<PAGE>
DELAWARE(SM)
INVESTMENTS
- ------------
Delaware American Government Bond Fund
Current Income
(Current Income Illustration)
2000 SEMI-ANNUAL REPORT
<PAGE>
A Tradition of Sound Investing since 1929
- -----------------------------------------
TABLE OF CONTENTS
- -----------------
Letter to Shareholders 1
Portfolio
Management Review 3
Performance Summary 5
Financial Statements
Statement
of Net Assets 6
Statement of Assets
and Liabilities 8
Statement of Operations 8
Statements of Changes
in Net Assets 9
Financial Highlights 10
Notes to Financial
Statements 12
A Commitment To Our Investors
Experienced
o Our seasoned investment professionals average more than 15 years' experience.
o For over 70 years, we have managed money in a variety of investment styles
that have weathered a full range of economic and market environments. We
opened our first mutual fund in 1938.
Disciplined
o We follow strict investment policies and clear buy/sell guidelines.
o We strive to balance risk and reward in order to provide relatively
conservative investment alternatives within any given asset class.
Consistent
o We believe consistent processes are the best way to seek consistent investment
performance.
o Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage approximately
$47 billion in assets as of December 31, 1999.
Comprehensive
o We offer over 70 mutual funds in these asset classes.
o Large-cap equity o High-yield bonds
o Mid-cap equity o Investment grade bonds
o Small-cap equity o Municipal bonds (24 single-state funds)
o International equity o International fixed-income
o Balanced
o Our funds are available through financial advisers who can offer you
individualized attention and valuable investment advice.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
(C)Delaware Distributors, L.P.
<PAGE>
Dear Shareholder
February 18, 2000
Recap of Events - Economic activity in the United States continues to move along
ahead of expectations. An improving global economic outlook reduced demand for
U.S. government debt over the last six months, pushing U.S. bond prices lower
and yields significantly higher. Long-term U.S. Treasury yields increased from
6.12% on July 31, 1999 to 6.65% on January 31, 2000 (Source: Bloomberg). This
presented a significant challenge to many investors seeking to strike a balance
between income and capital appreciation.
Strong economic activity and a booming stock market heightened inflationary
concerns during the last six months. The Federal Reserve responded by following
up their interest rate increase on June 30, with additional increases on August
24, November 16, 1999 and February 2, 2000. As of this writing, the Federal
funds target rate on overnight loans between banks stands at 5.75%, its highest
level in more than four years. The Federal Reserve's actions have been directed
at slowing the economy and pre-empting inflation before it takes root. As of
January 31, 2000, the economy had completed a record 107th month of expansion
(Source: Bloomberg).
"YOUR FUND FARED BETTER
THAN ITS PEER GROUP,
THE LIPPER GENERAL
U.S. GOVERNMENT FUNDS
AVERAGE, IN THIS DIFFICULT
ENVIRONMENT FOR FIXED
INCOME INVESTORS."
<TABLE>
<CAPTION>
Average Total Returns
For Periods Ended 1/31/00 Six Months Lifetime*
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Delaware American Government Bond Fund
Class A +0.14% +6.63%
- ---------------------------------------------------------------------------------------------
Lehman Brothers Government Bond Index -0.35% +10.39%
Lipper General U.S. Government Funds Average -2.97% (187 Funds) +6.86% (20 Funds)
U.S. Consumer Price Index +1.30% +3.13%
- ---------------------------------------------------------------------------------------------
</TABLE>
All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of distributions. Performance information for
all other Fund classes can be found on page 5. The Lipper General U.S.
Government Fund Average represents the average returns of all active U.S.
government funds with similar investment objectives tracked by Lipper
Analytical. Source: Lipper Analytical Services, Inc. The Lehman Brothers
Government Bond Index is an index of U.S. government bonds. The U.S. Consumer
Price Index is calculated by the U.S. government and represents the change in
the price of goods and services for all urban consumers. You cannot invest
directly in an index. Past performance does not guarantee future results.
*8/16/85 (commencement of operations)
1
<PAGE>
Delaware American Government Bond Fund provided a total return of +0.14% (Class
A shares at net asset value with distributions reinvested) for the six months
ended January 31, 2000. Although this return was just slightly positive, your
Fund fared better than its peer group, the Lipper General U.S. Government Funds
Average, in this difficult environment for fixed-income investors. As of January
31, 2000, your Fund's 30-day current yield measured by the Securities and
Exchange Commission's (SEC) guidelines was 5.57% (for Class A shares).
Market Outlook - Though bonds may remain in the shadow of stocks as long as
economic growth continues in 2000, we still believe they have a role in
well-balanced portfolios. We believe that for investors who seek both current
income and preservation of principal, Delaware American Government Bond Fund
offers an attractive balance between the two.
On the pages that follow, Paul Grillo Jr., your Fund's portfolio manager,
explains Delaware American Government Bond Fund's positioning during the
six-month period ended January 31, 2000 and provides an outlook for the second
half of the Fund's fiscal 2000. We'd like to thank Delaware American Government
Bond Fund's shareholders for their continued confidence and commitment to
Delaware Investments.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
- --------------------------------- -------------------------------------
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Delaware Investments
Family of Funds Family of Funds
(Current Income Illustration)
2
<PAGE>
Portfolio Management Review
- ---------------------------
Paul Grillo, Jr.
Senior Portfolio Manager
February 18, 2000
The Fund's Results
As it has traditionally done in the past, a booming U.S. stock market spelled
difficult times for fixed-income investors over the last six months. Delaware
American Government Bond Fund delivered a +0.14% return for the six-month period
ended January 31, 2000 (Class A shares with distributions reinvested and without
the effect of sales charge). Although this return was below your Fund's lifetime
average of 6.63% (Class A shares with distributions reinvested and without the
effect of sales charge), it did outpace the return of its peers, represented by
the Lipper General U.S. Government Funds Average.
Portfolio Highlights
In order to maximize your Fund's income stream in a low interest rate
environment, we invested 45.1% of your Fund's total assets in mortgage-backed
securities: 32.1% in traditional mortgage-backed securities and 13.0% in
collateralized mortgage obligations (CMOs). These securities delivered
comparable or better income than Treasury securities over the last six months.
We increased your Fund's allocation to U.S. Treasuries from 28.9% as of July 31,
1999 to 34.1% as of January 31, 2000. Over the last six months, the U.S.
government was faced with its first budget surplus in several decades. Now, we
believe fixed-income investors are beginning to prepare for a Federal debt
buyback program. In anticipation of a stronger demand for longer term U.S.
Treasury securities, we have built a position in this area of the bond market.
In managing your Fund, our goal is to provide a degree of stability for the
share price without giving up income potential. For that reason, we carefully
monitor the potential effects that changes in interest rates could have on both
income and share price. Duration is a measure of a bond's sensitivity to
interest rates and indicates the approximate percentage of change in a bond or
bond fund's price given a 1% change in interest rates. We consider a duration of
5.0 years to be the neutral point for the Delaware American Government Bond Fund
and that is where we would tend to keep duration when we anticipate neither a
significant rise nor a significant decline in interest rates.
Asset Mix
As of January 31, 2000
Corporate Bonds 11.2%
Asset-Backed Securities 6.5%
U.S. Government Agency Obligations 1.6%
Cash and Other 1.5%
Mortgage-Backed Securities 32.1%
U.S. Treasury Obligations 34.1%
Collateralized Mortgage Obligations 13.0%
Portfolio Characteristics
As of January 31, 2000
- --------------------------------------------------
Average Effective Duration 5.2 years
- --------------------------------------------------
Average Quality AAA
- --------------------------------------------------
Current 30 Day SEC Yield* 5.57%
* For Class A shares measured according to Securities and Exchange Commission
guidelines. Current 30-day SEC yield as of 1/31/00 for both Class B and Class
C shares was 5.14%. The Institutional Class yield was 6.15%.
3
<PAGE>
As of January 31, 2000, your Fund's duration stood at 5.2 years. This
positioning, slightly longer than our mid-point, reflects our conservative
outlook. In the future, we believe the bond market may have to absorb strong
reports on the U.S. economy and with the stock market still going strong as of
this writing, we think interest rates may rise further in the near future.
Your Fund invests primarily in securities issued or guaranteed by the U.S.
government, its agencies, instrumentalities or government-sponsored enterprises.
However, the Fund is also allowed to invest a percentage of its assets in
non-government securities, such as high-quality corporate bonds and asset-backed
securities, among others.
Over the last six months, our most significant holdings in non-government
securities were high-quality corporate bonds, which represented 11.2% of total
Fund assets. Given the trend in U.S. interest rates, we may decrease our
allocation to corporate bonds in the next six months as higher rates mean
companies will likely face an increase in borrowing costs.
Outlook
For the U.S., strong forward momentum is likely to result in solid growth again
this year. We don't foresee any stampede into fixed income securities as long as
the stock market continues to perform. We plan to continue to focus on
mortgage-backed securities, including collateralized mortgage obligations. We
will apply quantitative analysis to help us identify mortgage-backed securities
that:
o Offer high income potential
o Are less likely to be prepaid
o Are not well-followed by other investment professionals.
We think bonds with this combination of characteristics will be effective
investments for the portfolio, offering both income and relative safety.
For Delaware American Government Bond Fund, we are cautiously optimistic that
the coming year will provide a favorable environment. We intend to keep a
watchful eye on changes in consumer and producer prices to gauge their potential
effects on markets, monetary policy and your Fund's performance for the second
half of fiscal 2000.
"We intend to keep a
watchful eye on
changes in consumer
and producer prices to
gauge their potential
effects on markets,
monetary policy
and your Fund's
performance..."
(current income art work)
4
<PAGE>
Delaware American Government Bond Fund
Fund Basics
Fund Objective
Seeks to provide high current
income consistent with safety of
principal.
Assets Under Management
$151.5 million
Number of Holdings
67
Fund Start Date
August 16, 1985
Your Fund Manager
Paul Grillo, Jr. joined Delaware
Investments in 1993, after serving
as a mortgage strategist and
trader at Dreyfus Corporation. He
holds a bachelor's degree from
North Carolina State University
and an M.B.A. from Pace
University. Mr. Grillo is also a
CFA Charterholder.
NASDAQ Symbols
Class A DEGGX
Class B DEGBX
Class C DUGCX
Fund Performance
<TABLE>
<CAPTION>
Average Annual Returns
Through January 31, 2000 Lifetime 10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (Est. 8/16/85)
Excluding Sales Charge +6.63% +6.07% +5.52% -3.19%
Including Sales Charge +6.27% +5.55% +4.50% -7.81%
- ------------------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +4.01% +4.78% -3.87%
Including Sales Charge +3.89% +4.47% -7.50%
- ------------------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +3.35% -3.87%
Including Sales Charge +3.35% -4.77%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Returns and share values will fluctuate so that shares when
redeemed may be worth more or less than the original cost. Class B and C results
excluding sales charges assume that either the investment was not redeemed or
contingent sales charges did not apply. Past performance is not a guarantee of
future results.
Class A shares have a 4.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
Institutional Class shares are available without sales or asset-based
distribution charges only to certain eligible institutional accounts. The
average annual total returns for the lifetime, one-year and five-year periods
ended 1/31/00 for Delaware American Government Bond Fund's Institutional Class
were +6.87%, -2.90% and +5.83%. The Institutional Class (Est. 6/1/92) is
available without a sales charge only to certain eligible institutional
accounts. NASDAQ Symbol Institutional Class: DUGIX
5
<PAGE>
Statement of Net Assets
DELAWARE AMERICAN GOVERNMENT BOND FUND*
- ---------------------------------------
Principal Market
January 31, 2000 (Unaudited) Amount Value
- --------------------------------------------------------------------------------
Agency Mortgage-Backed Securities - 15.27%
Federal Home Loan Mortgage Association
Project Loan 8.75% 10/1/27 ................. $ 684,654 $ 684,997
Federal Home Loan Mortgage Corporation
7.00% 1/1/29 ............................... 1,610,893 1,534,879
8.00% 4/1/29 to 8/1/29 ..................... 1,671,884 1,670,839
9.00% 12/1/05 .............................. 778,094 802,166
10.00% 1/1/19 .............................. 249,539 263,420
10.25% 4/1/08 .............................. 21,870 23,701
11.50% 5/1/00 to 3/1/16 .................... 1,043,211 1,173,589
Federal Home Loan Mortgage
Corporation-Gold 12.00% 12/1/10 ............ 41,207 46,873
Federal National Mortgage Association
7.00% 7/1/28 to 4/1/29 ..................... 14,177,105 13,511,620
7.50% 3/1/28 to 2/15/30 .................... 1,434,292 1,399,661
8.00% 2/15/30 .............................. 1,030,000 1,027,425
10.00% 7/1/20 to 5/1/22 .................... 855,960 910,489
10.75% 9/1/11 .............................. 54,896 60,197
11.25% 1/1/01 .............................. 20,746 22,108
-----------
Total Agency Mortgage-Backed
Securities (cost $24,271,103) .............. 23,131,964
===========
Asset-Backed Securities - 6.45%
ADVANTA Home Equity Loan Trust 1992-4
A1 7.20% 11/25/08 .......................... 831,306 828,396
Chase Credit Card Master Trust 1997-4A
5.941% 8/15/05 ............................. 250,000 250,200
Cook County, Illinois, Chicago Heights
School District, Taxable-Series B
13.15% 12/1/05 ............................. 1,055,000 1,322,358
First USA Credit Card Master Trust
1997-5 A 5.921% 4/17/07 .................... 1,000,000 999,600
Honda Auto Lease Trust Series
1999-A A4 6.45% 9/16/02 .................... 1,500,000 1,483,500
MBNA Master Credit Card Trust
1996-K A 5.911% 3/15/06 .................... 2,000,000 2,000,000
MBNA Master Credit Card Trust
1999-L A 6.031% 3/16/09 .................... 965,000 969,343
Sears Credit Account Master Trust
1999-3 6.45% 11/17/09 ...................... 2,000,000 1,917,188
-----------
Total Asset-Backed Securities
(cost $9,903,652) .......................... 9,770,585
===========
Collateralized Mortgage Obligations - 12.98%
Collateralized Mortgage Securities
Corporation F-1 11.45% 11/1/15 ............. 137,661 139,735
Federal Home Loan Mortgage Corporation
Series 26-F 9.50% 2/15/20 .................. 413,464 441,043
Series 2113 QD 6.00% 2/15/23 ............... 10,000,000 9,446,116
Federal National Mortgage Association
Series 35-2 12.00% 7/25/18 ................. 969,267 1,097,245
Series 88-15A 9.00% 6/25/18 ................ 16,840 17,403
Series C-2 12.00% 5/1/09 ................... 1,499,664 1,643,708
<PAGE>
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations (continued)
Series D-2 11.00% 4/1/09 ................... $ 1,270,201 $ 1,362,595
Series F-2 11.50% 5/25/09 .................. 606,409 657,765
Series H-2 11.50% 5/1/09 ................... 1,172,752 1,272,012
Series J-1 7.00% 11/1/10 ................... 55,537 54,077
Series 1998-W3 6.50% 7/25/28 ............... 1,000,000 962,660
Investor GNMA Mortgage-Backed Securities
Trust Series 84-F5 10.875% 10/25/13 ........ 979,719 1,056,432
Travellers Mortgage Securities 1-Z2
12.00% 3/1/14 .............................. 1,425,829 1,514,957
-----------
Total Collateralized Mortgage Obligations
(cost $20,438,219) ......................... 19,665,748
===========
Corporate Bonds - 11.17%
Commercial Credit 10.00% 5/15/09 .............. 1,500,000 1,696,754
Fidelity Investments 7.57% 6/15/29 ............ 2,000,000 1,924,755
General Electric Capital 8.85% 3/1/07 ......... 5,950,000 6,421,538
NationsBank 10.20% 7/15/15 .................... 4,000,000 4,832,674
RBSG Capital 10.125% 3/1/04 ................... 1,908,000 2,055,386
-----------
Total Corporate Bonds
(cost $17,904,204 ) ........................ 16,931,107
===========
Government National Mortgage Association
Obligations - 16.79%
GNMA
6.50% 12/15/23 ............................. 410,099 383,058
8.00% 10/15/29 to 11/15/29 ................. 14,675,954 14,648,439
9.50% 9/15/17 to 3/15/23 ................... 1,237,048 1,316,735
10.00% 9/15/18 ............................. 376,383 414,374
11.00% 12/15/09 to 3/15/10 ................. 1,189,254 1,338,842
11.50% 7/15/15 ............................. 68,065 76,615
12.00% 12/15/12 to 1/15/13 ................. 2,388,602 2,732,635
12.25% 3/15/14 ............................. 67,397 77,106
12.50% 6/15/10 ............................. 433,066 500,054
GNMA GPM
11.50% 3/15/13 ............................. 169,566 191,080
11.75% 8/15/13 ............................. 414,502 469,294
GNMA II
9.00% 10/20/01 to 2/20/03 .................. 388,999 405,524
10.00% 11/20/15 to 6/20/21 ................. 939,698 1,028,362
10.50% 3/20/16 to 7/20/21 .................. 399,786 441,763
11.00% 5/20/15 to 7/20/19 .................. 146,611 163,650
11.50% 10/20/14 to 10/20/15 ................ 127,709 143,590
12.00% 3/20/14 to 5/20/15 .................. 122,202 139,714
12.50% 10/20/13 to 7/20/15 ................. 642,940 741,604
GNMA II GPM
10.25% 3/20/18 ............................. 28,555 30,822
10.75% 1/20/16 ............................. 166,952 181,247
12.00% 11/20/13 ............................ 13,991 15,962
-----------
Total Government National Mortgage
Association Obligations
(cost $25,518,173) ......................... 25,440,470
-----------
*Formerly known as the Government Income Series
6
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware American Government Bond Fund Amount Value
- ---------------------------------------------------------------------
U.S. Government Agency Obligations - 1.61%
FNMA 6.50% 8/15/04 ........................ $ 2,500,000 $ 2,434,088
-----------
Total U.S. Government Agency Obligations
(cost $2,506,050 ) ..................... 2,434,088
-----------
U.S. Treasury Obligations - 34.05%
U.S. Treasury Bond
8.75% 5/15/17 .......................... 9,105,000 10,955,343
8.875% 2/15/19 ......................... 700,000 860,662
9.25% 2/15/16 .......................... 510,000 633,150
**10.375% 11/15/12 ....................... 20,445,000 24,706,562
10.75% 8/15/05 ......................... 12,230,000 14,446,443
-----------
Total U.S. Treasury Obligations
(cost $54,458,676) ..................... 51,602,160
-----------
Repurchase Agreements - 0.55%
With Chase Manhattan 5.68% 2/1/00 (dated
1/31/00, collateralized by $94,000 U.S.
Treasury Notes 5.25% due 5/31/01, market
value $93,435 and $186,000 U.S. Treasury
Notes 8.00% due 5/15/01, market value
$192,386)............................... 279,000 279,000
With J.P. Morgan Securities 5.68% 2/01/00
(dated 1/31/00, collateralized by
$196,000 U.S. Treasury Notes 5.50% due
3/31/03, market value $193,091 and
$87,000 U.S. Treasury Notes 5.75% due
4/30/03, market value $86,500) ......... 274,000 274,000
With PaineWebber 5.68% 2/01/00 (dated
1/31/00, collateralized by $69,000
U.S.Treasury Notes 4.25% due 11/15/03,
market value $64,041 and $58,000 U.S.
Treasury Notes 6.625% due 4/30/02,
market value $58,697 and $69,000 U.S.
Treasury Notes 7.50% due 11/15/01,
market value $70,560 and $81,000 U.S.
Treasury Notes 7.875% due 11/15/04,
market value $86,280) .................. 274,000 274,000
-----------
Total Repurchase Agreements
(cost $827,000) ........................ 827,000
-----------
<PAGE>
Market
Value
- ---------------------------------------------------------------------
Total Market Value of Securities - 98.87%
(cost $155,827,077) .................. $149,803,122
Receivables and Other Assets
Net of Liablilities - 1.13% .......... 1,717,041
------------
Net Assets Applicable to 21,435,837
Shares (no par value)
Outstanding - 100.00% ................ $151,520,163
============
Net Asset Value - Delaware American
Government Bond Fund A Class
($102,465,800 / 14,496,007 shares).... $7.07
-----
Net Asset Value - Delaware American
Government Bond Fund B Class
($18,565,482 / 2,626,502 shares)...... $7.07
-----
Net Asset Value - Delaware American
Government Bond Fund C Class
($3,395,619 / 480,385 shares)......... $7.07
-----
Net Asset Value - Delaware American
Government Bond Fund Institutional
Class ($27,093,262 / 3,832,943 shares) $7.07
-----
- ------------------
GPM - Graduate Payment Mortgage
**Principal amount of $4,000,000 pledged as collateral for futures.
Components of Net Assets at January 31, 2000
Shares of beneficial interest
(unlimited authorized-no par) ........................$200,106,723
Distributions in excess of
net investment income ................................ (22,812)
Accumulated net realized loss on
investments and futures contracts..................... (42,634,426)
Net unrealized depreciation of
investments and futures contracts .................... (5,929,322)
------------
Total net assets ........................................$151,520,163
============
Net Asset Value and Offering Price Per Share -
Delaware American Government Bond Fund
Net asset value A Class (A) ............................. $7.07
Sales charge (4.75% of offering price or 4.95%
of amount invested per share) (B)..................... 0.35
-----
Offering price .......................................... $7.42
=====
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
7
<PAGE>
Statement of Assets and Liabilities
January 31, 2000 (Unaudited) Delaware American Government Bond Fund
- --------------------------------------------------------------------------------
Assets:
Investments at market (cost $155,827,077)...................... $149,803,122
Receivable for securities sold ................................ 6,899,857
Dividends and interest receivable ............................. 2,343,546
Cash .......................................................... 136,160
Subscriptions Receivable ...................................... 16,352
Other assets .................................................. 302
------------
Total assets .................................................. 159,199,339
------------
Liabilities:
Payable for securities purchase ............................... 6,847,306
Liquidations payable .......................................... 827,774
Other accounts payable and accrued expense .................... 4,096
------------
Total Liabilities ............................................. 7,679,176
------------
Total Net Assets .............................................. $151,520,163
============
Statement of Operations
Delaware American Government
Six Months Ended January 31, 2000 (Unaudited) Bond Fund
- --------------------------------------------------------------------------------
Investment Income:
Interest .............................................. $6,494,151
Expenses:
Management fees ....................................... $448,091
Dividend disbursing and transfer agent fees
and expenses......................................... 303,944
Distribution expense .................................. 286,316
Accounting and administration fees .................... 33,044
Reports and statements to shareholders ................ 15,000
Registration fees ..................................... 9,977
Custodian fees ........................................ 3,472
Professional fees ..................................... 4,500
Trustees' fees ........................................ 1,754
Other expenses ........................................ 1,875 1,107,973
-------- ----------
Less expenses paid indirectly ......................... (2,868)
----------
Total expenses......................................... 1,105,105
----------
Net Investment Income ................................. 5,389,046
----------
Net Realized and Unrealized Loss on Investments,
Futures Contracts and Options Written:
Net realized loss on:
Investments ........................................ (3,157,037)
Futures contracts .................................. (410,179)
Options written .................................... (94,319)
----------
Net realized loss .................................. (3,661,535)
Net change in unrealized appreciation (depreciation)
of investments and futures contracts................ (1,457,572)
----------
Net Realized and Unrealized Loss on Investments,
Futures Contracts and Options Written .............. (5,119,107)
----------
Net Increase in Net Assets Resulting from Operations .. $269,939
==========
See accompanying notes
8
<PAGE>
Statements of Changes in Net Assets
Delaware American Government Bond Fund
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
1/31/00 7/31/99
(Unaudited)
Increase (Decrease) in
Net Assets from Operations:
Net investment income ............................$ 5,389,046 $11,076,360
Net realized loss on investments,
futures contracts and options written............ (3,661,535) (4,062,003)
Net change in unrealized (depreciation)
of investments and futures contracts ............ (1,457,572) (6,313,134)
-----------------------------
Net increase in net assets resulting from
operations....................................... 269,939 701,223
-----------------------------
Distributions to Shareholders from:
Net investment income:
A Class ....................................... (3,643,534) (8,128,424)
B Class ....................................... (582,765) (1,119,015)
C Class ....................................... (118,823) (197,044)
Institutional Class ........................... (1,051,106) (1,648,132)
-----------------------------
(5,396,228) (11,092,615)
-----------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ....................................... 18,256,114 49,772,807
B Class ....................................... 4,514,993 17,213,764
C Class ....................................... 1,052,301 4,997,746
Institutional Class ........................... 4,878,953 29,439,801
Net asset value of shares issued upon reinvestment
of dividends from net investment income
A Class ....................................... 2,257,751 4,966,969
B Class ....................................... 328,965 623,214
C Class ....................................... 106,396 169,744
Institutional Class ........................... 1,040,041 1,618,880
-----------------------------
32,435,514 108,802,925
-----------------------------
Cost of shares repurchased:
A Class ....................................... (28,617,187) (60,641,715)
B Class ....................................... (4,799,667) (11,031,865)
C Class ....................................... (1,714,721) (2,889,881)
Institutional Class ........................... (8,792,333) (16,269,146)
-----------------------------
(43,923,908) (90,832,607)
-----------------------------
Increase (decrease) in net assets derived from
capital share transactions....................... (11,488,394) 17,970,318
-----------------------------
Net Increase (Decrease) in Net Assets ............ (16,614,683) 7,578,926
Net Assets:
Beginning of period .............................. 168,134,846 160,555,920
-----------------------------
End of period.....................................$151,520,163 $168,134,846
=============================
See accompanying notes
9
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding
throughout each period were as follows:
<TABLE>
<CAPTION>
Delaware American Government Bond Fund A Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months(2)
Ended Year Ended
1/31/00 7/31/99 7/31/98 7/31/97 7/31/96 7/31/95
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $7.300 $7.720 $7.760 $7.590 $7.860 $8.000
Income (loss) from investment operations:
Net investment income ............................... 0.240 0.474 0.528 0.544 0.588 0.656
Net realized and unrealized gain (loss)
on investments, futures contracts and
options written .................................... (0.229) (0.420) (0.040) 0.170 (0.270) (0.140)
---------------------------------------------------------------------
Total from investment operations .................... 0.011 0.054 0.488 0.714 0.318 0.516
---------------------------------------------------------------------
Less dividends:
Dividends from net investment income ................ (0.241) (0.474) (0.528) (0.544) (0.588) (0.656)
---------------------------------------------------------------------
Total dividends ..................................... (0.241) (0.474) (0.528) (0.544) (0.588) (0.656)
---------------------------------------------------------------------
Net asset value, end of period ......................... $7.070 $7.300 $7.720 $7.760 $7.590 $7.860
=====================================================================
Total return(1) ........................................ 0.14% 0.59% 6.50% 9.77% 4.09% 6.82%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............. $102,466 $114,027 $127,001 $138,844 $164,156 $206,083
Ratio of expenses to average net assets ............. 1.29% 1.25% 1.20% 1.16% 1.20% 1.24%
Ratio of net investment income to average
net assets ......................................... 6.64% 6.16% 6.80% 7.13% 7.55% 8.40%
Portfolio turnover .................................. 91% 142% 119% 63% 81% 70%
Delaware American Government Bond Fund B Class
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................... $7.300 $7.720 $7.760 $7.590 $7.860 $8.000
Income (loss) from investment operations:
Net investment income ............................... 0.215 0.421 0.474 0.490 0.533 0.601
Net realized and unrealized gain (loss)
on investments, futures contracts and
options written .................................... (0.230) (0.421) (0.040) 0.170 (0.270) (0.140)
---------------------------------------------------------------------
Total from investment operations .................... (0.015) 0.000 0.434 0.660 0.263 0.461
---------------------------------------------------------------------
Less dividends:
Dividends from net investment income ................ (0.215) (0.420) (0.474) (0.490) (0.533) (0.601)
---------------------------------------------------------------------
Total dividends ..................................... (0.215) (0.420) (0.474) (0.490) (0.533) (0.601)
---------------------------------------------------------------------
Net asset value, end of period ......................... $7.070 $7.300 $7.720 $7.760 $7.590 $7.860
=====================================================================
Total return(1) ........................................ (0.21%) (0.11%) 5.76% 9.01% 3.36% 6.08%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............. $18,565 $19,147 $13,642 $10,695 $9,754 $7,394
Ratio of expenses to average net assets ............. 1.99% 1.95% 1.90% 1.86% 1.90% 1.94%
Ratio of net investment income to average
net assets ......................................... 5.94% 5.46% 6.10% 6.43% 6.85% 7.66%
Portfolio turnover .................................. 91% 142% 119% 63% 81% 70%
</TABLE>
- --------------------
(1) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
(2) Ratios have been annualized and total return has not been annualized.
See accompanying notes
10
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
<TABLE>
<CAPTION>
Delaware American Government Bond Fund C Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months(3) Period
Ended Year Ended 11/29/95(1) to
1/31/00 7/31/99 7/31/98 7/31/97 7/31/96
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................... $7.300 $7.720 $7.760 $7.590 $7.950
Income (loss) from investment operations:
Net investment income ................................ 0.215 0.422 0.474 0.491 0.348
Net realized and unrealized gain (loss)
on investments, futures contracts and options
written ............................................. (0.230) (0.422) (0.040) 0.170 (0.360)
---------------------------------------------------------
Total from investment operations ..................... (0.015) 0.000 0.434 0.661 (0.012)
---------------------------------------------------------
Less dividends:
Dividends from net investment income ................. (0.215) (0.420) (0.474) (0.491) (0.348)
---------------------------------------------------------
Total dividends ...................................... (0.215) (0.420) (0.474) (0.491) (0.348)
---------------------------------------------------------
Net asset value, end of period .......................... $7.070 $7.300 $7.720 $7.760 $7.590
=========================================================
Total return(2) ......................................... (0.21%) (0.11%) 5.76% 9.01% (0.17%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .............. $3,396 $4,077 $2,047 $1,308 $1,029
Ratio of expenses to average net assets .............. 1.99% 1.95% 1.90% 1.86% 1.90%
Ratio of net investment income to average net
assets .............................................. 5.94% 5.46% 6.01% 6.43% 6.85%
Portfolio turnover ................................... 91% 142% 119% 63% 81%
Delaware American Government Bond Fund Institutional Class
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months(3)
Ended Year Ended
1/31/00 7/31/99 7/31/98 7/31/97 7/31/96 7/31/95
(Unaudited)
Net asset value, beginning of period .................... $7.300 $7.720 $7.760 $7.590 $7.860 $8.000
Income (loss) from investment operations:
Net investment income ................................ 0.252 0.495 0.550 0.567 0.611 0.679
Net realized and unrealized gain (loss) on
investments, futures contracts and options
written ............................................. (0.230) (0.418) (0.040) 0.170 (0.270) (0.140)
---------------------------------------------------------------------
Total from investment operations ..................... 0.022 0.077 0.510 0.737 0.341 0.539
---------------------------------------------------------------------
Less dividends:
Dividends from net investment income ................. (0.252) (0.497) (0.550) (0.567) (0.611) (0.679)
---------------------------------------------------------------------
Total dividends ...................................... (0.252) (0.497) (0.550) (0.567) (0.611) (0.679)
---------------------------------------------------------------------
Net asset value, end of period .......................... $7.070 $7.300 $7.720 $7.760 $7.590 $7.860
=====================================================================
Total return(4) ......................................... 0.30% 0.89% 6.80% 10.10% 4.39% 7.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .............. $27,093 $30,883 $17,865 $12,053 $10,780 $8,316
Ratio of expenses to average net assets .............. 0.99% 0.95% 0.90% 0.86% 0.90% 0.94%
Ratio of net investment income to average net
assets .............................................. 6.94% 6.46% 7.10% 7.43% 7.85% 8.66%
Portfolio turnover ................................... 91% 142% 119% 63% 81% 70%
</TABLE>
- --------------------
(1) Date of public offering; ratios have been annualized and total return has
not been annualized.
(2) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value
and does not reflect the impact of a sales charge.
(3) Ratios have been annualized and total return has not been annualized.
(4) Total investment return is based on the change in net asset value of a share
for the period and assumes reinvestment of distributions at net asset value.
See accompanying notes
11
<PAGE>
Notes to Financial Statements
January 31, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Delaware Group Government Fund - Delaware American Government Bond Fund
(formerly known as Government Income Series) (the "Fund") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Fund is organized as a Delaware Business Trust. The Fund
offers four classes of shares. The Delaware American Government Bond Fund A
Class carries a front-end sales charge of 4.75%. The Delaware American
Government Bond Fund B Class carries a back-end deferred sales charge. The
Delaware American Government Bond Fund C Class carries a level load deferred
sales charge and the Delaware American Government Bond Fund Institutional Class
has no sales charge.
The Fund seeks to provide 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.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Trustees.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
custodian bank until the maturity of the respective repurchase agreements. Each
repurchase agreement is at least 102% collateralized. However, in the event of
default or bankruptcy by the counterparty to the agreement, realization of the
collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Original issue discounts are
accreted to interest income over the lives of the respective securities. The
Fund declares dividends daily from net investment income and pays such dividends
monthly and declares and pays distributions from net realized gain on
investments if any, annually.
Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $1,873 for the six months ended
January 31, 2000. In addition, the Fund receives earnings credits from its
custodian when positive cash balances are maintained, which are used to offset
custody fees. These credits were $995 for the six months ended January 31, 2000.
The expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC), the Investment Manager of the Fund, an
annual fee which is calculated daily at the rate of 0.55% on the first $500
million of average daily net assets of the Fund, 0.50% on the next $500 million,
0.45% on the next $1,500 million, and 0.425% on net assets over $2,500 million.
At January 31, 2000, the Fund had a liability for investment management fees and
other expenses payable to DMC of $30,039.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services. The Fund
pays DSC a monthly fee based on the number of shareholder accounts, shareholder
transactions and average net assets subject to certain minimums. At January 31,
2000, the Fund had a liability for such fees and other expenses payable to DSC
of $4,990
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Classes. No distribution expenses are
paid by the Institutional Class.
For the six months ended January 31, 2000, DDLP earned $5,733 for commissions on
sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Fund. These officers, trustees and employees are paid no compensation by the
Fund.
3. Investments
For the six months ended January 31, 2000, the Fund made purchases of
$69,298,733 and sales of $73,045,770 of investment securities other than U.S.
government securities and temporary cash investments.
12
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. Investments (continued)
The cost of investments for federal income tax purposes approximates the cost
for book purposes. At January 31, 2000, the aggregate cost of securities for
federal income tax purposes was $155,827,077. At January 31, 2000, net
unrealized depreciation for federal income tax purposes aggregate $6,023,955 of
which $742,550 related to unrealized appreciation of securities and $6,766,505
related to unrealized depreciation of securities.
For federal income tax purposes, the Fund had accumulated capital losses of
$35,015,459 at January 31, 2000, which may be carried forward and applied
against future capital gains. The capital loss carry forwards expire as follows:
2001 - $1,341,943, 2002 - $17,400,711, 2003 - $9,205,797, 2004 - $4,166,601,
2005 - $2,371,574 and 2007 - $528,833.
4. Futures Contracts
The Fund enters into financial futures contracts for the purpose of hedging its
existing portfolio securities against fluctuations in fair value caused by
changes in prevailing market rates. Upon entering into a futures contract, the
Fund deposits cash or pledges U.S. government securities to a broker, equal to
the minimum "initial margin" requirements of the exchange on which the contract
is traded. Subsequent payments are received from or paid to the broker each day,
based on the daily fluctuation in the market value of the contract. These
receipts or payments are known as "variation margin" and are recorded daily by
the fund as unrealized gains or losses until the contracts are closed. When the
contracts are closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risk may arise upon entering into futures
contracts from potential imperfect correlation between the futures contracts and
the underlying securities and from the possibility of an illiquid secondary
market for these instruments.
Financial futures contracts open at January 31, 2000 were as follows:
Notional Expiration Unrealized
Contract Cost Amount Date Gain (Loss)
65 U.S. Treasury 10 Yr. Notes $6,171,718 03/00 ($20,367)
46 U.S. Treasury 20 Yr. Notes $4,127,062 03/00 $115,000
5. Options Written
During the six months ended January 31, 2000, the Fund entered into options
contracts in accordance with its investment objectives. When the Fund writes an
option, a premium is received and a liability is recorded and adjusted on a
daily basis to reflect the current market value of the option written. Premiums
received from writing options that expire unexercised are treated by the Fund on
the expiration date as realized gains from investments. The difference between
the premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain or loss. If
a call option is exercised, the premium is added to the proceeds from the sale
of the underlying security in determining whether the Fund has a realized gain
or loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. The Fund as writer of an option bears the
market risk of an unfavorable change in the price of the security underlying the
written option.
<PAGE>
No financial options contracts were outstanding at January 31, 2000.
6. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
1/31/00 7/31/99
Shares sold:
A Class 2,527,734 6,431,871
B Class 623,983 2,215,523
C Class 145,755 646,059
Institutional Class 679,231 3,835,531
Shares issued upon reinvestment of dividends from net investment income
A Class 313,906 647,354
B Class 45,756 81,329
C Class 14,790 22,214
Institutional Class 144,564 212,315
-----------------------
4,495,719 14,092,196
-----------------------
Shares repurchased:
A Class (3,967,702) (7,906,839)
B Class (666,431) (1,440,634)
C Class (238,779) (374,803)
Institutional Class (1,221,893) (2,130,765)
-----------------------
(6,094,805) (11,853,041)
-----------------------
Net increase (decrease) (1,599,086) 2,239,155
=======================
7. Credit and Market Risk
The Fund invests in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Some of these securities are collater alized
mortgage obligations (CMOs). CMOs are debt securities issued by U. S. government
agencies or by financial institutions and other mortgage lenders which are
collateralized by a pool of mortgages held under an indenture. The Fund invests
in private-backed CMOs only if they are 100% collateralized at the time of
issuance by securities or certificates issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Prepayment of mortgages may
shorten the stated maturity of the obligations and can result in a loss of
premium, if any has been paid. Certain of these securities may be stripped
(securities which provide only the principal or interest feature of the
underlying security). The yield to maturity on an interest-only CMO is extremely
sensitive not only to changes in prevailing interest rates, but also to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets and a rapid rate of principal payments may have a material adverse effect
on the Fund's yield to maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities even if the securities are
rated in the highest rating categories. The Fund will, from time to time, invest
in higher risk interest only CMOs. At January 31, 2000 the Fund had no holdings
in interest-only CMOs.
<PAGE>
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
This semi-annual report is for the information of Delaware American Government
Bond Fund shareholders, but it may be used with prospective investors when
preceded or accompanied by a current Prospectus for Delaware American Government
Bond Fund and the Delaware Investments Performance Update for the most recently
completed calendar quarter. The prospectus sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. You should
read the prospectus carefully before you invest. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman,
Citadel Constructors, Inc.
King of Prussia, PA
David K. Downes
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
John H. Durham
Private Investor
Horsham, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Retired
Fredericksburg, VA
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
<PAGE>
AFFILIATED OFFICERS
Charles E. Haldeman, Jr.
President and Chief Executive Officer
Delaware Management Holdings, Inc.
Philadelphia, PA
Richard J. Flannery
Executive Vice President and
General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
Investment Manager
Delaware Management Company
Philadelphia, PA
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, PA
1818 Market Street
Philadelphia, PA 19103-3682
(2780) Printed in the USA
SA-023 [01/00]PP 03/00 (J5616)
