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DELAWARE GROUP LIMITED TERM GOVERNMENT FUNDS Delaware Limited-Term Government Fund Supplement to the Fund's Prospectuses By Supplement to the Fund's Prospectuses dated August 24, 2007, shareholders were alerted to the fact that, on August 15, 2007, the Board of Trustees of Delaware Group Limited Term Government Funds approved changes to the Fund's investment objective, investment strategies, and policies to reposition the Fund as a limited-term diversified fixed income fund. The new investment strategies and policies will broaden the types of fixed income securities the Fund may invest in, and permit the Fund to invest up to 20% of its net assets in foreign securities, including up to 10% of its net assets in securities of issuers located in emerging markets, and up to 20% of its assets in high yield securities. Under the Fund's new investment strategies and policies, the investment manager will limit non-U.S. dollar denominated securities to no more than 20% of the Fund's net assets, and the Fund's non-U.S. dollar currency exposure will be limited in the aggregate to no more than 10% of its net assets. The Fund's curre
nt investment objective seeks to provide a high stable level of income, while attempting to minimize fluctuations in principal and provide maximum liquidity. The Fund's new investment objective will seek maximum total return, consistent with reasonable risk. In connection with these changes, the Fund will change its name to Delaware Limited-Term Diversified Income Fund. In addition, in connection with the repositioning of the Fund as a limited-term fixed income fund, the Fund's performance will be measured against a new benchmark that the investment manager believes is a more accurate benchmark of the Fund's investments. The Fund's current benchmark is the Merrill Lynch 1-3 Year Treasury Index. To reflect the Fund's new strategy, the Fund's performance will be measured against the Lehman Brothers 1-3 Year Government Credit Index. The changes to the Fund's investment objective, investment strategies, policies, and benchmark described in the paragraph above will essentially create a different fund that does not primarily invest in U.S. government fixed income securities. A complete description of the investment objective and investment strategies is described below. These changes become effective at the close of business on November 30, 2007. This Supplement supercedes the Supplement dated October 1, 2007. All references to "Delaware Limited-Term Government Fund" are hereby replaced with "Delaware Limited-Term Diversified Income Fund." The following replaces the section entitled, "Profile: Delaware Limited-Term Government Fund - What are the Fund's investment objectives?" on page 2: Profile: Delaware Limited-Term Diversified Income Fund What is the Fund's investment objective? The following replaces the section entitled, "Profile: Delaware Limited-Term Government Fund - What are the Fund's main investment strategies?" on page 2: What are the Fund's main investment strategies? The Fund may invest up to 20% of its assets in below investment-grade securities. In general, below investment-grade securities that the Fund purchases will be rated BB or lower by S&P or Fitch, Ba or lower by Moody's, or similarly rated by another NRSRO. The Fund may also invest up to 20% of its net assets in foreign securities, including up to 10% of its net assets in securities of issuers located in emerging markets. The investment manager (Manager) will limit non-U.S. dollar-denominated securities to no more than 20% of net assets. The Fund's total non-U.S. dollar currency exposure will be limited, in the aggregate, to no more than 10% of net assets. The following replaces the section entitled, "Profile: Delaware Limited-Term Government Fund - What are the main risks of investing in the Fund?" on page 2: What are the main risks of investing in the Fund? Investments in high yield, high-risk, or "junk" bonds entail certain risks, including the risk of loss of principal, which may be greater than the risks presented by investment-grade bonds and which should be considered by investors contemplating an investment in the Fund. Among these risks are those that result from the absence of a liquid secondary market and the dominance in the market of institutional investors. The Fund will also be affected by prepayment risk due to its holdings of mortgage-backed securities. With prepayment risk, when homeowners prepay mortgages during periods of low interest rates, the Fund may be forced to re-deploy its assets in lower yielding securities. The Fund's investments in securities issued by non-U.S. companies are generally denominated in foreign currencies and involve certain risks not typically associated with investing in bonds issued by U.S. companies, including political instability, foreign economic conditions, and inadequate regulatory and accounting standards. To the extent that the Fund invests in foreign fixed income securities, the value of these securities may be adversely affected by changes in U.S. or foreign interest rates, as well as changes in currency exchange rates. In addition, investments in emerging markets are subject to greater risks than investments in more developed countries, including risks of political or economic instability, expropriation, adverse changes in tax laws, and currency controls. Moreover, there is substantially less publicly available information about issuers in emerging markets than there is about issuers in developed markets, and the information that is available tends to be of
a lesser quality. Also, emerging markets are typically less mature, less liquid, and subject to greater price volatility than are developed markets. The Fund's investments in foreign securities may also be subject to currency risk. Currency risk is the risk that the value of an investment may be negatively affected by changes in foreign currency exchange rates. Adverse changes in exchange rates may reduce or eliminate any gains produced by investments that are denominated in foreign currencies and may increase losses. If, and to the extent that, we invest in forward foreign currency contracts or use other investments to hedge against currency risks, the Fund will be subject to the special risks associated with those activities. The following replaces the section entitled, "Profile: Delaware Limited-Term Government Fund - Who should invest in the Fund" on page 2: Who should invest in the Fund The following replaces the section entitled, "Profile: Delaware Limited-Term Government Fund - Who should not invest in the Fund" on page 2: Who should not invest in the Fund The following paragraph is hereby inserted as the third paragraph under the bar chart entitled, "Year-by-year total return (Class A) in the section entitled, "How has Delaware Limited-Term Diversified Income Fund performed?" on page 3: On August 15, 2007, the Fund's Board of Trustees (Board) approved changes to the Fund's investment objective and strategies. These changes, which will become effective at the close of business on November 30, 2007, allow the Fund to invest in a broader range of fixed income securities, including U.S. government securities and foreign government securities and corporate and high yield securities of domestic and foreign issuers. Accordingly, the Fund no longer invests at least 80% of its net assets in U.S. government securities. The historical returns shown above and below do not reflect these changes. The following is added to the chart entitled, "Average annual returns for periods ending 12/31/06" in the section entitled, "How has Delaware Limited-Term Diversified Income Fund performed?" on page 3: Lehman Brothers 1-3 Year Government/Credit Index*** 4.25% 3.27% 4.97%
(the "Fund")
dated April 30, 2007
Delaware Limited-Term Diversified Income Fund seeks maximum total return, consistent with reasonable risk. Although the Fund will strive to achieve its objective, there is no assurance that it will.
Under normal circumstances, the Fund will invest at least 80% of its net assets in investment-grade fixed income securities. Investment-grade fixed income securities are securities rated at least BBB by Standard & Poor's (S&P) or Fitch, Inc. (Fitch), Baa3 by Moody's Investors Service (Moody's), or similarly rated by another nationally recognized statistical rating organization (NRSRO). The Fund will maintain an average effective duration from one to three years.
Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The value of your investment in the Fund will increase and decrease according to changes in the value of the securities in the Fund's portfolio. The Fund will be affected primarily by changes in bond prices and interest rates. The market value of fixed income securities generally falls when interest rates rise.
The following replaces the paragraph under the chart entitled, "Average annual returns for periods ending 12/31/06" in the section entitled, "How has Delaware Limited-Term Diversified Income Fund performed?" on page 3:
The Fund's returns above are compared to the performance of the Lehman Brothers 1-3 Year Government/Credit Index and the Merrill Lynch 1-3 Year U.S. Treasury Index. The Lehman Brothers 1-3 Year Government/Credit Index is a market value-weighted index of government fixed-rate debt issues and investment-grade U.S. and foreign fixed-rate debt issues with dollar-weighted average maturities between one and three years. The Merrill Lynch 1-3 Year U.S. Treasury Index is an unmanaged index of U.S. Treasury notes and bonds with maturities greater than or equal to one year and less than three years. It does not include inflation-linked U.S. government bonds. You should remember that, unlike the Fund, the Indices are unmanaged and do not reflect the actual costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. Maximum sales charges are included in the Fund returns shown above.
The footnote below replaces the second footnote (**) regarding lifetime returns under the chart entitled, "Average annual returns for periods ending 12/31/06" in the section entitled, "How has Delaware Limited-Term Diversified Income Fund performed?" on page 3:
** Lifetime returns are shown if the Fund or Class existed for less than 10 years. The Index returns shown for Class A, Class B, and Class C are for the 10-year period because Class A, Class B, and Class C shares commenced operations more than 10 years ago. The Index returns shown for Class R shares are for the lifetime period because the inception date for the Class R shares of the Fund was June 2, 2003. The Index returns for the Class R lifetime period were 2.29% and 2.03% for the Lehman Brothers 1-3 Year Government/Credit Index and Merrill Lynch 1-3 Year Treasury Index, respectively. The Indices report returns on a monthly basis as of the last day of the month. As a result, the Index returns for Class R lifetime reflect the returns from June 30, 2003 through December 31, 2006.
The footnote below (***) regarding the Fund's benchmark is hereby added as the third footnote under the chart entitled, "Average annual returns for periods ending 12/31/06" in the section entitled, "How has Delaware Limited-Term Diversified Income Fund performed:" on page 3:
*** The Lehman Brothers 1-3 Year Government/Credit Index is replacing the Merrill Lynch 1-3 Year Treasury Index as the Fund's benchmark. As a result of the changes in the Fund's investment objective and strategies, as described above, the Manager believes that the Lehman 1-3 Year Government/Credit Index is a more accurate benchmark of the Fund's investments. The Merrill Lynch 1-3 Year Treasury Index may be excluded from this comparison in the future.
The following replaces the section entitled, "How we manage the Fund - Our investment strategies" on page 5:
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or market sectors that we believe are the best investments for the Fund. Securities in which the Fund may invest include, but are not limited to, the following:
● Securities issued by U.S. government agencies or instrumentalities, such as securities of the
Government National Mortgage Association (GNMA);
● Investment-grade and below investment-grade corporate bonds
● Non-agency mortgage-backed securities, asset-backed securities, commercial mortgage-backed securities, collateralized mortgage obligations, and real estate mortgage investment conduits;
● Securities of foreign issuers in both developed and emerging markets, denominated in foreign currencies and U.S. dollars;
The Fund may also invest in mortgage-backed securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or by government sponsored corporations. Other mortgage-backed securities in which the Fund may invest are issued by certain private, non-government entities. The Fund may also invest in securities that are backed by assets such as receivables on home equity and credit card loans, automobile, mobile home, recreational vehicle and other loans, wholesale dealer floor plans, and leases.
The Fund maintains an average effective duration from one to three years.
The Fund may also invest up to 20% of its net assets in below investment-grade securities. The Fund may invest in domestic corporate debt obligations, including notes, which may be convertible or non-convertible, commercial paper, units consisting of bonds with stock or warrants to buy stock attached, debentures, and convertible debentures. The Fund will invest in both rated and unrated bonds. Unrated bonds may be more speculative in nature than rated bonds.
The Fund may also invest up to 20% of its net assets in foreign securities, including up to 10% of its net assets in securities of issuers located in emerging markets. The Manager will limit non-U.S. dollar-denominated securities to no more than 20% of net assets The Fund's total non-U.S. dollar currency exposure will be limited, in the aggregate, to no more than 10% of net assets. These fixed income securities may include foreign government securities, debt obligations of foreign companies, and securities issued by supranational entities. A supranational entity is an entity established or financially supported by the national governments of one or more countries to promote reconstruction or development. Examples of supranational entities include, among others, the International Bank for Reconstruction and Development (more commonly known as the World Bank), the European Economic Community, the European Investment Bank, the Inter-Development Bank, and the Asian Development Bank.
The Fund may invest in sponsored and unsponsored American Depositary Receipts, European Depositary Receipts, or Global Depositary Receipts. The Fund may also invest in zero coupon bonds and may purchase shares of other investment companies.
The Fund will invest in both rated and unrated foreign securities.
The Fund may invest in securities issued in any currency and may hold foreign currencies. Securities of issuers within a given country may be denominated in the currency of another country or in multinational currency units, such as the Euro. The Fund may, from time to time, purchase or sell foreign currencies and/or engage in forward foreign currency transactions in order to expedite settlement of Fund transactions and to minimize currency value fluctuations.
The following information is added to the table in the section entitled, "How we manage the Fund - The securities we typically invest in" beginning on page 6:
The following replaces the paragraph following the table in the section entitled, "How we manage the Fund - The securities we typically invest in" beginning on page 6:
We may also invest in other securities. Please see the Statement of Additional Information (SAI) for additional descriptions of these securities, as well as those listed in the table above.
The following replaces the portions of the table related to Interest rate risk, Market risk, Credit risk, and Liquidity risk in the section entitled, "How we manage the Fund - The risks of investing in the Fund."
The following information regarding Currency risk, Foreign risk, Emerging markets risk, Foreign government securities risks, Legislative and regulatory risk, Zero coupon and PIK bond risk, and Valuation risk is added to the table in the section entitled, "How we manage the Fund - The risks of investing in the Fund."
Currency risk is the risk that the value of an investment may be negatively affected by changes in foreign currency exchange rates. Adverse changes in exchange rates may reduce or eliminate any gains produced by investments that are denominated in foreign currencies and may increase losses. |
The Fund, which has exposure to global and international investments, may be affected by changes in currency rates and exchange control regulations and may incur costs in connection with conversions between currencies. To hedge this currency risk associated with investments in non-U.S. dollar-denominated securities, we may invest in forward foreign currency contracts. These activities pose special risks which do not typically arise in connection with investments in U.S. securities. In addition, we may engage in foreign currency options and futures transactions. |
Foreign risk is the risk that foreign securities may be adversely affected by political instability, changes in currency exchange rates, foreign economic conditions, or inadequate regulatory and accounting standards. |
We attempt to reduce the risks presented by such investments by conducting world-wide fundamental research, including country visits. In addition, we monitor current economic and market conditions and trends, the political and regulatory environment, and the value of currencies in different countries in an effort to identify the most attractive countries and securities. Additionally, when currencies appear significantly overvalued compared to average real exchange rates, we may hedge exposure to those currencies for defensive purposes. |
Emerging markets risk is the possibility that the risks associated with international investing will be greater in emerging markets than in more developed foreign markets because, among other things, emerging markets may have less stable political and economic environments. In addition, in many emerging markets there is substantially less publicly available information about issuers and the information that is available tends to be of a lesser quality. Economic markets and structures tend to be less mature and diverse and the securities markets, which are subject to less government regulation or supervision, may also be smaller, less liquid, and subject to greater price volatility. |
We may invest a portion of the Fund's assets in securities of issuers located in emerging markets. We cannot eliminate these risks but will attempt to reduce these risks through portfolio diversification, credit analysis, and attention to trends in the economy, industries and financial markets, and other relevant factors. We will limit investments in emerging markets, in the aggregate, to no more than 10% of the Fund's net assets. |
Foreign government securities risks involve the ability of a foreign government or government-related issuer to make timely principal and interest payments on its external debt obligations. This ability to make payments will be strongly influenced by the issuer's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates, and the extent of its foreign reserves. |
We attempt to reduce the risks associated with investing in foreign governments by limiting the portion of the Fund's assets that may be invested in such securities. We will not invest more than 20% of the Fund's net assets in foreign securities. |
The United States Congress has, from time to time, taken or considered legislative actions that could adversely affect the high yield bond market. For example, Congressional legislation has, with some exceptions, generally prohibited federally insured savings and loan institutions from investing in high yield securities. Regulatory actions have also affected the high yield market. Similar actions in the future could reduce liquidity for high yield securities, reduce the number of new high yield securities being issued and could make it more difficult for the Fund to attain its investment objective. |
We monitor the status of regulatory and legislative proposals to evaluate any possible effects they might have on the Fund's portfolio. |
Zero coupon and PIK bonds are generally considered to be more interest sensitive than income-bearing bonds, to be more speculative than interest-bearing bonds, and to have certain tax consequences which could, under certain circumstances be adverse to the Fund. For example, the Fund accrues, and is required to distribute to shareholders, income on its zero coupon bonds. However, the Fund may not receive the cash associated with this income until the bonds are sold or mature. If the Fund does not have sufficient cash to make the required distribution of accrued income, the Fund could be required to sell other securities in its portfolio or to borrow to generate the cash required. |
We may invest in zero coupon and PIK bonds to the extent consistent with the Fund's investment objective. We cannot eliminate the risks of zero coupon bonds, but we do try to address them by monitoring economic conditions, especially interest rate trends and their potential impact on the Fund. |
Valuation risk : A less liquid secondary market, as described above, makes it more difficult for a fund to obtain precise valuations of the high yield securities in its portfolio. During periods of reduced liquidity, judgment plays a greater role in valuing high yield securities. |
We will strive to manage this risk by carefully evaluating individual bonds and by limiting the amount of the Fund's assets that can be allocated to privately placed high yield securities. |
These changes will become effective at the close of business on November 30, 2007.
Please keep this Supplement for future reference.
This Supplement is dated November 8, 2007.
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