-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AquEfqjs0y6xMKeAQrYRfQ1oDyaXUK7tvvotfuftEKldQTs1gMMsbXpM1A4hCngT 3mnXwMQ9RU7BrTzGIOpUdA== 0000950116-04-001134.txt : 20040402 0000950116-04-001134.hdr.sgml : 20040402 20040402165624 ACCESSION NUMBER: 0000950116-04-001134 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040402 EFFECTIVENESS DATE: 20040402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP LIMITED TERM GOVERNMENT FUNDS CENTRAL INDEX KEY: 0000357059 IRS NUMBER: 236732199 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-03363 FILM NUMBER: 04714709 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP LIMITED TERM GOVERNMENT FUNDS INC DATE OF NAME CHANGE: 19950828 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP TREASURY RESERVES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE TREASURY RESERVES DATE OF NAME CHANGE: 19880718 N-CSR/A 1 ncsr-a.txt N-CSR/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/A CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-3363 Exact name of registrant as specified in charter: Delaware Group Limited-Term Government Funds Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: December 31 Date of reporting period: December 31, 2003 Item 1. Reports to Stockholders Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME Annual Report December 31, 2003 - -------------------------------------------------------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND [LOGO] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARY 2 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 3 Statement of Operations 7 Statements of Changes in Net Assets 8 Financial Highlights 9 Notes to Financial Statements 14 - ----------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 18 - ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 19 - ----------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C)2004 Delaware Distributors, L.P. Portfolio Delaware Limited-Term Government Fund MANAGEMENT REVIEW January 9, 2004 Fund Managers Paul Grillo, Jr. Senior Portfolio Manager Stephen R. Cianci Portfolio Manager Q: How did the Fund and its markets perform during the 12-month period? A: The Fund outperformed both its benchmark and peer group, gaining +2.12% (Class A shares at net asset value with distributions reinvested) for the year ended December 31, 2003. The Merrill Lynch 1-3 Year Treasury Index returned +1.90%, while the Lipper Short-Intermediate Government Funds Average, the Fund's peer group, rose +1.51% for the 12-month period. During the year, three relatively distinct periods emerged in the fixed-income markets. From year-end 2002 to June 13, investors contended with a generational low in interest rates. During this time, the Fed's publicly stated concerns were with deflation. Economic readings were mixed; the capital markets were not convinced that the recovery was in place. After the June 13 lows, we saw interest rates climb steadily through to September. Economic data were pointing to higher growth and the capital markets affirmed that a sustainable recovery was in place. As rates began to reflect this new level of economic recovery, bond prices declined. The Treasury yield curve steepened as longer bonds were more greatly impacted by rising rates. This trend continued until early September, when rates saw a significant increase for two- through 30-year issues. The last four months of 2003 were marked by a decline in volatility and a leveling off of interest rates. With an economic recovery now appearing more certain, the Fed announced that rates would be held steady for the near term. Our most significant gains against our benchmark and peer group took place during the latter half of this year, following the substantial fixed-income market shifts in mid-June and early September. In June, sensing that the economic recovery was taking hold and the market was moving to a new rate level, we established a shorter average maturity bias to mitigate the impact of price declines for bonds. Additionally, from September onward, we took advantage of the lower volatility environment by purchasing securities that were more sensitive to the decline in volatility -- particularly mortgage-backed securities -- which contributed to our outperformance. Throughout the year, we have increased our exposure to higher-quality corporate issues, taking advantage of their improving fundamentals. Q: Can you discuss any strategies that remain in place? A: We continue to hold roughly six percent of net assets in Treasury Inflation-Protected Securities. With the Fed's rate increases on hold in an effort to reflate the economy, the risk/return profile of these securities remains attractive. Our position at year-end included approximately 59 percent in agency mortgage-backed securities, and smaller positions in corporate paper, asset-backed securities, commercial mortgage-backed securities, and other non-Treasury obligations. As of this writing, these assets made up the bulk of the Fund's holdings. This January, we weighted the Fund's high-quality non-government allocations to the maximum allowed objective. We believe their added yields will serve our shareholders well. Q: Given the Fed's current position of holding rates steady, are you contemplating any significant changes to your investment strategy? A: We remain true to our investment discipline. Our process of analyzing economic and market conditions to identify high-quality securities and market sectors that may provide a high stable level of income has not changed. We continue to limit our strategy toward the Fund's duration, maintaining the average effective maturity below five years in an effort to reduce the effects of interest rate changes on share price. Our scrutiny of a host of risk factors - -- such as credit concerns and prepayment risk -- remains in place. Q: How about the Fund's aggregate credit quality? Has it remained about the same over the course of the year? A: Yes. The Fund maintains a high-quality portfolio of debt securities. Our objective, in light of credit quality, is to place a high premium on safety in order to dampen volatility for our investors. We believe the Fund continues to offer diversification benefits for conservative investors who seek a high-quality fixed-income product. 1 Delaware LIMITED-TERM GOVERNMENT FUND
Fund Basics Fund Performance As of December 31, 2003 Average Annual Total Returns - -------------------------------------------------- Through December 31, 2003 Lifetime 10 Years Five Years One Year Fund Objectives: ------------------------------------------------------------------------------ The Fund seeks to provide a high stable level of Class A (Est. 11/24/85) income, while attempting to minimize fluctuations Excluding Sales Charge +6.23% +4.97% +5.36% +2.12% in principal and provide maximum liquidity. Including Sales Charge +6.07% +4.67% +4.76% -0.71% - -------------------------------------------------- ------------------------------------------------------------------------------ Total Fund Net Assets: Class B (Est. 5/2/94) $377.83 million Excluding Sales Charge +4.47% +4.46% +1.25% - -------------------------------------------------- Including Sales Charge +4.47% +4.46% -0.71% Number of Holdings: ------------------------------------------------------------------------------ 362 Class C (Est. 11/29/95) - -------------------------------------------------- Excluding Sales Charge +4.57% +4.45% +1.25% Fund Start Date: Including Sales Charge +4.57% +4.45% +0.27% November 24, 1985 ------------------------------------------------------------------------------ - -------------------------------------------------- Your Fund Managers: Returns reflect the reinvestment of all distributions and any applicable Paul Grillo, Jr. joined Delaware Investments in sales charges as noted below. Returns and share values will fluctuate so that 1993, after serving as a Mortgage Strategist and shares, when redeemed, may be worth more or less than their original cost. Trader at Dreyfus Corporation. He holds a Performance for Class B and C shares, excluding sales charges, assumes either bachelor's degree from North Carolina State that contingent deferred sales charges did not apply or the investment was University and an MBA from Pace University. He is not redeemed. Past performance is not a guarantee of future results. a CFA charterholder. The Fund offers Class A, B, C, R, and Institutional shares. Class A shares Stephen R. Cianci joined Delaware Investments in are sold with a front-end sales charge of up to 2.75% and have an annual 1992. He holds both a BS and an MBA from Widener distribution and service fee of up to 0.30%. University. He became co-manager of the Fund in January 1999. Mr. Cianci is an Adjunct Professor Class B shares are sold with a contingent deferred sales charge that declines of Finance at Widener University and a CFA charterholder. from 2% to zero depending upon the period of time the shares are held. Class - -------------------------------------------------- B shares will automatically convert to Class A shares on a quarterly basis Nasdaq Symbols: approximately five years after purchase. They are also subject to an annual Class A DTRIX distribution and service fee of 1%. Class B DTIBX Class C DTICX Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. The cumulative total return for the lifetime period ended December 31, 2003 for Delaware Limited-Term Government Fund's Class R shares was +0.14%. Class R shares were first made available on June 2, 2003 and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. The average annual total returns for the lifetime (since 11/24/85), 10-year, five-year, and one-year periods ended December 31, 2003 for Delaware Limited-Term Government Fund's Institutional Class shares were +6.37%, +5.13%, +5.52%, and +2.27%, respectively. The Institutional Class shares were first made available on June 1, 1992 and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to June 1, 1992 for Delaware Limited-Term Government Fund is based on Class A performance and was adjusted to eliminate the sales charges, but not the asset-based distribution charge of Class A shares. The performance table and chart do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. An expense limitation was in effect for all classes of Delaware Limited-Term Government Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. Nasdaq Institutional Class symbol: DTINX Nasdaq Class R symbol: DLTRX
Performance of a $10,000 Investment December 31, 1993 through December 31, 2003 Delaware Limited-Term Government Fund -- Class A Merrill Lynch 1-3 Year Shares Treasury Index 12/31/1993 $ 9,728 $10,000 12/31/1994 $ 9,546 $10,057 12/31/1995 $10,378 $11,163 12/31/1996 $10,760 $11,719 12/31/1997 $11,305 $12,499 12/31/1998 $12,150 $13,373 12/31/1999 $12,279 $13,783 12/31/2000 $13,335 $14,885 12/31/2001 $14,425 $16,120 12/31/2002 $15,450 $17,049 12/31/2003 $15,785 $17,373 Chart assumes $10,000 invested on December 31, 1993 and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to different charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged composite that generally tracks the market for U.S. Treasury securities with maturities of one to three years. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. 2 Statement Delaware Limited-Term Government Fund OF NET ASSETS December 31, 2003 Principal Market Amount Value Agency Bonds - 10.76% Fannie Mae 2.625% 4/21/06 $ 3,500,000 $ 3,515,099 2.75% 8/11/06 5,675,000 5,678,791 4.00% 9/2/08 7,480,000 7,583,052 4.625% 5/1/13 2,000,000 1,950,068 Federal Farm Credit Bank 1.875% 1/16/07 8,955,000 8,738,477 Federal Home Loan Bank 2.00% 5/20/05 2,145,000 2,151,030 2.15% 9/30/05 2,085,000 2,087,975 2.25% 12/15/05 1,915,000 1,927,884 5.375% 5/15/06 2,800,000 3,001,074 Freddie Mac 2.10% 2/25/05 4,000,000 4,004,600 ----------- Total Agency Bonds (cost $40,787,625) 40,638,050 ----------- Agency Collateralized Mortgage Obligations - 16.97% Fannie Mae 2002-5 Class PN Interest Only Strip 6.00% 2/25/16 865,722 5,856 Fannie Mae 2002-7 Class IC Interest Only Strip 6.00% 4/25/15 162,882 86 Fannie Mae Series 2002-16 Class IG Interest Only Strip 6.00% 3/25/15 205,150 554 Fannie Mae Series 03-18 Class DA 4.50% 11/25/14 5,710,000 5,835,163 Fannie Mae Series 03-86 Class OJ 5.00% 3/25/17 5,945,000 6,174,712 Fannie Mae Series 1993-18 Park 6.50% 2/25/08 700,000 756,460 Fannie Mae Series 2003-42 JA 4.00% 11/25/13 9,131,538 9,177,219 Fannie Mae Series 2003-90 Class ZJ 5.50% 5/25/33 221,742 221,571 Fannie Mae Series 2480 Class EH 6.00% 11/15/31 3,812,319 3,919,882 Fannie Mae Whole Loan Series 02-W1 Class 1A2 4.81% 12/25/33 3,214,518 3,242,073 Freddie Mac Series 1684 Class G 6.50% 3/15/23 1,748,207 1,782,111 Freddie Mac Series 21 Class J 6.25% 8/25/22 273,828 278,675 Freddie Mac Series 2302 Class NJ 6.50% 11/15/29 241,543 241,888 Freddie Mac Series 69 Class F 9.00% 12/15/05 16,154 16,183 Freddie Mac Structured Pass Through Securities Series T-30 Class A4 7.37% 11/25/26 29,571 29,560 Freddie Mac Structured Pass Through Securities Series T-48 Class 1A1 2.543% 11/25/17 212,398 212,686 Freddie Mac Structured Pass Through Securities Series T-58 Class 1A2 3.108% 5/25/35 2,083,000 2,093,847 Freddie Mac Structured Pass Through Securities Series T-58 Class 2A 6.50% 9/25/43 7,358,257 7,825,050 GNMA Series 02-61 Class BA 4.648% 3/16/26 3,000,000 3,079,790 GNMA Series 2002-28 Class B 5.779% 7/16/24 6,000,000 6,510,124 Principal Market Amount Value Agency Collateralized Mortgage Obligations (continued) GNMA Series 2003-43 Class B 4.374% 4/16/33 $ 5,000,000 $ 4,994,969 GNMA Series 2003-72 Class C 4.86% 2/16/30 2,500,000 2,544,308 GNMA Series 2003-78 Class B 5.11% 10/16/27 5,000,000 5,175,589 ----------- Total Agency Collateralized Mortgage Obligations (cost $64,405,986) 64,118,356 ----------- Agency Mortgage-Backed Securities - 34.20% Fannie Mae 4.50% 10/1/10 8,815,687 8,958,941 4.92% 5/1/13 3,865,000 3,943,508 5.50% 1/1/19 TBA 16,245,000 16,833,880 7.41% 4/1/10 4,925,364 5,693,412 7.50% 6/1/31 941,446 1,006,465 9.00% 11/1/15 326,924 357,266 10.00% 10/1/30 432,969 495,073 10.50% 6/1/30 129,810 149,159 Fannie Mae 5.50% 5/15/09 2,399,315 2,511,033 8.00% 8/15/07 543,725 574,310 #Fannie Mae ARM 4.978% 11/1/33 4,514,731 4,566,933 Fannie Mae FHAVA 10.00% 1/1/19 74,268 83,877 11.00% 8/1/10 to 12/1/15 1,308,770 1,483,922 Fannie Mae Graduated Payment 11.00% 11/1/10 42,905 47,974 Fannie Mae Relocation 30 yr 5.00% 9/1/33 1,012,610 1,010,078 Fannie Mae S.F. 15 yr 6.00% 12/1/08 to 6/1/17 7,261,558 7,634,113 8.00% 10/1/14 1,113,146 1,191,067 8.50% 3/1/08 142,929 150,120 Fannie Mae S.F. 15 yr TBA 5.00% 1/1/19 9,700,000 9,893,999 Fannie Mae S.F. 20 yr 6.50% 2/1/22 to 5/1/22 3,369,728 3,533,551 Fannie Mae S.F. 30 yr 5.50% 5/1/33 to 12/1/33 9,844,420 9,979,780 6.00% 5/1/33 to 9/1/33 6,654,473 6,884,625 7.50% 3/1/14 to 11/1/31 1,498,075 1,612,726 8.00% 5/1/05 to 5/1/24 1,655,018 1,806,648 8.50% 11/1/07 to 8/1/17 1,227,220 1,311,082 9.25% 3/1/09 to 3/1/20 280,289 311,124 11.00% 7/1/12 to 8/1/20 604,878 684,353 11.50% 11/1/16 331,352 384,990 12.50% 2/1/11 15,440 17,476 13.00% 7/1/15 59,954 68,629 Fannie Mae S.F. 30 yr TBA 6.00% 1/1/34 3,715,000 3,840,381 Freddie Mac 3.50% 9/1/18 to 10/1/18 6,208,914 5,983,841 Freddie Mac Balloon 5 yr 4.00% 8/1/08 3,851,402 3,922,412 Freddie Mac Balloon 7 yr 4.50% 12/1/10 2,140,000 2,176,113 Freddie Mac Relocation 30 yr 5.00% 9/1/33 3,975,234 3,959,085 3 Statement Delaware Limited-Term Government Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value Agency Mortgage-Backed Securities (continued) Freddie Mac FHAVA 8.00% 3/1/08 $ 127,077 $ 134,106 9.50% 11/1/05 to 2/1/10 285,820 306,971 11.00% 9/1/10 to 11/1/15 198,123 221,676 Freddie Mac S.F. 15 yr 6.50% 6/1/11 150,000 159,141 Freddie Mac S.F. 30 yr 8.00% 10/1/07 to 7/1/11 2,581,305 2,742,690 8.25% 3/1/09 500,275 530,761 8.50% 12/1/08 to 11/1/10 488,337 519,729 8.75% 5/1/10 127,305 138,086 9.00% 6/1/09 to 8/1/11 222,394 240,423 9.75% 12/1/08 43,237 47,060 11.00% 4/1/19 to 6/1/20 93,641 106,254 11.50% 4/1/11 to 3/1/16 1,076,403 1,245,692 GNMA I GPM 11.00% 7/15/10 29,779 33,297 11.50% 4/15/10 21,662 24,479 12.00% 10/15/10 25,426 28,811 12.25% 1/15/14 to 1/15/14 22,543 25,890 GNMA II GPM 9.75% 11/20/16 to 9/20/17 70,390 78,163 10.50% 11/15/15 107,781 120,985 GNMA II S.F. 15 yr 7.50% 3/20/09 51,908 55,574 GNMA II S.F. 30 yr 9.50% 11/20/20 to 11/20/21 530,411 591,739 10.50% 6/20/20 23,292 26,342 11.00% 9/20/15 to 10/20/15 207,905 235,518 11.50% 12/20/17 to 10/20/18 111,043 127,152 12.00% 4/20/14 to 5/20/16 470,094 540,041 12.50% 10/20/13 to 1/20/14 219,467 253,047 GNMA S.F. 15 yr 6.00% 2/15/09 115,878 122,541 7.50% 7/15/10 736,415 790,496 9.00% 11/15/06 65,287 65,777 GNMA S.F. 30 yr 6.00% 4/15/33 855,584 890,343 7.00% 5/15/28 1,644,709 1,756,755 7.50% 12/15/23 to 12/15/31 2,320,988 2,496,011 8.00% 6/15/30 57,843 62,941 9.00% 10/15/09 to 2/15/17 430,151 473,648 9.50% 6/15/16 to 11/15/17 202,060 226,322 11.00% 12/15/09 to 5/15/20 644,695 732,417 11.50% 7/15/15 13,030 14,960 12.50% 12/15/10 23,100 26,493 ------------ Total Agency Mortgage-Backed Securities (cost $124,853,469) 129,254,277 ------------ Agency Asset-Backed Securities - 3.62% Freddie Mac Structured Pass Through Securities Series T-56 A2A 2.842% 7/25/36 5,725,000 5,734,189 #Sallie Mae Student Loan Trust Series 97-1 A2 1.471% 1/25/10 4,434,794 4,454,659 #Sallie Mae Student Loan Trust Series 97-2 Class A2 1.501% 1/25/10 264,263 264,989 #Sallie Mae Student Loan Trust Series 97-3 Class A2 1.541% 10/25/10 1,250,599 1,256,658 Principal Market Amount Value Agency Asset-Backed Securities (continued) #Sallie Mae Student Loan Trust Series 97-4 Class A2 1.651% 10/25/10 $ 360,963 $ 364,926 #Sallie Mae Student Loan Trust Series 98-2 A2 1.631% 1/25/14 1,582,307 1,593,952 ----------- Total Agency Asset-Backed Securities (cost $13,625,611) 13,669,373 ----------- Asset-Backed Securities - 4.53% Citibank Credit Card Issuance Trust Series 2002-A1 Class A1 4.95% 2/9/09 1,000,000 1,062,483 Freddie Mac Structured Pass Through Securities Series T-50 A3 2.182% 9/27/07 4,870,347 4,874,696 MBNA Credit Card Master Note Trust Series 01-A1 Class A1 5.75% 10/15/08 1,435,000 1,543,317 MBNA Credit Card Master Note Trust Series 2003-A1 Class A1 3.30% 7/15/10 1,000,000 998,731 **Nissan Auto Loan Trust Series 2002-A Class A3B 144A 2.56% 8/15/07 3,410,000 3,437,548 PP&L Transition Bond Series 1991-1 Class A5 6.83% 3/25/07 510,182 528,420 Residential Asset Securities Series 2001-KS3 AI4 5.81% 8/25/29 100,000 101,551 **Sierra Receivables Funding Series 2003-1A Class A 144A 3.09% 1/15/14 1,360,504 1,357,528 **Sierra Receivables Funding Series 2003-2A A1 144A 3.03% 9/15/15 1,202,895 1,199,888 Whole Auto Loan Trust 2002-1 A4 3.04% 4/15/09 2,000,000 2,027,024 ----------- Total Asset-Backed Securities (cost $17,034,635) 17,131,186 ----------- Collateralized Mortgage Obligations - 5.16% #Bank of America Mortgage Securities Series 2003-A Class 2A4 2.994% 2/25/33 746,221 745,520 Countrywide Alternative Loan Trust Series 02-7 6.75% 8/25/32 191,734 193,481 CS First Boston Mortgage Securities Series 02-30 1A1 7.50% 11/25/32 591,671 627,132 CS First Boston Mortgage Securities Series 03-23 7A1 5.00% 9/25/18 1,590,065 1,607,742 CS First Boston Mortgage Securities Series 03-29 5A1 7.00% 12/25/33 2,400,000 2,532,375 **GSMPS Mortgage Loan Trust Series 1998-2 Class A 144A 7.75% 5/19/27 555,836 610,162 Norwest Integrated Structured Assets Series 1998-1 2A4 7.00% 6/25/28 568,918 568,281 4 Statement Delaware Limited-Term Government Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value Collateralized Mortgage Obligations (continued) #Structured Asset Securities Series 2002-22H 1A 7.00% 11/25/32 $ 4,093,379 $ 4,257,461 Vendee Mortgage Trust Series 93-1 Class K 7.25% 4/15/12 5,000,000 5,170,103 #Washington Mutual Series 03-AR4 A7 3.95% 5/25/33 3,160,000 3,167,152 ----------- Total Collateralized Mortgage Obligations (cost $19,635,239) 19,479,409 ----------- Commercial Mortgage-Backed Securities - 0.59% #**JP Morgan Chase Commercial Mortgage Series 2002-FLIA A1 144A 1.44% 2/14/15 2,228,848 2,228,987 ----------- Total Commercial Mortgage-Backed Securities (cost $2,229,609) 2,228,987 ----------- Corporate Bonds - 6.71% Banking & Finance - 3.13% Citigroup 6.00% 2/21/12 1,500,000 1,641,780 Countrywide Home Loans 5.625% 5/15/07 1,500,000 1,620,641 First Bank National Association 7.30% 8/15/05 650,000 704,676 General Electric Capital 5.875% 2/15/12 1,000,000 1,076,477 GMAC 6.75% 1/15/06 1,375,000 1,476,831 Merrill Lynch 6.00% 2/17/09 500,000 550,266 Morgan Stanley 5.30% 3/1/13 1,500,000 1,535,024 **TIAA Global Markets 144A 2.75% 1/13/06 905,000 916,227 US Bank National Association 6.30% 2/4/14 2,130,000 2,350,245 ----------- 11,872,167 ----------- Cable, Media & Publishing - 0.29% Thomson Multimedia 5.75% 2/1/08 1,000,000 1,085,453 ----------- 1,085,453 ----------- Chemicals - 0.24% Dow Chemical 6.00% 10/1/12 865,000 912,079 ----------- 912,079 ----------- Computers & Technology - 0.44% Computer Sciences 6.75% 6/15/06 1,500,000 1,645,910 ----------- 1,645,910 ----------- Energy - 0.54% ConocoPhillips 4.75% 10/15/12 1,500,000 1,508,994 North Border Pipeline 6.25% 5/1/07 500,000 543,782 ----------- 2,052,776 ----------- Food, Beverage & Tobacco - 0.34% Kraft Foods 4.625% 11/1/06 400,000 417,687 Universal 6.50% 2/15/06 790,000 852,175 ----------- 1,269,862 ----------- Industrial - 0.39% Hutchison Whampoa International Limited 6.50% 2/13/13 1,420,000 1,481,282 ----------- 1,481,282 ----------- Retail - 0.58% Target 5.875% 3/1/12 2,005,000 2,179,631 ----------- 2,179,631 ----------- Principal Market Amount Value Corporate Bonds (continued) Telecommunications - 0.47% Cingular Wireless 5.625% 12/15/06 $ 650,000 $ 697,702 Verizon Wireless 5.375% 12/15/06 1,000,000 1,067,975 ------------ 1,765,677 ------------ Utilities - 0.29% Southern Capital 5.30% 2/1/07 1,000,000 1,079,634 ------------ 1,079,634 ------------ Total Corporate Bonds (cost $24,384,385) 25,344,471 ------------ U.S. Treasury Obligations - 16.67% U.S. Treasury Bonds 10.75% 8/15/05 4,905,000 5,623,509 11.625% 11/15/04 3,430,000 3,737,630 12.00% 8/15/13 7,180,000 9,922,430 U.S. Treasury Inflation Index Notes 1.875% 7/15/13 1,495,796 1,485,514 3.00% 7/15/12 3,271,966 3,567,977 3.375% 1/15/07 4,670,680 5,061,121 *3.875% 1/15/09 9,926,840 11,212,683 U.S. Treasury Notes 3.375% 11/15/08 7,175,000 7,234,144 4.25% 11/15/13 3,105,000 3,102,575 +U.S. Treasury Principal Only Strip 3.99% 8/15/10 15,500,000 12,025,240 ------------ Total U.S. Treasury Obligations (cost $64,035,990) 62,972,823 ------------ Repurchase Agreements - 9.48% With BNP Paribas 0.85% 1/2/04 (dated 12/31/03, collateralized by $829,000 U.S. Treasury Bills due 3/25/04, market value $827,468 $3,069,000 U.S. Treasury Notes 3.625% due 3/31/04, market value $3,117,433, $9,438,000 U.S. Treasury Notes 6.00% due 8/15/04, market value $9,941,218, and $4,871,000 U.S. Treasury Notes 1.625% due 1/31/05, market value $4,924,992) 18,436,000 18,436,000 With UBS Warburg 0.85% 1/2/04 (dated 12/31/03, collateralized by $4,042,000 U.S. Treasury Notes 1.625% due 3/31/05, market value $4,074,506 $139,000 U.S. Treasury Notes 5.50% due 2/15/08, market value $156,177 and $12,127,000 U.S. Treasury Notes 5.625% due 5/15/08, market value $13,526,765) 17,383,000 17,383,000 ------------ Total Repurchase Agreements (cost $35,819,000) 35,819,000 ------------ Total Market Value of Securities - 108.69% (cost $406,811,549) 410,655,932 Liabilities Net of Receivables and Other Assets - (8.69%) (32,825,611)++ ------------ Net Assets Applicable to 43,811,164 Shares Outstanding - 100.00% $377,830,321 ============ 5 Statement Delaware Limited-Term Government Fund OF NET ASSETS (CONTINUED) Net Asset Value - Delaware Limited-Term Government Fund Class A ($249,844,700/28,970,456 shares) $8.62 ----- Net Asset Value - Delaware Limited-Term Government Fund Class B ($37,774,256/4,380,220 shares) $8.62 ----- Net Asset Value - Delaware Limited-Term Government Fund Class C ($72,045,059/8,354,054 shares) $8.62 ----- Net Asset Value - Delaware Limited-Term Government Fund Class R ($1,498,925/173,763 shares) $8.63 ----- Net Asset Value - Delaware Limited-Term Government Institutional Class ($16,667,381/1,932,671 shares) $8.62 ----- Components of Net Assets at December 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $415,476,558 Accumulated net realized loss on investments (41,140,306) Net unrealized appreciation of investments 3,494,069 ------------ Total net assets $377,830,321 ============ *Fully or partially pledged as collateral for financial futures contracts. **Securities exempt from registration under Rule 144A of the Securities Act of 1933. See Note 9 in "Notes to Financial Statements." +The interest rate shown is the effective yield as of time of purchase. ++Of this amount $36,078,395 represents payable for securities purchased as of December 31, 2003. #Variable Rate Notes -- the interest rate shown is the rate as of December 31, 2003. Summary of Abbreviations: ARM - Adjustable Rate Mortgage FHAVA - Federal Housing Authority & Veterans Administration GNMA - Government National Mortgage Association GPM - Graduate Payment Mortgage S.F. - Single Family TBA - To Be Announced Net Asset Value and Offering Price per Share - Delaware Limited-Term Government Fund Net asset value Class A (A) $8.62 Sales charge (2.75% of offering price, or 2.78% of amount invested per share) (B) 0.24 ----- Offering price $8.86 ===== (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 6 Statement Delaware Limited-Term Government Fund OF OPERATIONS Year Ended December 31, 2003 Investment Income: Interest $13,301,109 ----------- Expenses: Management fees 1,996,348 Dividend disbursing and transfer agent fees and expenses 939,161 Distribution expenses - Class A 722,076 Distribution expenses - Class B 445,190 Distribution expenses - Class C 769,171 Distribution expenses - Class R 1,454 Accounting and administration expenses 169,971 Reports and statements to shareholders 115,799 Custodian fees 60,490 Registration fees 59,461 Professional fees 37,824 Trustees' fees 19,750 Other 93,283 5,429,978 --------- Less expenses absorbed or waived (1,063,859) Less waiver of distribution expenses -- Class A (328,533) Less expenses paid indirectly (32,273) ----------- Total expenses 4,005,313 ----------- Net Investment Income 9,295,976 ----------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on: Investments 5,241,816 Futures contracts (1,519,079) Options written 243,634 Swap agreements 1,023,753 ----------- Net realized gain 4,990,124 Net change in unrealized appreciation/depreciation of investments (6,658,617) ----------- Net Realized and Unrealized Loss on Investments (1,668,493) ----------- Net Increase in Net Assets Resulting from Operations $ 7,627,483 =========== See accompanying notes 7 Statements Delaware Limited-Term Government Fund OF CHANGES IN NET ASSETS
Year Ended 12/31/03 12/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 9,295,976 $ 11,920,607 Net realized gain on investment 4,990,124 4,528,352 Net change in unrealized appreciation/depreciation of investments (6,658,617) 4,635,340 ------------ ------------ Net increase in net assets resulting from operations 7,627,483 21,084,299 ------------ ------------ Dividends and Distributions to Shareholders from: Net investment income: Class A (9,514,180) (11,413,821) Class B (1,267,290) (1,390,120) Class C (2,170,318) (1,732,925) Class R (5,990) -- Institutional Class (560,921) (471,156) Return of capital: Class A (525,114) -- Class B (62,205) -- Class C (116,571) -- Class R (2,208) -- Institutional Class (34,833) -- ------------ ------------ (14,259,630) (15,008,022) ------------ ------------ Capital Share Transactions: Proceeds from shares sold: Class A 71,852,730 86,761,260 Class B 13,076,956 40,198,695 Class C 33,470,252 60,264,474 Class R 1,589,403 -- Institutional Class 6,264,430 8,734,589 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 7,756,306 8,340,113 Class B 1,025,233 1,020,132 Class C 1,656,390 1,194,947 Class R 6,845 -- Institutional Class 588,306 467,489 ------------ ------------ 137,286,851 206,981,699 ------------ ------------ Cost of shares repurchased: Class A (76,184,416) (56,871,624) Class B (25,919,343) (13,289,426) Class C (32,927,494) (12,566,802) Class R (94,369) -- Institutional Class (3,231,739) (3,194,621) ------------ ------------ (138,357,361) (85,922,473) ------------ ------------ Increase (decrease) in net assets derived from capital share transactions (1,070,510) 121,059,226 ------------ ------------ Net Increase (Decrease) in Net Assets (7,702,657) 127,135,503 Net Assets: Beginning of year 385,532,978 258,397,475 ------------ ------------ End of year $377,830,321 $385,532,978 ============ ============
See accompanying notes 8 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Limited-Term Government Fund Class A - ------------------------------------------------------------------------------------------------------------------------ Year Ended 12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99 Net asset value, beginning of period $8.770 $8.600 $8.430 $8.270 $8.700 Income (loss) from investment operations: Net investment income 0.222 0.349 0.423 0.522 0.519 Net realized and unrealized gain (loss) on investments (0.039) 0.255 0.238 0.161 (0.429) ------ ------ ------ ------ ------ Total from investment operations 0.183 0.604 0.661 0.683 0.090 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income (0.315) (0.434) (0.491) (0.523) (0.520) Return of capital (0.018) -- -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.333) (0.434) (0.491) (0.523) (0.520) ------ ------ ------ ------ ------ Net asset value, end of period $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== Total return(2) 2.12% 7.08% 8.16% 8.59% 1.07% Ratios and supplemental data: Net assets, end of period (000 omitted) $249,845 $250,729 $208,152 $208,565 $262,776 Ratio of expenses to average net assets 0.75% 0.75% 0.89% 1.13% 1.00% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.14% 1.05% 1.08% 1.13% 1.00% Ratio of net investment income to average net assets 2.57% 3.99% 4.92% 6.36% 6.12% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.18% 3.69% 4.73% 6.36% 6.12% Portfolio turnover 483% 313% 386% 273% 175%
(1) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment companies that required amortization of all premiums and discounts on debt securities and the recording of paydown gains and losses on mortgage- and asset-backed securities as an adjustment to interest income. The effect of these changes for the year ended December 31, 2001 was a decrease in net investment income per share of $0.068, an increase in net realized and unrealized gain (loss) per share of $0.068, and a decrease in the ratio of net investment income to average net assets of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 9 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Limited-Term Government Fund Class B - ------------------------------------------------------------------------------------------------------------------------ Year Ended 12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99 Net asset value, beginning of period $8.770 $8.600 $8.430 $8.270 $8.700 Income (loss) from investment operations: Net investment income 0.152 0.274 0.348 0.453 0.447 Net realized and unrealized gain (loss) on investments (0.044) 0.255 0.238 0.160 (0.429) ------ ------ ------ ------ ------ Total from investment operations 0.108 0.529 0.586 0.613 0.018 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income (0.244) (0.359) (0.416) (0.453) (0.448) Return of capital (0.014) -- -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.258) (0.359) (0.416) (0.453) (0.448) ------ ------ ------ ------ ------ Net asset value, end of period $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== Total return(2) 1.25% 6.17% 7.22% 7.68% 0.22% Ratios and supplemental data: Net assets, end of period (000 omitted) $37,774 $50,326 $21,743 $8,600 $12,483 Ratio of expenses to average net assets 1.60% 1.60% 1.74% 1.98% 1.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.86% 1.90% 1.93% 1.98% 1.85% Ratio of net investment income to average net assets 1.72% 3.14% 4.07% 5.51% 5.27% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.46% 2.84% 3.88% 5.51% 5.27% Portfolio turnover 483% 313% 386% 273% 175%
(1) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment companies that required amortization of all premiums and discounts on debt securities and the recording of paydown gains and losses on mortgage- and asset-backed securities as an adjustment to interest income. The effect of these changes for the year ended December 31, 2001 was a decrease in net investment income per share of $0.068, an increase in net realized and unrealized gain (loss) per share of $0.068, and a decrease in the ratio of net investment income to average net assets of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 10 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Limited-Term Government Fund Class C - ------------------------------------------------------------------------------------------------------------------------ Year Ended 12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99 Net asset value, beginning of period $8.770 $8.600 $8.430 $8.270 $8.700 Income (loss) from investment operations: Net investment income 0.152 0.274 0.347 0.453 0.447 Net realized and unrealized gain (loss) on investments (0.044) 0.255 0.238 0.160 (0.431) ------ ------ ------ ------ ------ Total from investment operations 0.108 0.529 0.585 0.613 0.016 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income (0.244) (0.359) (0.415) (0.453) (0.446) Return of capital (0.014) -- -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.258) (0.359) (0.415) (0.453) (0.446) ------ ------ ------ ------ ------ Net asset value, end of period $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== Total return(2) 1.25% 6.16% 7.20% 7.68% 0.20% Ratios and supplemental data: Net assets, end of period (000 omitted) $72,045 $71,189 $21,386 $4,506 $6,638 Ratio of expenses to average net assets 1.60% 1.60% 1.74% 1.98% 1.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.86% 1.90% 1.93% 1.98% 1.85% Ratio of net investment income to average net assets 1.72% 3.14% 4.07% 5.51% 5.27% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.46% 2.84% 3.88% 5.51% 5.27% Portfolio turnover 483% 313% 386% 273% 175%
(1) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment companies that required amortization of all premiums and discounts on debt securities and the recording of paydown gains and losses on mortgage- and asset-backed securities as an adjustment to interest income. The effect of these changes for the year ended December 31, 2001 was a decrease in net investment income per share of $0.068, an increase in net realized and unrealized gain (loss) per share of $0.068, and a decrease in the ratio of net investment income to average net assets of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 11 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Limited-Term Government Fund Class R - ---------------------------------------------------------------------------------------- 6/2/03(1) to 12/31/03 Net asset value, beginning of period $8.800 Income (loss) from investment operations: Net investment income 0.074 Net realized and unrealized loss on investments (0.063) ------ Total from investment operations 0.011 ------ Less dividends and distributions from: Net investment income (0.165) Return of capital (0.016) ------ Total dividends and distributions (0.181) ------ Net asset value, end of period $8.630 ====== Total return(2) 0.14% Ratios and supplemental data: Net assets, end of period (000 omitted) $1,499 Ratio of expenses to average net assets 1.20% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.38% Ratio of net investment income to average net assets 1.86% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.68% Portfolio turnover 483%
(1) Date of commencement of operations. 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 during the period and assumes reinvestment of dividend and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 12 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Limited-Term Government Fund Institutional Class - ------------------------------------------------------------------------------------------------------------------------ Year Ended 12/31/03 12/31/02 12/31/01(1) 12/31/00 12/31/99 Net asset value, beginning of period $8.770 $8.600 $8.430 $8.270 $8.700 Income (loss) from investment operations: Net investment income 0.234 0.364 0.437 0.534 0.531 Net realized and unrealized gain (loss) on investments (0.038) 0.255 0.238 0.161 (0.428) ------ ------ ------ ------ ------ Total from investment operations 0.196 0.619 0.675 0.695 0.103 ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income (0.328) (0.449) (0.505) (0.535) (0.533) Return of capital (0.018) -- -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.346) (0.449) (0.505) (0.535) (0.533) ------ ------ ------ ------ ------ Net asset value, end of period $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== Total return(2) 2.27% 7.27% 8.34% 8.75% 1.22% Ratios and supplemental data: Net assets, end of period (000 omitted) $16,667 $13,289 $7,116 $4,514 $4,448 Ratio of expenses to average net assets 0.60% 0.60% 0.74% 0.98% 0.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.86% 0.90% 0.93% 0.98% 0.85% Ratio of net investment income to average net assets 2.72% 4.14% 5.07% 6.51% 6.27% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.46% 3.84% 4.88% 6.51% 6.27% Portfolio turnover 483% 313% 386% 273% 175%
(1) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment companies that required amortization of all premiums and discounts on debt securities and the recording of paydown gains and losses on mortgage- and asset-backed securities as an adjustment to interest income. The effect of these changes for the year ended December 31, 2001 was a decrease in net investment income per share of $0.068, and increase in net realized and unrealized gain (loss) per share of $0.068, and a decrease in the ratio of net investment income to average net assets of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 13 Notes Delaware Limited-Term Government Fund TO FINANCIAL STATEMENTS December 31, 2003 Delaware Group Limited-Term Government Funds (the "Trust") is organized as a Delaware statutory trust and offers one series: Delaware Limited-Term Government Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 2.75%. Class B shares are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately 5 years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed, during the first 12 months. Class R and Institutional shares are not subject to a sales charge and are offered for sales exclusively to a limited group of investors. The investment objective of the Fund is to seek a high stable level of current income, while attempting to minimize fluctuations in principal and provide maximum liquidity. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States 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. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Futures contracts and options on futures contracts are valued at the daily quoted settlement prices. Swap agreements and other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. Federal Income Taxes -- The Fund intends to continue to qualify for federal tax purposes 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. Class Accounting -- Investment income and common expenses are allocated to the various classes of the Fund on the basis of "settled shares" of each class in relation to the net assets of the Fund. 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 Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 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 accounting principles generally accepted in the United States 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. 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. Premiums and discounts are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income. 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 commission arrangements with brokers. The amount of these expenses was approximately $9,582 for the year ended December 31, 2003. In addition, the Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the year ended December 31, 2003 was $22,691. 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, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.50% on the first $500 million of average daily net assets of the Fund, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and 0.425% on average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.60% of average daily net assets of the Fund through February 28, 2005. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. Pursuant to a distribution agreement and distribution plan, 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 Class A shares, 1.00% of the average daily net assets of the Class B and C shares, and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees through February 28, 2005 in order to prevent distribution and service fees of Class A shares from exceeding 0.15% of average daily net assets. Prior to March 1, 2003, the Board of Trustees had set the fee at an annual rate of 0.15% of the Class A shares daily net assets. At December 31, 2003, the Fund had liabilities payable to affiliates as follows: Investment management fees payable to DMC $104,289 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 35,169 Other expenses payable to DMC and affiliates* 57,419 *DMC, as part of its administrative services, pays Fund operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, professional fees, custodian fees and trustee fees. 14 Notes Delaware Limited-Term Government Fund TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) For the year ended December 31, 2003, DDLP earned $43,931 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Fund. These officers and trustees are paid no compensation by the Fund. 3. Investments For the year ended December 31, 2003, the Fund made purchases of $990,561,642 and sales of $945,923,472 of investment securities other than U.S. government securities and short-term investments. Purchases and sales of U.S. government securities were $932,586,262 and $977,614,436, respectively. At December 31, 2003, the cost of investments for federal income tax purposes was $410,050,882. At December 31, 2003, net unrealized appreciation was $605,050, of which $4,119,366 related to unrealized appreciation of investments and $3,514,316 related to unrealized depreciation of investments. 4. Dividend and Distribution Information. Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended December 31, 2003 and 2002 were as follows: 2003 2002 ----------- ----------- Ordinary income $13,518,699 $15,008,022 Return of capital 740,931 -- ----------- ----------- Total $14,259,630 $15,008,022 =========== =========== As of December 31, 2003, the components of net assets on a tax basis were as follows: Shares of beneficial interest $415,476,558 Capital loss carryforwards (37,472,496) Post-October losses (778,791) Unrealized appreciation 605,050 ------------ Net Assets $377,830,321 ============ For federal income tax purposes, capital losses may be carried forward and applied against future capital gains. Such capital loss carry forwards expire as follows: 2004 - $16,636,244, 2005-$9,442,127, 2007 - $5,505,504 and 2008 - $5,888,621. During the year ended December 31, 2003, $29,404,939 of unused capital loss carryforward expired. Post-October losses represent losses realized on investment transactions from November 1, 2003 through December 31, 2003 that, in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year. 5. Capital Shares Transactions in capital shares were as follows: Year Ended 12/31/03 12/31/02 Shares sold: Class A 8,251,896 10,010,314 Class B 1,498,856 4,629,024 Class C 3,831,293 6,946,473 Class R 183,937 -- Institutional Class 719,932 1,003,311 Shares issued upon reinvestment of dividends and distributions: Class A 892,179 963,578 Class B 117,872 117,689 Class C 190,539 137,874 Class R 793 -- Institutional Class 67,690 53,985 ---------- ---------- 15,754,987 23,862,248 ---------- ---------- Shares repurchased: Class A (8,771,483) (6,565,751) Class B (2,976,690) (1,533,347) Class C (3,787,429) (1,450,015) Class R (10,967) -- Institutional Class (370,698) (368,471) ---------- ---------- (15,917,267) (9,917,584) ---------- ---------- Net increase (decrease) (162,280) 13,944,664 ========== ========== For the years ended December 31, 2003 and 2002, 122,579 Class B shares were converted to 122,579 Class A shares valued at $1,065,018 and 76,239 Class B shares were converted to 76,239 Class A shares valued at $662,655, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 6. Futures Contracts The Fund may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest 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. (In some cases, due to the form of the futures agreement, initial margin is held in a segregated account with the Fund's custodian, rather than directly with the broker). Subsequent payments are received from the broker or paid to the broker (or added to the segregated account) 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 of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. 15 Notes Delaware Limited-Term Government Fund TO FINANCIAL STATEMENTS (CONTINUED) 6. Futures Contracts (continued) Financial futures contracts open at December 31, 2003 were as follows: Contracts Notional Unrealized to Buy/(Sell) Cost/ (Proceeds) Expiration Date Gain (Loss) - ------------- ---------------- --------------- ----------- (42) U.S. 5YR Treasury Note ($4,683,320) March 2004 $(4,930) (278) U.S. 10YR Treasury Note (30,878,954) March 2004 (330,890) (60) U.S. 2YR Treasury Note (12,753,270) March 2004 (89,543) 36 U.S. Long Bond 3,916,586 March 2004 18,664 --------- ($406,699) ========= The use of futures contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amounts presented above represent the Fund's total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund's net assets. 7. Written Options During the year ended December 31, 2003, 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 options written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as 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 a writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Transactions in options written during the year ended December 31, 2003 for the Fund were as follows: Number of Contracts Premiums --------- -------- Options outstanding at December 31, 2002 566 $560,340 Options written 4,148 1,887,956 Options terminated in closing purchase transactions (4,064) (2,198,942) ------ ---------- Options outstanding at December 31, 2003 650 $249,354 ====== ========== At December 31, 2003, the Fund had the following options written outstanding:
Number Unrealized of Notional Exercise Expiration Appreciation Description Contracts Amount Price Date (Depreciation) - ----------- --------- ------ ----- ---------- -------------- Call Options Written U.S. Treasury 10 Year Future 325 $32,500,000 115 2/21/04 $(37,823) Put Options Written U.S. Treasury 10 Year Future 325 $32,500,000 105 2/21/04 94,208 -------- $ 56,385 ========
Writing options involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amounts presented above represent the Fund's total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund's net assets. 8. Swap Agreements During the year ended December 31, 2003, the Fund entered into total return swap agreements in accordance with its investment objectives. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Total return swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. The change in value of swap agreements outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap agreement. At December 31, 2003, the Fund had no total return swap agreements outstanding. 9. Credit and Market Risk The Fund invests in fixed-income securities whose value is derived from an underlying pool of mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages and consumer loans are paid back. Some of these securities are collateralized 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. 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. A rapid rate of principal payments may have a material adverse affect 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 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. The Fund may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. 16 Notes Delaware Limited-Term Government Fund TO FINANCIAL STATEMENTS (CONTINUED) 10. Line of Credit The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $177,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amount outstanding as of December 31, 2003, or at any time during the year. 11. Tax Information (Unaudited) For the fiscal year ended December 31, 2003, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary (C) Capital Gains Income Return Total Distributions Distributions of Distributions (Tax Basis) (Tax Basis) Capital (Tax Basis) ------------- ------------- ------- ------------- -- 95% 5% 100% (A), (B) and (C) are based on a percentage of the Fund's total distribution. 17 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Delaware Group Limited-Term Government Funds - Delaware Limited-Term Government Fund We have audited the accompanying statement of net assets of Delaware Limited-Term Government Fund (the "Fund") as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Delaware Limited-Term Government Fund at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania February 6, 2004 18 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors which has oversight responsibility for the management of a fund's business affairs. Trustees/Directors establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Directors and Officers with certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 4 Years - Since August 2000, 80 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee as of at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 16 Years Board Chairman - 98 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 John H. Durham Trustee 25 Years(3) Private Investor 98 Trustee - 2005 Market Street Abington Memorial Philadelphia, PA Hospital 19103 August 7, 1937 President/Director - 22 WR Corporation John A. Fry Trustee(4) 3 Years President - 80 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) Anthony D. Knerr Trustee 11 Years Founder/Managing Director - 98 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
19
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 10 Years President/Chief 98 Director - 2005 Market Street Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - and Consulting) CenterPoint Energy (January 1993 - Present) February 25, 1936 Director - Digital River Inc. Director - Rimage Corporation Janet L. Yeomans Trustee 5 Years Vice President/Mergers & 98 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 98 None 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since August 21, 2003 December 19, 1949 Richelle S. Maestro Senior Vice President, Chief Legal Officer Ms. Maestro has served in 98 None 2005 Market Street Chief Legal Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 8 Years Mr. Bishof has served in 98 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 20 Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Limited-Term Government Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Limited-Term Government 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 Affiliated Officers Contact Information Jude T. Driscoll Joseph H. Hastings Investment Manager Chairman Executive Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA International Affiliate Walter P. Babich Delaware International Advisers Ltd. Board Chairman Richelle S. Maestro London, England Citadel Construction Corporation Senior Vice President, King of Prussia, PA Chief Legal Officer and Secretary National Distributor Delaware Investments Family of Funds Delaware Distributors, L.P. John H. Durham Philadelphia, PA Philadelphia, PA Private Investor Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend Senior Vice President and Treasurer Disbursing and Transfer Agent John A. Fry Delaware Investments Family of Funds Delaware Service Company, Inc. President Philadelphia, PA 2005 Market Street Franklin & Marshall College Philadelphia, PA 19103-7094 Lancaster, PA For Shareholders Anthony D. Knerr 800 523-1918 Managing Director Anthony Knerr & Associates For Securities Dealers and Financial New York, NY Institutions Representatives Only 800 362-7500 Ann R. Leven Former Treasurer/Chief Fiscal Officer Web site National Gallery of Art www.delawareinvestments.com Washington, DC Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN
- -------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. - -------------------------------------------------------------------------------- (8522) Printed in the USA AR-022 [12/03] IVES 2/04 J9562 EXP: 2/05 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Ann R. Leven Thomas F. Madison Janet L. Yeomans (1) Item 4. Principal Accountant Fees and Services (a) Audit fees. The aggregate fees billed for services provided to the Registrant by its independent auditors for the audit of the Registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $23,750 for the fiscal year ended December 31, 2003. The aggregate fees billed for services provided to the Registrant by its independent auditors for the audit of the Registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $21,350 for the fiscal year ended December 31, 2002. - ---------------------- (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. (b) Audit-related fees. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the Registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2003. The aggregate fees billed for services relating to the performance of the audit of the financial statements of the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $162,700 for the Registrant's fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: Preparation of report concerning transfer agents' system of internal accounting control and related procedures; preparation of procedures report to the Funds' Board in connection with the annual transfer agent contract renewals and in connection with the pass-through of internal legal costs relating to the operations of the Funds; and preparation of report on Controls Placed in Operation and Tests of Operating Effectiveness Relating to the Retirement Plan Services Division for provision to defined contribution plans' auditors and in response to institutional requests for proposal. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the Registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2002. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the financial statements of the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $166,400 for the Registrant's fiscal year ended December 31, 2002. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: Preparation of report concerning transfer agents' system of internal accounting control and related procedures; and preparation of procedures report to the Funds' Board in connection with the annual transfer agent contract renewals and in connection with the pass-through of internal legal costs relating to the operations of the Funds. (c) Tax fees. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,250 for the fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: Review of income tax returns and excise tax returns. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2003. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,150 for the fiscal year ended December 31, 2002. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: Review of income tax returns and excise tax returns. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2002. (d) All other fees. The aggregate fees billed for all services provided by the independent auditors to the Registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended December 31, 2003. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the Registrant's independent auditors to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2003. The aggregate fees billed for all services provided by the independent auditors to the Registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended December 31, 2002. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the Registrant's independent auditors to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2002. (e) The Registrant's Audit Committee has not established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by the Registrant's independent auditors for services rendered to the Registrant and to its investment adviser and other service providers under common control with the adviser were $286,850 and $303,900 for the Registrant's fiscal years ended December 31, 2003 and December 31, 2002, respectively. (h) In connection with its selection of the independent auditors, the Registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the Registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. Name of Registrant: Delaware Group Limited-Term Government Funds JUDE T. DRISCOLL - -------------------- By: Jude T. Driscoll ---------------- Title: Chairman Date: 4/2/04 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. JUDE T. DRISCOLL - -------------------- By: Jude T. Driscoll ---------------- Title: Chairman Date: 4/2/04 --------------- JOSEPH H. HASTINGS - -------------------------------- By: Joseph H. Hastings ----------------------- Title: Chief Financial Officer Date: 4/2/04 --------------------------- EX-99.CERT 3 ex99-cert.txt EXHIBIT 99.CERT EXHIBIT 99.CERT CERTIFICATION ------------- I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Limited-Term Government Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 4/2/04 ------------------- JUDE T. DRISCOLL - ---------------- By: Jude T. Driscoll ---------------- Title: Chairman CERTIFICATION ------------- I, Joseph H. Hastings, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Limited-Term Government Funds 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 4/2/04 -------------------------- JOSEPH H. HASTINGS - ------------------ By: Joseph H. Hastings Title: Chief Financial Officer EX-99.906 4 ex99-906cert.txt EXHIBIT 99.906CERT EXHIBIT 99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. Date: 4/2/04 --------------------------- JUDE T. DRISCOLL - ---------------- By: Jude T. Driscoll ---------------- Title: Chairman JOSEPH H. HASTINGS - ------------------ By: Joseph H. Hastings ------------------ Title: Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----