ -------------------------------------------- --------------------------------------------
Bruce D. Barton President/Chief Executive Office None
------------------------------------------ -------------------------------------------- --------------------------------------------
David K. Downes Executive Vice President/Chief Operating President/Chief Executive Officer/Chief
Officer/Chief Financial Officer Financial Officer
------------------------------------------ -------------------------------------------- --------------------------------------------
Richard J. Flannery Executive Vice President/General Counsel Executive Vice President/General Counsel
------------------------------------------ -------------------------------------------- --------------------------------------------
Diane M. Anderson Senior Vice President/Retirement Operations None
------------------------------------------ -------------------------------------------- --------------------------------------------
Michael P. Bishof Senior Vice President/Investment Accounting Senior Vice President/Treasurer
------------------------------------------ -------------------------------------------- --------------------------------------------
Lisa O. Brinkley Senior Vice President/Compliance Director Senior Vice President/Compliance Director
------------------------------------------ -------------------------------------------- --------------------------------------------
Larry Carr Senior Vice President/Variable Annuity None
Sales Director
------------------------------------------ -------------------------------------------- --------------------------------------------
Terrence P. Cunningham Senior Vice President/National Sales None
Director, Financial Institutions
------------------------------------------ -------------------------------------------- --------------------------------------------
Darryl S. Grayson Senior Vice President/Director, Internal None
Sales
------------------------------------------ -------------------------------------------- --------------------------------------------
Joseph H. Hastings Senior Vice President/Treasurer/ Corporate Senior Vice President/Corporate Controller
Controller
------------------------------------------ -------------------------------------------- --------------------------------------------
Joanne O. Hutcheson Senior Vice President/Human Resources Senior Vice President/Human Resources
------------------------------------------ -------------------------------------------- --------------------------------------------
Karina J. Istvan Senior Vice President/Retail Product None
Management
------------------------------------------ -------------------------------------------- --------------------------------------------
Mark R. Kiniry Senior Vice President/Western Sales None
Manager/Wirehouse Regional
------------------------------------------ -------------------------------------------- --------------------------------------------
Stephen W. Long Senior Vice President/National Sales None
Director, Wirehouse/Wrap Channel
------------------------------------------ -------------------------------------------- --------------------------------------------
Richelle S. Maestro Senior Vice President/Deputy General Senior Vice President/Deputy General
Counsel/Secretary Counsel/Assistant Secretary
------------------------------------------ -------------------------------------------- --------------------------------------------
Mac McAuliffe Senior Vice President/Sales Manager None
Director
------------------------------------------ -------------------------------------------- --------------------------------------------
Doff Meyer Senior Vice President/Retail Investor None
Management
------------------------------------------ -------------------------------------------- --------------------------------------------
J. Chris Meyer Senior Vice President/Director, Product None
Management
------------------------------------------ -------------------------------------------- --------------------------------------------
Henry W. Orvin Senior Vice President/Sales Manager None
Director
------------------------------------------ -------------------------------------------- --------------------------------------------
Christopher H. Price Senior Vice President/Insurance Products None
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Underwriter Positions and Offices with Registrant
------------------------------------------ -------------------------------------------- --------------------------------------------
<S> <C> <C>
Philip G. Rickards Senior Vice President/Regional Consultant None
Director
------------------------------------------ -------------------------------------------- --------------------------------------------
James L. Shields Senior Vice President/Chief Information None
Officer
------------------------------------------ -------------------------------------------- --------------------------------------------
Steven Sorenson Senior Vice President/Director of None
Independent Planner & Insurance and
Registered Investment Adviser Channels
------------------------------------------ -------------------------------------------- --------------------------------------------
Richard P. Allen Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Patrick A. Bearss Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Larry Bridwell Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
William S. Carroll Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Patrick A. Connelly Vice President/Registered Investment None
Adviser Sales
------------------------------------------ -------------------------------------------- --------------------------------------------
Thomas J. Durkin Vice President/Intermediary Sales-Midwest None
Region
------------------------------------------ -------------------------------------------- --------------------------------------------
Donald A. Edmunds Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Joel A. Ettinger Vice President/Taxation Vice President/Taxation
------------------------------------------ -------------------------------------------- --------------------------------------------
Edward A. Foley Vice President/Marketing Communications None
------------------------------------------ -------------------------------------------- --------------------------------------------
Susan T. Friestedt Vice President/Retirement Services None
------------------------------------------ -------------------------------------------- --------------------------------------------
John L. Greico Vice President/Senior Key Account Manager None
------------------------------------------ -------------------------------------------- --------------------------------------------
Rhonda J. Guido Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Ronald A. Haimowitz Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Edward J. Hecker Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
John R. Herron Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Steven N. Horton Vice President/ Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Dinah J. Huntoon Vice President/Product Manager, Equities None
------------------------------------------ -------------------------------------------- --------------------------------------------
Thomas Intoccia Vice President/Independent Planner & None
Insurance Key Accounts
------------------------------------------ -------------------------------------------- --------------------------------------------
Christopher L. Johnston Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Michael J. Jordan Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Carolyn Kelly Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Richard M. Koerner Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Ellen M. Krott Vice President/Marketing None
------------------------------------------ -------------------------------------------- --------------------------------------------
John LeBoeuf Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
SooHee Lee Vice President/Fixed Income & None
International Product Manager
------------------------------------------ -------------------------------------------- --------------------------------------------
Philip Y. Lin Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ -------------------------------------------- --------------------------------------------
John R. Logan Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Michael D. Mabry Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ -------------------------------------------- --------------------------------------------
Theodore T. Malone Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Raymond G. McCarthy Vice President/National Accounts, None
Independent Planner & Insurance Channels
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Business Address* Positions and Offices with Underwriter Positions and Offices with Registrant
------------------------------------------ -------------------------------------------- --------------------------------------------
<S> <C> <C>
Joanne C. McCranie Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Scott L. Metzger Vice President/Business Development None
------------------------------------------ -------------------------------------------- --------------------------------------------
Jamie L. Meyer Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Christopher W. Moore Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Andrew F. Morris Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Scott E. Naughton Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Nancy Nawn Vice President/Senior Wrap Product Manager None
------------------------------------------ -------------------------------------------- --------------------------------------------
Julie A. Nye Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Daniel J. O'Brien Vice President/Insurance Products None
------------------------------------------ -------------------------------------------- --------------------------------------------
David P. O'Connor Vice President/Associate General Vice President/Associate General
Counsel/Assistant Secretary Counsel/Assistant Secretary
------------------------------------------ -------------------------------------------- --------------------------------------------
Joseph T. Owczarek Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Donald G. Padilla Vice President/Assistant None
Controller/Assistant Treasurer
------------------------------------------ -------------------------------------------- --------------------------------------------
Otis S. Page Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Scott P. Passias Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Mary Ellen Pernice-Fadden Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Laura E. Roman Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Robert A. Rosso Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Richard Salus Vice President/Assistant Controller None
------------------------------------------ -------------------------------------------- --------------------------------------------
Linda D. Shulz Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Gordon E. Searles Vice President/Client Services None
------------------------------------------ -------------------------------------------- --------------------------------------------
Catherine A. Seklecki Vice President/Retirement Sales None
------------------------------------------ -------------------------------------------- --------------------------------------------
John C. Shalloe Vice President/Wrap Fee Senior Regional None
Consultant
------------------------------------------ -------------------------------------------- --------------------------------------------
Darren Smith Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Kimberly M. Spangler Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Michael T. Taggart Vice President/Facilities & Administrative None
Services
------------------------------------------ -------------------------------------------- --------------------------------------------
Bryon Townsend Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Julia R. Vander Els Vice President/Retirement Plan None
Communications
------------------------------------------ -------------------------------------------- --------------------------------------------
Jeffrey Vankuelen Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Andrew J. Whitaker Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Scott Whitehouse Vice President/Senior Regional Consultant None
------------------------------------------ -------------------------------------------- --------------------------------------------
Wesley Williams Vice President/Senior Regional Consultant None
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Inapplicable.
<PAGE>
Item 28. 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 29. Management Services. None.
Item 30. Undertakings. Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all 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, Commonwealth of Pennsylvania on this
21st day of September, 2000.
DELAWARE GROUP GOVERNMENT FUND
By /s/ David K. Downes
-----------------------------
David K. Downes
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
------------------------ ----------------------------------------- ---------------------
<S> <C> <C>
/s/David K. Downes President/Chief Executive Officer/ September 21, 2000
------------------------ Chief Financial Officer (Principal
David K. Downes Executive Officer/Principal Accounting
Officer) and Trustee
/s/Wayne A. Stork Trustee September 21, 2000
------------------------
Wayne A. Stork
/s/Walter P. Babich Trustee September 21, 2000
------------------------
Walter P. Babich
/s/John H. Durham Trustee September 21, 2000
------------------------
John H. Durham
/s/ Anthony D. Knerr Trustee September 21, 2000
------------------------
Anthony D. Knerr
/s/ Ann R. Leven Trustee September 21, 2000
------------------------
Ann R. Leven
/s/Thomas F. Madison Trustee September 21, 2000
------------------------
Thomas F. Madison
/s/Charles E. Peck Trustee September 21, 2000
------------------------
Charles E. Peck
/s/Janet L. Yeomans Trustee September 21, 2000
------------------------
Janet L. Yeomans
*By: /s/David K. Downes
------------------------
David K. Downes
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
EX-99.E Form of Dealer's Agreement
Ex-99.G3 Letter to The Chase Manhattan Bank to add Delaware American
Government Bond Fund to Schedule A of the Global Custody
Agreement.
EX-99.J Consent and Report of Auditors
