N-CSR 1 n-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR 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: February 29, 2004 Item 1. Reports to Stockholders Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME SEMIANNUAL REPORT JUNE 30, 2004 -------------------------------------------------------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND [GRAPHIC OMITTED] POWERED BY RESEARCH.(SM) TABLE OF CONTENTS ------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 1 Statement of Assets and Liabilities 5 Statement of Operations 6 Statements of Changes in Net Assets 7 Financial Highlights 8 Notes to Financial Statements 13 ------------------------------------------------------------- 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. STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS June 30, 2004 (Unaudited) Principal Market Amount Value AGENCY BOND - 3.74% Fannie Mae 2.25% 2/28/06 $ 1,250,000 $ 1,239,748 2.75% 8/11/06 4,615,000 4,578,315 3.25% 8/15/08 7,220,000 7,033,514 Federal Farm Credit Bank 2.125% 7/17/06 30,000 29,462 ----------- TOTAL AGENCY BOND (cost $13,140,219) 12,881,039 ----------- AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 22.50% *Collateralized Mortgage Obligation Trust Series 38 Class A 1.94% 12/25/17 719,284 719,572 *Collateralized Mortgage Obligation Trust Series 47 Class D 2.025% 9/1/18 397,216 397,536 *E.F. Hutton Trust III Series 1 Class A 1.92% 10/25/17 300,283 300,586 Fannie Mae Grantor Trust Series 01-T8 Class A2 9.50% 7/25/41 3,345,760 3,755,748 Fannie Mae Grantor Trust Series 2001-T10 Class A1 7.00% 12/25/41 994,154 1,050,823 Fannie Mae Grantor Trust Series 2002-T1 Class A2 7.00% 11/25/31 432,363 458,035 Fannie Mae Grantor Trust Series 2002-T16 Class A3 7.50% 7/25/42 1,265,539 1,356,101 Fannie Mae Series 02-W7 Class A2 4.80% 3/25/22 1,804,394 1,807,085 Fannie Mae Series 03-18 Class DA 4.50% 11/25/14 4,898,413 4,951,822 Fannie Mae Series 03-86 Class OJ 5.00% 3/25/17 5,945,000 6,102,581 Fannie Mae Series 03-W14 Class 1A5 4.71% 9/25/43 6,007,137 6,109,978 Fannie Mae Series 1993-18 Park 6.50% 2/25/08 975,000 1,029,392 Fannie Mae Series 2002-W1 Class 2A 7.50% 2/25/42 777,511 833,149 Fannie Mae Series 2480 Class EH 6.00% 11/15/31 2,623,494 2,686,324 Fannie Mae Whole Loan 6.50% 2/25/44 820,000 854,850 Fannie Mae Whole Loan Series 02-W1 Class 1A2 4.81% 12/25/33 492,112 492,098 Freddie Mac - GNMA Series 21 Class J 6.25% 8/25/22 144,938 146,265 Freddie Mac Series 69 Class F 9.00% 12/15/05 729 731 Freddie Mac Structured Pass Through Securities Series T-42 Class A5 7.50% 2/25/42 272,240 291,722 Freddie Mac Structured Pass Through Securities Series T-56 Class A2A 2.842% 7/25/36 5,725,000 5,663,084 Freddie Mac Structured Pass Through Securities Series T-58 Class 1A2 3.108% 5/25/35 2,083,000 2,079,485 Freddie Mac Structured Pass Through Securities Series T-58 Class 2A 6.50% 9/25/43 6,345,676 6,629,250 Principal Market Amount Value AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) GNMA Series 02-61 Class BA 4.648% 3/16/26 $ 3,000,000 $ 3,003,309 GNMA Series 04-45 Class A 4.02% 12/16/21 3,000,000 2,987,109 GNMA Series 2002-28 Class B 5.779% 7/16/24 6,000,000 6,300,194 GNMA Series 2003-43 Class B 4.374% 4/16/33 5,000,000 4,840,773 GNMA Series 2003-72 Class C 4.86% 2/16/30 2,500,000 2,466,737 GNMA Series 2003-78 Class B 5.11% 10/16/27 5,000,000 4,999,637 Vendee Mortgage Trust Series 93-1 Class K 7.25% 4/15/13 5,000,000 5,195,551 ----------- TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (cost $77,906,415) 77,509,527 ----------- AGENCY MORTGAGE-BACKED SECURITIES - 41.10% Fannie Mae 4.50% 10/1/10 to 7/1/19 12,963,131 12,903,229 4.92% 5/1/13 3,865,000 3,871,039 5.00% 7/1/19 19,255,000 19,279,070 5.50% 5/15/09 1,990,245 2,059,282 6.00% 7/1/34 8,295,000 8,468,678 6.50% 3/1/34 1,280,000 1,332,800 7.41% 4/1/10 4,901,762 5,552,778 7.50% 12/1/10 to 6/1/31 691,080 740,062 8.00% 8/15/07 to 10/1/14 1,233,527 1,298,041 9.00% 11/1/15 318,572 345,551 10.00% 10/1/30 431,690 492,127 10.50% 6/1/30 129,522 148,424 Fannie Mae ARM *4.971% 11/1/33 4,092,975 4,085,448 *4.142% 12/1/33 3,172,469 3,243,850 Fannie Mae Balloon 7 yr 4.00% 8/1/10 3,058,891 2,992,934 Fannie Mae Balloon 7 yr July 04 TBA 5.50% 7/1/19 3,725,000 3,809,977 Fannie Mae FHAVA 7.25% 4/1/09 30,649 32,306 7.50% 3/1/25 94,527 102,207 8.50% 8/1/09 26,114 28,146 10.00% 1/1/19 73,188 82,313 11.00% 8/1/10 to 12/1/15 1,167,442 1,316,022 Fannie Mae GPM 11.00% 11/1/10 36,255 40,266 Fannie Mae Relocation 30 yr 5.00% 9/1/33 1,005,391 982,455 Fannie Mae S.F. 15 yr 6.00% 12/1/08 to 6/1/17 5,420,883 5,662,514 6.50% 8/1/08 18,644 19,745 7.50% 4/1/11 36,953 39,458 8.00% 10/1/09 201,816 215,124 8.50% 3/1/08 98,912 102,281 Fannie Mae S.F. 15 yr July 04 TBA 5.00% 7/1/11 4,150,000 4,195,391 Fannie Mae S.F. 20 yr 6.50% 2/1/22 1,122,817 1,176,502 1 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value AGENCY MORTGAGE-BACKED SECURITIES (continued) Fannie Mae S.F. 30 yr 5.50% 3/1/29 to 4/1/29 $ 4,099,267 $ 4,109,514 6.00% 7/1/33 1,617,029 1,653,412 6.50% 10/1/29 3,695,009 3,870,374 7.00% 8/1/32 to 9/1/32 1,024,542 1,081,532 7.50% 3/1/14 to 11/1/31 1,214,349 1,306,657 8.00% 5/1/05 to 5/1/24 1,445,443 1,581,403 8.50% 11/1/07 to 8/1/17 983,948 1,062,418 9.00% 8/1/22 958,360 1,077,256 9.25% 7/1/08 to 3/1/20 221,823 247,004 10.00% 2/1/25 2,014,622 2,292,577 11.00% 7/1/12 to 8/1/20 481,262 542,257 11.50% 11/1/16 227,980 263,316 12.50% 2/1/11 13,108 14,710 13.00% 7/1/15 55,873 63,450 Freddie Mac 6.50% 6/17/14 36,325 38,379 9.00% 3/17/08 41,139 43,234 *Freddie Mac ARM 3.904% 4/1/33 3,516,015 3,555,809 Freddie Mac Balloon 5 yr 4.00% 3/1/08 to 8/1/08 4,311,198 4,312,545 Freddie Mac Balloon 7 yr 4.50% 12/1/10 1,913,197 1,910,208 6.00% 4/1/09 147,579 151,360 Freddie Mac FHAVA 8.00% 3/1/08 97,734 101,643 8.50% 1/1/09 45,721 48,500 9.50% 11/1/05 to 2/1/10 221,157 234,892 11.00% 9/1/10 to 2/1/14 35,392 39,370 Freddie Mac FHAVA Tiered Payment 11.00% 11/1/15 49,127 54,455 Freddie Mac Relocation 15 yr 3.50% 9/1/18 to 10/1/18 6,034,508 5,781,813 Freddie Mac Relocation 30 yr 5.00% 9/1/33 3,943,784 3,852,584 6.50% 10/1/30 8,845 9,235 Freddie Mac S.F. 15 yr 6.00% 10/1/10 54,273 56,800 6.50% 11/1/09 to 6/1/11 106,077 112,310 7.50% 4/1/11 176,004 187,444 8.00% 7/1/16 686,691 735,404 9.00% 10/1/06 33,781 34,636 Freddie Mac S.F. 30 yr 6.00% 10/1/29 2,988,796 3,070,054 8.00% 10/1/07 to 7/1/11 1,949,677 2,058,148 8.25% 3/1/09 370,902 386,897 8.50% 2/1/08 to 11/1/10 403,253 426,939 8.75% 5/1/10 115,734 125,572 9.00% 6/1/09 to 9/1/30 1,297,741 1,425,417 9.50% 6/1/16 27,373 29,768 9.75% 12/1/08 31,663 34,226 11.00% 4/1/19 to 6/1/20 60,706 68,619 11.50% 4/1/11 to 3/1/16 922,474 1,065,041 GNMA Buydown 10.50% 11/15/15 105,509 117,972 GNMA I GPM 11.00% 7/15/10 28,149 31,289 11.50% 4/15/10 20,450 22,917 12.00% 10/15/10 24,128 27,129 12.25% 1/15/14 to 1/15/14 21,455 24,451 Principal Market Amount Value AGENCY MORTGAGE-BACKED SECURITIES (continued) GNMA II GPM 9.75% 12/20/16 to 9/20/17 $ 24,122 $ 26,631 GNMA II S.F. 15 yr 7.50% 3/20/09 40,752 43,414 GNMA II S.F. 30 yr 9.50% 11/20/20 to 11/20/21 429,551 484,405 10.50% 6/20/20 8,008 9,034 11.00% 9/20/15 to 10/20/15 183,800 207,547 11.50% 12/20/17 to 10/20/18 108,544 123,957 12.00% 4/20/14 to 5/20/16 372,207 425,651 12.50% 10/20/13 to 1/20/14 190,071 218,061 GNMA Mobile Home 6.50% 9/15/10 46,686 49,560 GNMA S.F. 15 yr 6.00% 2/15/09 88,648 93,108 7.00% 12/15/11 123,223 131,540 7.50% 7/15/10 to 9/15/10 621,775 659,190 9.00% 11/15/06 38,356 38,847 GNMA S.F. 30 yr 6.00% 4/15/33 849,740 872,577 7.00% 5/15/28 1,192,715 1,270,615 7.50% 12/15/23 to 12/15/31 1,554,490 1,680,140 8.00% 6/15/30 45,051 49,401 9.00% 10/15/09 to 2/15/17 349,018 382,762 9.50% 6/15/16 to 11/15/17 154,548 174,572 11.00% 12/15/09 to 5/15/20 518,296 585,927 11.50% 7/15/15 12,666 14,483 12.50% 12/15/10 22,051 25,118 ------------ TOTAL AGENCY MORTGAGE-BACKED SECURITIES (cost $139,394,586) 141,525,500 ------------ ASSET-BACKED SECURITIES - 9.27% *American Express Credit Account Master Trust Series 2003-3 Class A 1.349% 11/15/10 500,000 500,746 Americredit Automobile Receivables Trust Series 2001-C Class A4 5.01% 7/14/08 695,000 711,463 *Bank One Issurance Trust Series 2003 Class A6 1.349% 5/15/11 1,025,000 1,026,598 *Chase Credit Card Master Trust Series 2002-1 Class A 1.339% 6/15/09 750,000 751,163 Citibank Credit Card Issuance Trust Series 02-A1 A1 4.95% 2/9/09 1,110,000 1,151,896 Freddie Mac Structured Pass Through Securities Series T-50 A3 2.182% 9/27/07 1,086,536 1,085,418 Harley-Davidson Motorcycle Trust Series 2003-4 Class A1 1.47% 4/15/08 1,185,889 1,180,439 Honda Auto Receivables Owner Trust Series 2004-2 Class A4 3.81% 10/15/09 750,000 750,780 John Deere Owner Trust Series 04-A Class A4 3.02% 3/15/11 2,840,000 2,826,434 *MBNA Credit Card Master Note Trust Series 96-B Class A 1.499% 8/15/08 595,000 597,423 MBNA Credit Card Master Note Trust Series 01-A1 Class A1 5.75% 10/15/08 1,435,000 1,505,865 MBNA Credit Card Master Note Trust Series 03-A1 Class A1 3.30% 7/15/10 1,000,000 981,028 PP&L Transition Bond Series 99-1 A5 6.83% 3/25/07 263,444 269,033 2 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value ASSET-BACKED SECURITIES (continued) Residential Asset Securities Series 1999-KS1 Class AI8 6.32% 4/25/30 $ 2,487,230 $ 2,560,282 Residential Asset Securities Series 2001-KS3 AI4 5.81% 8/25/29 194,006 195,180 *Sallie Mae Student Loan Trust Series 04-1 A1 1.21% 1/26/15 5,491,416 5,492,015 *Sallie Mae Student Loan Trust Series 02-7 Class A2 1.56% 6/17/13 786,928 786,971 *Sallie Mae Student Loan Trust Series 03-8 Class A1 1.53% 6/16/08 73,822 73,822 *Sallie Mae Student Loan Trust Series 04-5 Class A2 1.585% 4/25/14 2,860,000 2,859,999 *Sallie Mae Student Loan Trust Series 04-6 Class A2 1.61% 1/25/13 560,000 560,000 *Sallie Mae Student Loan Trust Series 97-2 Class A2 1.981% 1/25/10 208,325 208,841 *Sallie Mae Student Loan Trust Series 97-4 Class A2 2.131% 10/25/10 290,312 293,882 +Sierra Receivables Funding Company Series 03-1A 144A 3.09% 1/15/14 1,030,488 1,021,010 +Sierra Receivables Funding Company Series 03-2A A1 144A 3.03% 9/15/15 872,814 858,913 WFS Financial Owner Trust Series 02-1 Class A4A 4.87% 9/20/09 1,355,000 1,387,996 Whole Auto Loan Trust Series 02-1 A4 3.04% 4/15/09 2,300,000 2,304,007 ----------- TOTAL ASSET-BACKED SECURITIES (cost $32,120,518) 31,941,204 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS - 1.38% +GSMPS Mortgage Loan Trust Series 144A 1998-2 Class A 7.75% 5/19/27 728,413 783,629 MASTR Alternative Loan Trust Series 04-1 Class 2A1 7.00% 1/25/34 928,318 962,839 Structured Asset Securities Series 02-22H 1A 7.00% 11/25/32 2,925,639 3,012,666 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (cost $4,795,060) 4,759,134 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.26% Greenwich Capital Commercial Funding Series 2004-GG1 Class A7 5.317% 6/10/36 900,000 900,422 ----------- TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (cost $904,462) 900,422 ----------- CORPORATE BONDS - 5.77% Banking & Finance - 3.44% Core Investment 4.727% 11/30/07 2,725,000 2,783,206 ^First Bank National Association 7.30% 8/15/05 650,000 680,655 GMAC 6.75% 1/15/06 1,375,000 1,441,318 Merrill Lynch 6.00% 2/17/09 500,000 532,029 +Premium Asset Series 04-01 144A 1.27% 2/6/06 6,400,000 6,402,738 ----------- 11,839,946 ----------- CABLE, MEDIA & PUBLISHING - 0.32% Thomson Multimedia 5.75% 2/1/08 1,040,000 1,098,389 ----------- 1,098,389 ----------- Principal Market Amount Value CORPORATE BONDS (continued) Computers & Technology - 0.46% Computer Sciences 6.75% 6/15/06 $1,500,000 $ 1,599,525 ------------ 1,599,525 ------------ Energy - 0.58% ConocoPhillips 4.75% 10/15/12 1,500,000 1,468,270 Northern Border Pipeline 6.25% 5/1/07 500,000 536,232 ------------ 2,004,502 ------------ Food, Beverage & Tobacco - 0.36% Kraft Foods 4.625% 11/1/06 400,000 409,800 Universal 6.50% 2/15/06 790,000 831,567 ------------ 1,241,367 ------------ Telecommunications - 0.30% Verizon Wireless Capital 5.375% 12/15/06 1,000,000 1,043,134 ------------ 1,043,134 ------------ Utilities - 0.31% Southern Capital 5.30% 2/1/07 1,000,000 1,054,640 ------------ 1,054,640 ------------ TOTAL CORPORATE BONDS (cost $19,872,801) 19,881,503 ------------ Non-Agency Collateralized Mortgage Obligations - 5.46% Bank of America Alternative Loan Trust Series 04-E Class 1A1 3.559% 6/25/34 1,276,523 1,262,080 Countrywide Home Loans Series 01-HYB2 Class 3A1 5.519% 9/19/31 773,698 776,341 Credit Suisse First Boston Mortgage Securities Series 03-29 5A1 7.00% 12/25/33 1,934,706 2,038,404 Credit Suisse First Boston Mortgage Securities Series 04-1 3A1 7.00% 2/25/34 865,898 909,811 Deutsche Mortgage Securities Pass-Through Trust Series 04-4 Class 1A2 4.01% 4/25/34 785,000 783,651 GSR Mortgage Home Loan Trust Series 04-2F Class 6A1 7.00% 1/25/34 2,634,878 2,755,726 Nomura Asset Acceptance Series 04-AP1 Class A2 3.238% 3/25/34 3,130,000 3,097,232 Nomura Asset Acceptance Series 04-AP2 Class A2 4.099% 7/25/34 920,000 918,275 Residential Asset Mortgage Products Series 04-RZ2 Class AI3 4.30% 1/25/31 755,000 760,309 Residential Asset Mortgage Products Series 04-SL1 Class A3 7.00% 3/25/34 1,230,701 1,275,868 +Summit Mortgage Trust Series 02-1 Class B2 144A 6.198% 6/28/16 525,000 528,938 *Washington Mutual Series 03-AR4 A7 3.95% 5/25/33 2,112,855 2,104,475 Wells Fargo Mortgage Backed Securities Trust Series 04-I Class 1A1 3.399% 7/25/34 1,615,000 1,606,925 ------------ TOTAL NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (cost $18,932,773) 18,818,035 ------------ 3 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value U.S. TREASURY OBLIGATIONS - 11.58% **U.S. Treasury Bonds 12.00% 8/15/13 $ 8,725,000 $ 11,519,730 U.S. Treasury Inflation Index Notes 1.875% 7/15/13 1,514,780 1,496,853 2.00% 1/15/14 1,520,938 1,512,384 4.25% 1/15/10 2,994,364 3,428,080 U.S. Treasury Note 3.125% 5/15/07 to 4/15/09 5,900,000 5,810,973 4.75% 5/15/14 4,065,000 4,108,670 ++U.S. Treasury Strip 3.988% 8/15/10 15,500,000 11,995,962 ------------ TOTAL U.S. TREASURY OBLIGATIONS (cost $40,924,709) 39,872,652 ------------ REPURCHASE AGREEMENTS - 5.48 % With BNP Paribas 1.25% 7/1/04 (dated 6/30/04, to be repurchased at $9,839,341 collateralized by $1,837,000 U.S. Treasury Bills due 11/4/04, market value $1,874,205, $6,509,000 U.S. Treasury Bills due 11/18/04, market value $6,640,077, and $1,493,000 U.S. Treasury Bills due 12/23/04, market value $1,523,376) 9,839,000 9,839,000 With UBS Warburg 1.25% 7/1/04 (dated 6/30/04, to be repurchased at $9,047,314 collateralized by $1,723,000 U.S. Treasury Notes 2.25% due 7/31/04, market value $1,757,277, $1,795,000 U.S. Treasury Notes 5.875% due 11/15/05, market value $1,831,829, and $5,529,000 U.S. Treasury Notes 5.625% due 5/15/08, market value $5,680,874) 9,047,000 9,047,000 ------------ TOTAL REPURCHASE AGREEMENTS (cost $18,886,000) 18,886,000 ------------ TOTAL MARKET VALUE OF SECURITIES - 106.54% (cost $366,877,543) 366,975,016 LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (6.54%) (22,520,304) ------------ NET ASSETS APPLICABLE TO 40,587,318 SHARES OUTSTANDING - 100.00% $344,454,712 ------------ Net Asset Value - Limited-Term Government Fund Class A ($228,947,093 / 26,976,625 shares) $8.49 ----- Net Asset Value - Limited-Term Government Fund Class B ($31,865,311 / 3,754,867 shares) $8.49 ----- Net Asset Value - Limited-Term Government Fund Class C ($58,407,464 / 6,882,499 shares) $8.49 ----- Net Asset Value - Limited-Term Government Fund Class R ($1,832,322 / 215,844 shares) $8.49 ----- Net Asset Value - Limited-Term Government Fund Institutional Class ($23,402,522 / 2,757,483 shares) $8.49 ----- COMPONENTS OF NET ASSETS AT JUNE 30, 2004:# Shares of beneficial interest (unlimited authorization - no par) $387,992,423 Accumulated net realized loss on investments (43,352,013) Net unrealized depreciation of investments (185,698) ------------ Total net assets $344,454,712 ------------ *Variable Rate Notes - the interest rate shown is the rate of June 30, 2004. **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 June 30, 2004. #See Note 4 in "Notes to Financial Statements." ^Step coupon bond. 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) $8.49 Sales charge (2.75% of offering price, or 2.83% of amount invested per share) (B) 0.24 ----- Offering price $8.73 ----- (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 4 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF ASSETS AND LIABILITIES June 30, 2004 (Unaudited) ASSETS: Investments at market (cost $366,877,543) $366,975,016 Cash 16,997,240 Subscriptions receivable 176,256 Receivables for securities sold 3,017,069 Interest receivable 1,990,310 ------------ Total assets 389,155,891 ------------ LIABILITIES: Payable for securities purchased 42,616,486 Liquidations payable 989,182 Mark to market on swap agreements 112,469 Distributions payable 283,566 Management fees payable 59,572 Other accrued expenses 312,592 Mark to market on futures 327,312 ------------ Total liabilities 44,701,179 ------------ TOTAL NET ASSETS $344,454,712 ------------ See accompanying notes 5 DELAWARE LIMITED-TERM GOVERNMENT FUND STATEMENT Six Months Ended June 30, 2004 (Unaudited) OF OPERATIONS INVESTMENT INCOME: Interest $ 6,332,383 ----------- EXPENSES: Management fees $910,811 Dividend disbursing and transfer agent fees and expenses 385,824 Distribution expenses-- Class A 363,318 Distribution expenses-- Class B 172,931 Distribution expenses-- Class C 333,968 Distribution expenses-- Class R 5,047 Accounting and administration expenses 60,668 Registration fees 53,738 Reports and statements to shareholders 24,221 Legal and professional fees 19,611 Custodian fees 9,392 Trustees' fees 8,725 Other 9,088 2,357,342 -------- Less expenses absorbed or waived (374,100) Less waiver of distribution expenses -- Class A (181,659) Less expenses paid indirectly (10,984) ----------- Total expenses 1,790,599 ----------- NET INVESTMENT INCOME 4,541,784 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments (246,484) Futures contracts 196,405 Options written 1,769 Swap agreements (116,423) ----------- Net realized loss (164,733) Net change in unrealized appreciation/depreciation of investments (3,679,767) ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (3,844,500) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 697,284 ----------- See accompanying notes 6 STATEMENTS DELAWARE LIMITED-TERM GOVERNMENT FUND OF CHANGES IN NET ASSETS
Six Months Year Ended Ended 6/30/04 12/31/03 (Unaudited) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 4,541,784 $ 9,295,976 Net realized gain (loss) on investments (164,733) 4,990,124 Net change in unrealized appreciation/depreciation of investments (3,679,767) (6,658,617) ------------ ------------ Net increase in net assets resulting from operations 697,284 7,627,483 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (4,640,593) (9,514,180) Class B (515,044) (1,267,290) Class C (994,650) (2,170,318) Class R (28,512) (5,990) Institutional Class (410,297) (560,921) Return of capital: Class A -- (525,114) Class B -- (62,205) Class C -- (116,571) Class R -- (2,208) Institutional Class -- (34,833) ------------ ------------ (6,589,096) (14,259,630) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 24,736,812 71,852,730 Class B 2,843,835 13,076,956 Class C 7,205,187 33,470,252 Class R 436,373 1,589,403 Institutional Class 8,955,483 6,264,430 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 3,659,971 7,756,306 Class B 396,586 1,025,233 Class C 745,362 1,656,390 Class R 28,452 6,845 Institutional Class 405,686 588,306 ------------ ------------ 49,413,747 137,286,851 ------------ ------------ Cost of shares repurchased: Class A (45,389,374) (76,184,416) Class B (8,626,845) (25,919,343) Class C (20,538,624) (32,927,494) Class R (102,964) (94,369) Institutional Class (2,239,737) (3,231,739) ------------ ------------ (76,897,544) (138,357,361) ------------ ------------ Decrease in net assets derived from capital share transactions (27,483,797) (1,070,510) ------------ ------------ NET DECREASE IN NET ASSETS (33,375,609) (7,702,657) NET ASSETS: Beginning of period 377,830,321 385,532,978 ------------ ------------ End of period (there is no undistributed income at each period end) $344,454,712 $377,830,321 ------------ ------------
See accompanying notes 7 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
------------------------------------------------------------------------------------------------------------------------------------ Delaware Limited-Term Government Fund Class A ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended 6/30/04(1) 12/31/03 12/31/02 12/31/01(2) 12/31/00 12/31/99 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $ 8.620 $ 8.770 $ 8.600 $ 8.430 $ 8.270 $ 8.700 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.116 0.222 0.349 0.423 0.522 0.519 Net realized and unrealized gain (loss) on investments (0.081) (0.039) 0.255 0.238 0.161 (0.429) -------- -------- -------- -------- -------- -------- Total from investment operations 0.035 0.183 0.604 0.661 0.683 0.090 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.165) (0.315) (0.434) (0.491) (0.523) (0.520) Return of capital -- (0.018) -- -- -- -- -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.165) (0.333) (0.434) (0.491) (0.523) (0.520) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 8.490 $ 8.620 $ 8.770 $ 8.600 $ 8.430 $ 8.270 ======== ======== ======== ======== ======== ======== TOTAL RETURN(3) 0.40% 2.12% 7.08% 8.16% 8.59% 1.07% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $228,948 $249,845 $250,729 $208,152 $208,565 $262,776 Ratio of expenses to average net assets 0.75% 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 1.11% 1.14% 1.05% 1.08% 1.13% 1.00% Ratio of net investment income to average net assets 2.72% 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 2.36% 2.18% 3.69% 4.73% 6.36% 6.12% Portfolio turnover 369% 483% 313% 386% 273% 175%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) 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. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends 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 8 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 ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended 6/30/04(1) 12/31/03 12/31/02 12/31/01(2) 12/31/00 12/31/99 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 $8.700 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.080 0.152 0.274 0.348 0.453 0.447 Net realized and unrealized gain (loss) on investments (0.082) (0.044) 0.255 0.238 0.160 (0.429) ------ ------ ------ ------ ------ ------ Total from investment operations (0.002) 0.108 0.529 0.586 0.613 0.018 ------ ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.128) (0.244) (0.359) (0.416) (0.453) (0.448) Return of capital -- (0.014) -- -- -- -- ------ ------ ------ ------ ------ ------ Total dividends and distributions (0.128) (0.258) (0.359) (0.416) (0.453) (0.448) ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.490 $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (0.02%) 1.25% 6.17% 7.22% 7.68% 0.22% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $31,865 $37,774 $50,326 $21,743 $8,600 $12,483 Ratio of expenses to average net assets 1.60% 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 1.81% 1.86% 1.90% 1.93% 1.98% 1.85% Ratio of net investment income to average net assets 1.87% 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 1.66% 1.46% 2.84% 3.88% 5.51% 5.27% Portfolio turnover 369% 483% 313% 386% 273% 175%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) 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. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends 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 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 C ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended 6/30/04(1) 12/31/03 12/31/02 12/31/01(2) 12/31/00 12/31/99 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 $8.700 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.080 0.152 0.274 0.347 0.453 0.447 Net realized and unrealized gain (loss) on investments (0.081) (0.044) 0.255 0.238 0.160 (0.431) ------ ------ ------ ------ ------ ------ Total from investment operations (0.001) 0.108 0.529 0.585 0.613 0.016 ------ ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.129) (0.244) (0.359) (0.415) (0.453) (0.446) Return of capital -- (0.014) -- -- -- -- ------ ------ ------ ------ ------ ------ Total dividends and distributions (0.129) (0.258) (0.359) (0.415) (0.453) (0.446) ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.490 $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) (0.02%) 1.25% 6.16% 7.20% 7.68% 0.20% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $58,407 $72,045 $71,189 $21,386 $4,506 $6,638 Ratio of expenses to average net assets 1.60% 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 1.81% 1.86% 1.90% 1.93% 1.98% 1.85% Ratio of net investment income to average net assets 1.87% 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 1.66% 1.46% 2.84% 3.88% 5.51% 5.27% Portfolio turnover 369% 483% 313% 386% 273% 175%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) 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. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends 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 R ------------------------------------------------------------------------------------------------------------------------------------ Six Months 6/2/03 Ended to 6/30/04(1) 12/31/03(2) (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $8.630 $8.800 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.097 0.074 Net realized and unrealized loss on investments (0.091) (0.063) ------ ------ Total from investment operations 0.006 0.011 ------ ------ Less dividends and distributions from: Net investment income (0.146) (0.165) Return of capital -- (0.016) ------ ------ Total dividends and distributions (0.146) (0.181) ------ ------ NET ASSET VALUE, END OF PERIOD $8.490 $8.630 ====== ====== TOTAL RETURN(3) 0.06% 0.14% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,832 $1,499 Ratio of expenses to average net assets 1.20% 1.20% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.41% 1.38% Ratio of net investment income to average net assets 2.27% 1.86% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.06% 1.68% Portfolio turnover 369% 483%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) Date of commencement of operations. Ratios have been annualized and total return has not been annualized (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends 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 11 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 ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended 6/30/04(1) 12/31/03 12/31/02 12/31/01(2) 12/31/00 12/31/99 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 $8.700 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.123 0.234 0.364 0.437 0.534 0.531 Net realized and unrealized gain (loss) on investments (0.081) (0.038) 0.255 0.238 0.161 (0.428) ------ ------ ------ ------ ------ ------ Total from investment operations 0.042 0.196 0.619 0.675 0.695 0.103 ------ ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.172) (0.328) (0.449) (0.505) (0.535) (0.533) Return of capital -- (0.018) -- -- -- -- ------ ------ ------ ------ ------ ------ Total dividends and distributions (0.172) (0.346) (0.449) (0.505) (0.535) (0.533) ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.490 $8.620 $8.770 $8.600 $8.430 $8.270 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) 0.47% 2.27% 7.27% 8.34% 8.75% 1.22% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $23,403 $16,667 $13,289 $7,116 $4,514 $4,448 Ratio of expenses to average net assets 0.60% 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 0.81% 0.86% 0.90% 0.93% 0.98% 0.85% Ratio of net investment income to average net assets 2.87% 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 2.66% 2.46% 3.84% 4.88% 6.51% 6.27% Portfolio turnover 369% 483% 313% 386% 273% 175%
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) 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. (3) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends 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 12 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) Delaware Group Limited-Term Government Funds (the "Trust") is organized as a Delaware statutory trust and offers one fund: 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 U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. U.S. government and agency securities are valued at the mean between the bid and asked price. 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 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 U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. Management fees and other expenses are paid monthly. 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. Through March 31, 2004, certain expenses of the Fund are paid through commission arrangements with brokers. 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 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." The amount of these expenses for the period ended June 30, 2004 were as follows: Commission Reimbursements $2,192 Earnings Credit 8,792 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 and shareholder transactions for dividend disbursing and transfer agent services. 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 distribution and service 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 the Class R shares. Institutional Class shares pay no distribution and service fees expenses. DDLP has contracted to waive distribution and service fees through February 28, 2005 in order to prevent distribution and service fees of the Class A shares from exceeding 0.15% of average daily net assets. At June 30, 2004, the Fund had liabilities payable to affiliates as follows: Investment management fees payable to DMC $59,572 Dividend disbursing, transfer agent fees, accounting and adminstration fees, and other expenses payable to DSC 79,592 Other expenses payable to DMC and affiliates* 123,809 *DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. 13 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) For the period ended June 30, 2004, DDLP earned $102,910 for commissions on sales of the Fund's Class A shares. As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including in house legal services provided to the Fund by DMC employees. For the six months ended June 30, 2004, the Fund had costs of $5,338. 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 six months ended June 30, 2004, the Fund made purchases of $386,024,604 and sales of $365,119, 239 of investments securities other than U.S. government securities and short-term investments. The Fund made purchases of $257,920,807 and sales of $295,947,100 of U.S. government securities. At June 30, 2004, the cost of investments for federal tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At June 30, 2004, the cost of investments was $368,877,082. At June 30, 2004, the net unrealized depreciation was $1,902,066 of which $1,814,154 related to unrealized appreciation of investments and $3,716,220 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 U.S. generally accepted accounting principles. The tax character of dividends and distributions paid during the period ended June 30, 2004 and the year ended December 31, 2003 were as follows: 6/30/04* 12/31/03 ---------- ----------- Ordinary income $6,589,096 $13,518,699 Return of capital -- 740,931 ---------- ----------- Total $6,589,096 $14,259,630 ========== =========== *Tax information for the period ended June 30, 2004 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. The components of net assets are estimated since final tax characteristics cannot be determined until fiscal years end. As of June 30, 2004 components on a tax basis were as follows: Shares of beneficial interest $387,992,423 Capital loss carryforwards (41,635,645) Unrealized depreciation (1,902,066) ------------ Net Assets $344,454,712 ============ For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of book/tax differences. For the six months ended June 30, 2004, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments and paydowns of mortgage- and asset-backed securities. Results of operations and net assets were not affected by these reclassifications. Undistributed net investment income Accumulated realized gain (loss) ----------------------------------- -------------------------------- ($2,047,312) $2,047,312 For federal income tax purposes, capital loss carryforwards 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. For the six months ended June 30, 2004, the Fund had capital losses of $4,163,149, which may be added to the capital loss carryforwards. 5. CAPITAL SHARES Transactions in capital shares were as follows: Six Months Year Ended Ended 6/30/04 12/31/03 Shares sold: Class A 2,878,129 8,251,896 Class B 331,286 1,498,856 Class C 836,076 3,831,293 Class R 50,729 183,937 Institutional Class 1,039,151 719,932 Shares issued upon reinvestment of dividends and distributions: Class A 425,757 892,179 Class B 46,143 117,872 Class C 86,704 190,539 Class R 3,313 793 Institutional Class 47,263 67,690 ---------- ----------- 5,744,551 15,754,987 ---------- ----------- Shares repurchased: Class A (5,297,717) (8,771,483) Class B (1,002,782) (2,976,690) Class C (2,394,335) (3,787,429) Class R (11,961) (10,967) Institutional Class (261,602) (370,698) ---------- ----------- (8,968,397) (15,917,267) ---------- ----------- Net decrease (3,223,846) (162,280) ========== =========== For the period ended June 30, 2004 and the year ended December 31, 2003, 95,114 Class B shares were converted to 95,114 Class A shares valued at $819,649 and 122,579 Class B shares were converted to 122,579 Class A shares valued at $1,065,018, 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. 14 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS (CONTINUED) 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. Financial futures contracts open at June 30, 2004 were as follows: Contracts Notional Unrealized to Sell Proceeds Expiration Date Loss --------------- -------- --------------- ---------- (347) U.S. 5yr Treasury Note ($37,565,891) September 2004 $(148,672) (214) U.S. 10yr Treasury Note (23,261,720) September 2004 (134,499) --------- $(283,171) ========= The use of futures contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amount presented above represents 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 period ended June 30, 2004, 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 six months ended June 30, 2004 for the Fund were as follows: Number of Contracts Premiums --------- ----------- Options outstanding at December 31, 2003 650 $ 249,354 Options written 2,163 996,639 Options terminated in closing Purchase transactions (2,813) (1,245,993) --------- ----------- Options outstanding at June 30, 2004 0 $ 0 ========= =========== At June 30, 2004, the Fund had no options written outstanding. 8. Swap Agreements During the period ended June 30, 2004, 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 June 30,2004, 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. 15 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"), participate 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 June 30, 2004, or at any time during the period. 11. Contractual Obligations The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 16 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) This semiannual 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 Chairman JOSEPH H. HASTINGS INVESTMENT MANAGER Delaware Investments Family of Funds Executive Vice President and Delaware Management Company Philadelphia, PA Chief Financial Officer Philadelphia, PA Delaware Investments Family of Funds WALTER P. BABICH Philadelphia, PA INTERNATIONAL AFFILIATE Board Chairman Delaware International Advisers Ltd. Citadel Construction Corporation RICHELLE S. MAESTRO London, England King of Prussia, PA Executive Vice President, Chief Legal Officer and Secretary NATIONAL DISTRIBUTOR JOHN H. DURHAM Delaware Investments Family of Funds Delaware Distributors, L.P. Private Investor Philadelphia, PA Philadelphia, PA Gwynedd Valley, PA MICHAEL P. BISHOF SHAREHOLDER SERVICING, DIVIDEND JOHN A. FRY Senior Vice President and Treasurer DISBURSING AND TRANSFER AGENT President Delaware Investments Family of Funds Delaware Service Company, Inc. Franklin & Marshall College Philadelphia, PA 2005 Market Street Lancaster, PA Philadelphia, PA 19103-7094 ANTHONY D. KNERR FOR SHAREHOLDERS Managing Director 800 523-1918 Anthony Knerr & Associates New York, NY FOR SECURITIES DEALERS AND FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY ANN R. LEVEN 800 362-7500 Former Treasurer/Chief Fiscal Officer National Gallery of Art WEB SITE Washington, DC www.delawareinvestments.com 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. -------------------------------------------------------------------------------- (8835) Printed in the USA SA-022 [6/04] IVES 8/04 J9751 Item 2. Code of Ethics Not applicable. Item 3. Audit Committee Financial Expert Not applicable. Item 4. Principal Accountant Fees and Services Not applicable. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. 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 Companies 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 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: 8/30/04 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: 8/30/04 JOSEPH H. HASTINGS -------------------------------- By: Joseph H. Hastings Title: Chief Financial Officer Date: 8/30/04