-----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, MPPJtakaP8H7CVvHQ2XkrRi/24VT2UI7t3LA+LwnsY2MvXrvL60Zu675tpjvtbxj T4CoxZXz/9rERyDkVWOKHQ== 0000950116-05-000783.txt : 20050225 0000950116-05-000783.hdr.sgml : 20050225 20050225171426 ACCESSION NUMBER: 0000950116-05-000783 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20050225 DATE AS OF CHANGE: 20050225 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: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03363 FILM NUMBER: 05642309 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 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-75526 FILM NUMBER: 05642310 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 485APOS 1 four85apos.txt 485APOS SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A File No. 2-75526 File No. 811-3363 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. ________ Post-Effective Amendment No. 57 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 57 DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 2005 Market Street, Philadelphia, Pennsylvania 19103-7094 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (800) 523-1918 Richelle S. Maestro, 2005 Market Street, Philadelphia, PA 19103-7094 - -------------------------------------------------------------------------------- (Name and Address of Agent for Service) Approximate Date of Public Offering: February 25, 2005 It is proposed that this filing will become effective: [ ] Immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [X] 60 days after filing pursuant to paragraph (a) (1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a) (2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485 If appropriate: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment - - - CONTENTS - - - This Post-Effective Amendment No. 57 to Registration File No. 2-75526 includes the following: 1. Facing Page 2. Contents Page 3. Part A - Prospectuses 4. Part B - Statement of Additional Information 5. Part C - Other Information 6. Signatures 7. Exhibits DELAWARE INVESTMENTS(SM) -------------------------------------- A member of Lincoln Funancial Group (R) DELAWARE LIMITED-TERM GOVERNMENT FUND Class A o Class B o Class C o Class R PROSPECTUS April __, 2005 FIXED INCOME The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy of this Prospectus, and any representation to the contrary is a criminal offense. TABLE OF CONTENTS FUND PROFILE PAGE Delaware Limited-Term Government Fund HOW WE MANAGE THE FUND PAGE Our investment strategies The securities we typically invest in The risks of investing in the Fund Disclosure of portfolio holdings information WHO MANAGES THE FUND PAGE Investment manager Portfolio managers Who's who? ABOUT YOUR ACCOUNT PAGE Investing in the Fund Choosing a share class Dealer compensation How to reduce your sales charge How to buy shares Fair valuation Retirement plans How to redeem shares Account minimums Special services Frequent trading of Fund shares Dividends, distributions and taxes Certain management considerations FINANCIAL HIGHLIGHTS PAGE GLOSSARY PAGE 2 PROFILE: DELAWARE LIMITED-TERM GOVERNMENT FUND WHAT IS THE FUND'S GOAL? Delaware Limited-Term Government Fund seeks to provide a high stable level of income, while attempting to minimize fluctuations in principal and provide maximum liquidity. Although the Fund will strive to meet its goal, there is no assurance that it will. WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? We invest primarily in short- and intermediate-term U.S. government securities. These are debt securities issued or guaranteed by the U.S., such as U.S. Treasuries, securities issued by U.S. government agencies or instrumentalities, such as securities of the Government National Mortgage Association, and securities that are privately issued but are 100% collateralized by securities or certificates issued or guaranteed by the U.S. government, its agencies or instrumentalities. We may also invest up to 20% of the Fund's net assets in corporate notes and bonds, certificates of deposit and obligations of U.S. and foreign banks, commercial paper, certain asset-backed securities and non-agency mortgage-backed securities. The level of income the Fund provides will vary depending on current interest rates and the specific securities in the portfolio. However, since longer-term rates are generally less volatile than short-term rates, the Fund's income may fluctuate less than a money market fund's income. Under normal circumstances, the Fund will invest at least 80% of its net assets in U.S. government securities ("80% Policy"). This 80% Policy cannot be changed without shareholder approval. However, shareholders would be given at least 60 days notice prior to any such change. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The value of your investment in the Fund will increase and decrease according to changes in the value of the securities in the Fund's portfolio. This Fund will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolio will likely decline. For a more complete discussion of risk, please see "The risks of investing in the Fund" on page ___. An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. WHO SHOULD INVEST IN THE FUND o Investors with intermediate or long-term financial goals. o Investors seeking monthly income. o Investors who would like a relatively conservative income investment to help balance a growth-oriented long-term portfolio. o Investors seeking a high quality investment with a measure of capital preservation. WHO SHOULD NOT INVEST IN THE FUND o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who want an investment with a fixed share price, such as a money market fund. You should keep in mind that an investment in the Fund is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss this Fund with your financial advisor to determine whether it is an appropriate choice for you. 3 HOW HAS DELAWARE LIMITED-TERM GOVERNMENT FUND PERFORMED? THIS BAR CHART AND TABLE can help you evaluate the risks of investing in the Fund. We show how returns before taxes for the Fund's Class A shares have varied over the past ten calendar years, as well as the average annual returns of all shares for one-year, five-year and ten-year or lifetime periods, as applicable. The Fund's past performance does not necessarily indicate how it will perform in the future. The returns for 2001, 2002, 2003 and 2004 reflect an expense limitation and would have been lower without the limitation. During the ten years illustrated in this bar chart, the Fund's highest quarterly return was ___% for the quarter ended ____________ and its lowest quarterly return was ____% for the quarter ended _____________. The maximum Class A sales charge of 2.75%, which is normally deducted when you purchase shares, is not reflected in the total returns in the previous paragraph and in the bar chart. If this fee were included, the returns would be less than those shown. The average annual returns shown in the table below do include the sales charge. [GRAPHIC OMITTED: BAR CHART SHOWING TOTAL RETURN (CLASS A)] YEAR-BY-YEAR TOTAL RETURN (Class A) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- % % % % % % % % % % AVERAGE ANNUAL RETURNS for periods ending 12/31/04
1 YEAR 5 YEARS 10 YEARS OR LIFETIME** - -------------------------------------------------------------------- ------- ------- ---------------------- Class A return before taxes % % % Class A return after taxes on distributions % % % Class A return after taxes on distributions and sale of Fund shares % % % Class B return before taxes* % % % Class C return before taxes* % % % Class R return before taxes % % % Merrill Lynch One-to-Three Year Treasury Index (reflects no deduction for fees, expenses or taxes) % % %
The Fund's returns are compared to the performance of the Merrill Lynch One-to-Three Year Treasury Index. You should remember that unlike the Fund, the index is unmanaged and does not reflect the actual costs of operating a mutual fund, such as the costs of buying, selling and holding securities. Maximum sales charges are included in the Fund returns shown immediately above. After-tax performance is presented only for Class A shares of the Fund. The after-tax returns for other Fund classes may vary. Actual after-tax returns depend on the investor's individual tax situation and may differ from the returns shown. After-tax returns are not relevant for shares held in tax-deferred investment vehicles such as employer-sponsored 401(k) plans and individual retirement accounts. The after-tax returns shown are calculated using the highest individual federal marginal income tax rates in effect during the Fund's lifetime and do not reflect the impact of state and local taxes. The after-tax rate used is based on the current tax characterization of the elements of the Fund's returns (e.g., qualified vs. non-qualified dividends) and may be different than the final tax characterization of such elements. Past performance, both before and after taxes, is not a guarantee of future results. * Total returns assume redemption of shares at end of period. If shares were not redeemed, the returns [before taxes] for Class B would be ___%, ___% and ___% for the one-year, five-year and lifetime periods, respectively. Lifetime returns for Class B shares reflect conversion to Class A shares after approximately 5 years. If shares were not redeemed, the returns [before taxes] for Class C would be ___%, ___% and ___% for the one-year, five-year and lifetime periods, respectively. ** Lifetime returns are shown if the Fund or Class existed for less than ten years. Inception dates for Class A, Class B, Class C and Class R shares of the Fund were November 24, 1985, May 2, 1994, November 28, 1995 and June 2, 2003, respectively. Merrill Lynch One-to-Three Year Treasury Index return shown is for the Class A ten-year period. The index returns for Class B, Class C and Class R lifetimes were ____%, ____% 4 and ____%, respectively. Lifetime returns for Class B shares reflect conversion to Class A shares after approximately 5 years. 5 WHAT ARE THE FUND'S FEES AND EXPENSES? SALES CHARGES are fees paid directly from your investments when you buy or sell shares of the Fund. You do not pay sales charges when you buy or sell Class R shares.
CLASS A B C D - ------------------------------------------------------------------- ----------- ----------- ----------- ----------- Maximum sales charge (load) imposed on purchases as a percentage of offering price 2.75% none none none Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lower none(1) 2.00%(2) 1.00%(3) none Maximum sales charge (load) imposed on reinvested dividends none none none none Redemption fees none none none none Exchange fees(4) none none none none
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets. Management fees 0.50% 0.50% 0.50% 0.50% Distribution and service (12b-1) fees(5) 0.30% 1.00% 1.00% 0.60% Other expenses ____% ____% ____% ____% Total operating expenses ____% ____% ____% ____% Fees waivers and payments(6) (____%) (____%) (____%) (____%) Net expenses ____% ____% ____% ____%
THIS EXAMPLE is intended to help you compare the cost of investing in the Fund to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown.(7) This is an example only, and does not represent future expenses, which may be greater or less than those shown here.
CLASS(8) A B B C C R - ------------------- ------------- ------------- ------------- ------------- ------------- ------------- (if redeemed) (if redeemed) 1 year $____ $____ $____ $____ $____ $____ 3 years $____ $____ $____ $____ $____ $____ 5 years $____ $____ $____ $____ $____ $____ 10 years $____ $____ $____ $____ $____ $____
(1) A purchase of Class A shares of $1 million or more may be made at net asset value. However, if you buy the shares through a financial advisor who is paid a commission, a contingent deferred sales charge will apply to redemptions made within two years of purchase. Additional Class A purchase options that involve a contingent deferred sales charge may be permitted from time to time and will be disclosed in the Prospectus if they are available. (2) If you redeem Class B shares during the first year after you buy them, you will pay a contingent deferred sales charge of 2%, which declines to 1% during the second and third years and 0% thereafter. (3) Class C shares redeemed within one year of purchase are subject to a 1% contingent deferred sales charge. (4) Exchanges are subject to the requirements of each fund in the Delaware Investments family. A front-end sales charge may apply if you exchange your shares into a fund that has a front-end sales charge. (5) Class A shares are subject to a 12b-1 fee of 0.30% of average daily net assets, Class B and Class C shares are each subject to a 12b-1 fee of 1.00% of average daily net assets and Class R shares are subject to a 12b-1 fee of 0.60% of average daily net assets. The Fund's distributor has contracted to limit the Class A shares 12b-1 fee through April 30, 2006 to no more than 0.15% of average daily net assets. (6) The investment manager has contracted to waive fees and pay expenses through April 30, 2006 in order to prevent total operating expenses (excluding any 12b-1 fees, taxes, interest, brokerage fees, extraordinary expenses and certain insurance costs) from exceeding 0.65% of average daily net assets. (7) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example reflects the net operating expenses with expense waivers for the one-year contractual period and total operating expenses without expense waivers for years two through ten. (8) The Class B example reflects the conversion of Class B shares to Class A shares after approximately five years. Information for years six through ten reflects expenses of the Class A shares. 6 HOW WE MANAGE THE FUND OUR INVESTMENT STRATEGIES We analyze economic and market conditions, seeking to identify the securities or market sectors that we think are the best investments for the Fund. Following are descriptions of how the portfolio managers pursue the Fund's investment goals. We take a disciplined approach to investing, combining investment strategies and risk management techniques that can help shareholders meet their goals. We invest primarily in short- and intermediate-term fixed income securities including: o securities issued or guaranteed by the U.S. government such as U.S. Treasuries; and o securities issued by U.S. government agencies or instrumentalities such as securities of the Government National Mortgage Association. We may invest in instruments that use these government securities as collateral. We may invest up to 20% of the Fund's net assets in corporate notes and bonds, certificates of deposit and obligations of both U.S. and foreign banks, commercial paper, certain asset-backed securities and non-agency mortgage-backed securities. The Fund's level of income and the stability of its share price will be directly affected by changes in short- and intermediate-term interest rates. We anticipate that the level of income could be higher than a money market fund. However, the Fund's share price will increase and decrease with changes in interest rates. This makes its risk level greater than that of a money market fund. We strive to reduce the effects of interest rate changes on the share price by maintaining an average effective duration of two to three years. The average effective duration is determined by averaging the individual effective duration of all securities in the portfolio. If we believe that interest rates are historically low, we may shorten the average effective duration to two years. Conversely, if we believe rates are high and therefore likely to go lower, we may increase average effective duration to as high as three years. The Fund's investment objective is non-fundamental. This means that the Board of Trustees may change the objective without obtaining shareholder approval. If the objective was changed, we would notify shareholders before the change in the objective became effective. 7 THE SECURITIES WE TYPICALLY INVEST IN Fixed-income securities offer the potential for greater income payments than stocks, and also may provide capital appreciation.
SECURITIES HOW WE USE THEM - --------------------------------------------------------------- ---------------------------------------------------------- DIRECT U.S. TREASURY OBLIGATIONS include Treasury bills, We may invest without limit in U.S. Treasury notes and bonds of varying maturities. U.S. Treasury securities, although they are typically not our largest securities are backed by the "full faith and credit" of the holding because they generally do not offer as high a United States. level of current income as other fixed-income securities. MORTGAGE-BACKED SECURITIES: Fixed-income securities that There is no limit on government-related mortgage-backed represent pools of mortgages, with investors receiving securities. principal and interest payments as the underlying mortgage loans are paid back. Many are issued and guaranteed against We may invest up to 35% of net assets in mortgage-backed default by the U.S. government or its agencies or securities issued by private entities if at the time they instrumentalities, such as the Federal Home Loan Mortgage are issued they are 100% collateralized by securities or Corporation, Fannie Mae and the Government National Mortgage certificates issued or guaranteed by the U.S. government, Association. Others are issued by private financial its agencies or instrumentalities. These securities must institutions, with some fully collateralized by certificates be rated in one of the two highest categories by a issued or guaranteed by the government or its agencies or nationally recognized statistical ratings organization instrumentalities. (NRSRO) at the time of purchase. The Fund may also invest in mortgage-backed securities that are not government securities and are not directly guaranteed by the U.S. government in any way. They are secured by the underlying collateral of the private issuer. These include collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and commercial mortgage-backed securities (CMBSs). We may invest in these securities only if they are rated in the highest quality category, such as AAA, by an NRSRO. However, the Fund may not invest more than 20% of its net assets in securities that are not government securities or do not use government securities as collateral. ASSET-BACKED SECURITIES: Bonds or notes backed by accounts We may invest only in asset-backed securities rated in the receivable including home equity, automobile or credit loans. highest quality category, such as AAA, by an NRSRO. However, we may not invest more than 20% of the Fund's net assets in securities (including these asset-backed securities) that are not government securities or do not use government securities as collateral. REPURCHASE AGREEMENTS: An agreement between a buyer of Typically, we use repurchase agreements as a short-term securities, such as the Fund, and a seller of securities in investment for the Fund's cash position. In order to enter which the seller agrees to buy the securities back within a into these repurchase agreements, the Fund must have specified time at the same price the buyer paid for them, plus collateral of 102% of the repurchase price. The Fund will an amount equal to an agreed upon interest rate. Repurchase only enter into repurchase agreements in which the agreements are often viewed as equivalent to cash. collateral is comprised of U.S. government securities.
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SECURITIES HOW WE USE THEM - --------------------------------------------------------------- ---------------------------------------------------------- INTEREST RATE SWAP AND INDEX SWAP AGREEMENTS: In an interest We may use interest rate swaps to adjust the Fund's rate swap, a fund receives payments from another party based on sensitivity to interest rates, or to hedge against changes a floating interest rate in return for making payments based on in interest rates. a fixed interest rate. An interest rate swap can also work in reverse, with a fund receiving payments based on a fixed Index swaps may be used to gain exposure to markets that interest rate and making payments based on a floating interest the Fund invests in, such as the corporate bond market. rate. In an index swap, a fund receives gains or incurs losses based on the total return of an index, in exchange for making Interest rate swaps and index swaps will be considered fixed or floating interest rate payments to another party. illiquid securities (see below). OPTIONS AND FUTURES: Options represent a right to buy or sell a At times when we anticipate adverse conditions, we may security or a group of securities at an agreed upon price at a want to protect gains on securities without actually future date. The purchaser of an option may or may not choose to selling them. We might use options or futures to go through with the transaction. The seller of an option, neutralize the effect of any price declines, without however, must go through with the transaction if its purchaser selling a bond or bonds, or as a hedge against changes in exercises the option. interest rates. We may also sell an option contract (often referred to as "writing" an option) to earn additional Futures contracts are agreements for the purchase or sale of a income for the Fund. security or a group of securities at a specified price, on a specified date. Unlike purchasing an option, a futures contract Use of these strategies can increase the operating costs must be executed unless it is sold before the settlement date. of the Fund and can lead to loss of principal. Certain options and futures may be considered to be derivative securities. RESTRICTED SECURITIES: Privately placed securities whose resale We may invest in privately placed securities including is restricted under securities law. those that are eligible for resale only among certain institutional buyers without registration, which are commonly known as "Rule 144A Securities." Other restricted securities must be limited to 10% of total Fund assets. ILLIQUID SECURITIES: Securities that do not have a ready market We may invest up to 10% of total assets in illiquid and cannot be easily sold within seven days at approximately the securities. price that a fund has valued them.
The Fund may also invest in other securities including certificates of deposit and obligations of both U.S. and foreign banks; corporate debt and commercial paper; and American Depositary Receipts. Please see the Statement of Additional Information for additional descriptions on these securities as well as those listed in the table above. BORROWING FROM BANKS The Fund may borrow money as a temporary measure for extraordinary or emergency purposes or to facilitate redemptions. The Fund will not borrow money in excess of one-third of the value of its net assets. LENDING SECURITIES The Fund may lend up to 25% of its assets to qualified brokers, dealers and investors for their use in securities transactions. These transactions, if any, may generate additional income for the Fund. PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS The Fund may buy or sell securities on a when-issued or delayed delivery basis; that is, paying for securities before delivery or taking delivery at a later date. The Fund will designate cash or securities in amounts sufficient to cover its obligations, and will value the designated assets daily. 9 PORTFOLIO TURNOVER We anticipate that the Fund's annual portfolio turnover may be greater than 100%. A turnover rate of 100% would occur if, for example, a fund bought and sold all of the securities in its portfolio once in the course of a year or frequently traded a single security. High turnover can result in increased transaction costs and tax liability for investors and may affect the Fund's performance. THE RISKS OF INVESTING IN THE FUND Investing in any mutual fund involves risk, including the risk that you may receive little or no return on your investment, and the risk that you may lose part or all of the money you invest. Before you invest in the Fund, you should carefully evaluate the risks. Because of the nature of the Fund, you should consider your investment to be a long-term investment that typically provides the best results when held for a number of years. Following are the chief risks you assume when investing in the Fund. Please see the Statement of Additional Information for further discussion of these risks and other risks not discussed here.
RISKS HOW WE STRIVE TO MANAGE THEM - --------------------------------------------------------------- ---------------------------------------------------------- MARKET RISK: The risk that all or a majority of the securities We maintain a long-term investment approach and focus on in a certain market - like the stock or bond market - will high quality individual bonds that we believe can provide decline in value because of factors such as economic a steady stream of income regardless of interim conditions, future expectations or investor confidence. fluctuations in the bond market. We generally do not buy and sell securities for short-term purposes. Index swaps are subject to the same market risks as the investment market or sector that the index represents. In evaluating the use of an index swap, we carefully Depending on the actual movements of the index and how well the consider how market changes could affect the swap and how portfolio manager forecasts those movements, a fund could that compares to us investing directly in the market the experience a higher or lower return than anticipated. swap is intended to represent. INDUSTRY AND SECURITY RISK: The risk that the value of We diversify the Fund's assets across a variety of sectors securities in a particular industry or the value of an in the bond market. We also follow a rigorous selection individual stock or bond will decline because of changing process before choosing securities for the portfolio. expectations for the performance of that industry or for the individual company issuing the stock or bond. INTEREST RATE RISK: The risk that securities, particular bonds Interest rate risk is the most significant risk for this with longer maturities, will decrease in value if interest Fund. In striving to manage this risk, we monitor economic rates rise. conditions and the interest rate environment. We keep the average maturity of the portfolio as short as is prudent, Swaps may be particularly sensitive to interest rate changes. in keeping with our objective to provide high current Depending on the actual movements of interest rates and how income. well the portfolio manager anticipates them, a Fund could experience a higher or lower return than anticipated. We will not invest in swaps with maturities of more than two years. Each business day we will calculate the amount the Fund must pay for swaps it holds and will segregate enough cash or other liquid securities to cover that amount. CREDIT RISK: The possibility that a bond's issuer (or an entity By focusing primarily on U.S. Treasury securities and that insures the bond) will be unable to make timely payments other securities that are backed by the U.S. government, of interest and principal. we minimize the possibility that any of the securities in our portfolio will not pay interest or principal. U.S. government securities are generally considered to be of the highest quality. When selecting non-government securities and the dealers with whom we do interest rate swaps, we focus on those with high quality ratings and do careful credit analysis before investing.
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RISKS HOW WE STRIVE TO MANAGE THEM - --------------------------------------------------------------- ---------------------------------------------------------- PREPAYMENT RISK: The risk that homeowners will prepay mortgages We take into consideration the likelihood of prepayment during periods of low interest rates, forcing a fund to when we select mortgages. We may look for mortgage reinvest their money at interest rates that might be lower than securities that have characteristics that make them less those on the prepaid mortgage. Prepayment risk may also affect likely to be prepaid, such as low outstanding loan other types of debt securities, but generally to a lesser balances or below-market interest rates. extent than mortgage securities. LIQUIDITY RISK: The possibility that securities cannot be U.S. Treasuries and other U.S. government debt securities readily sold within seven days at approximately the price that are typically the most liquid securities available. a fund values them. Therefore, liquidity risk is not a significant risk for this Fund. Swap agreements will be treated as illiquid securities, but most swap dealers will be willing to repurchase interest rate swaps.
DISCLOSURE OF PORTFOLIO HOLDINGS INFORMATION A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information and on the Fund's website at www.delawarefunds.com. 11 WHO MANAGES THE FUND INVESTMENT MANAGER The Fund is managed by Delaware Management Company, a series of Delaware Management Business Trust, which is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. Delaware Management Company makes investment decisions for the Fund, manages the Fund's business affairs and provides daily administrative services. For these services, the manager was paid ____% of average daily net assets for the last fiscal year. PORTFOLIO MANAGERS Stephen R. Cianci and Paul Grillo have day-to-day responsibilities for making investment decisions for the Fund. STEPHEN R. CIANCI, Senior Vice President/Senior Portfolio Manager of the Fund, holds a BS and an MBA in Finance from Widener University. Mr. Cianci became co-manager of the Fund in January 1999. He joined Delaware Investments' fixed-income department in 1992 as an investment grade quantitative research analyst. In addition to his quantitative research responsibilities, Mr. Cianci also served as a mortgage-backed and asset-backed securities analyst. Mr. Cianci is an Adjunct Professor of Finance at Widener University and is a CFA charterholder. PAUL GRILLO, Vice President/Senior Portfolio Manager of the Fund, holds a bachelor's degree in Business Management from North Carolina State University and an MBA in Finance from Pace University. Mr. Grillo became co-manager of the Fund in January 1999. Prior to joining Delaware Investments in 1993, he served as Mortgage Strategist and Trader at the Dreyfus Corporation. He also served as Mortgage Strategist and Portfolio Manager at Chemical Investment Group and as Financial Analyst at Chemical Bank. Mr. Grillo is a CFA charterholder. 12 WHO'S WHO? This diagram shows the various organizations involved with managing, administering and servicing the Delaware Investments Funds. [GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH MANAGING, ADMINISTERING AND SERVICING THE DELAWARE INVESTMENTS FUNDS] BOARD OF TRUSTEES INVESTMENT MANAGER CUSTODIAN Delaware Management Company JPMorgan Chase Bank 2005 Market Street 4 Chase Metrotech Center Philadelphia, PA 19103-7094 THE FUND Brooklyn, NY 11245 DISTRIBUTOR SERVICE AGENT Delaware Distributors, L.P. Delaware Service Company, Inc. 2005 Market Street 2005 Market Street Philadelphia, PA 19103-7094 Philadelphia, PA 19103-7094 FINANCIAL INTERMEDIARY WHOLESALER Lincoln Financial Distributors, Inc. 2001 Market Street Philadelphia, PA 19103-7055 PORTFOLIO MANAGERS (see page ____ for details) FINANCIAL ADVISORS SHAREHOLDERS BOARD OF TRUSTEES A mutual fund is governed by a Board of Trustees which has oversight responsibility for the management of the fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. Generally, at least 40% of the Board of Trustees must be independent of the fund's investment manager and distributor. However, the Delaware Limited-Term Government Fund relies on certain exemptive rules created by the SEC that require the Board of Trustees overseeing the Fund to be comprised of a majority of such independent Trustees. These independent fund Trustees, in particular, are advocates for shareholder interests. INVESTMENT MANAGER An investment manager is a company responsible for selecting portfolio investments consistent with the objective and policies stated in the mutual fund's prospectus. The investment manager places portfolio orders with broker/dealers and is responsible for obtaining the best overall execution of those orders. A written contract between a mutual fund and its investment manager specifies the services the manager performs. Most management contracts provide for the manager to receive an annual fee based on a percentage of the fund's average daily net assets. The manager is subject to numerous legal restrictions, especially regarding transactions between itself and the funds it advises. PORTFOLIO MANAGERS Portfolio managers are employed by the investment manager to make investment decisions for individual portfolios on a day-to-day basis. CUSTODIAN Mutual funds are legally required to protect their portfolio securities and most funds place them with a qualified bank custodian who segregates fund securities from other bank assets. DISTRIBUTOR Most mutual funds continuously offer new shares to the public through distributors who are regulated as broker/dealers and are subject to NASD Regulation, Inc. (NASDR)(SM) rules governing mutual fund sales practices. 13 FINANCIAL INTERMEDIARY WHOLESALER Pursuant to a contractual arrangement with Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is primarily responsible for promoting the sale of Fund shares through broker/dealers, financial advisors and other financial intermediaries. SERVICE AGENT Mutual fund companies employ service agents (sometimes called transfer agents) to maintain records of shareholder accounts, calculate and disburse dividends and capital gains and prepare and mail shareholder statements and tax information, among other functions. Many service agents also provide customer service to shareholders. FINANCIAL ADVISORS Financial advisors provide advice to their clients, analyzing their financial objectives and recommending appropriate funds or other investments. Financial advisors are compensated for their services, generally through sales commissions, and through 12b-1 and/or service fees deducted from the fund's assets. SHAREHOLDERS Like shareholders of other companies, mutual fund shareholders have specific voting rights, including the right to elect trustees. Material changes in the terms of a fund's management contract must be approved by a shareholder vote, and funds seeking to change fundamental investment policies must also seek shareholder approval. 14 ABOUT YOUR ACCOUNT INVESTING IN THE FUND You can choose from a number of share classes for the Fund. Because each share class has a different combination of sales charges, fees, and other features, you should consult your financial advisor to determine which class best suits your investment goals and time frame. CHOOSING A SHARE CLASS CLASS A o Class A shares have a front-end sales charge of up to 2.75% that you pay when you buy the shares. The offering price for Class A shares includes the front-end sales charge. o If you invest $100,000 or more, your front-end sales charge will be reduced. o You may qualify for other reduced sales charges, as described in "How to reduce your sales charge," and under certain circumstances the sales charge may be waived; please see the Statement of Additional Information. o Class A shares are also subject to an annual 12b-1 fee no greater than 0.30% (contractually limited to 0.15% through February 28, 2005) of average daily net assets, which is lower than the 12b-1 fee for Class B, Class C and Class R shares. o Class A shares generally are not subject to a contingent deferred sales charge except in the limited circumstances described in the table below. o Class A shares generally are not available for purchase by anyone qualified to purchase Class R shares. 15 CLASS A SALES CHARGES The following sales charge as a percentage of the amount invested is the maximum percentage of the amount invested rounded to the nearest hundredth. The actual percentage will vary on the amount invested, rounding and the then-current NAV. Similarly, the actual sales charge as a percentage of offering price may be different due to the amount invested, rounding and the then-current offering price may be greater or lesser than the percentage shown. SALES CHARGE AS % SALES CHARGE AS % AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED - ----------------------------- ----------------- ------------------ Less than $100,000 2.75% 3.23% $100,000 but under $250,000 2.00% 2.44% $250,000 but under $1 million 1.00% 1.34% As shown below, there is no front-end sales charge when you purchase $1 million or more of Class A shares. However, if your financial advisor is paid a commission on your purchase, you will have to pay a limited contingent deferred sales charge of 0.75% if you redeem these shares within the first year unless a specific waiver of the charge applies. See Dealer compensation on page [___] for a description of the amount of dealer compensation that is paid. SALES CHARGE AS % SALES CHARGE AS % AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED - ----------------------------- ----------------- ------------------ $1 million up to $5 million none none Next $20 million up to $25 million none none Amount over $25 million none none 16 CLASS B o Class B shares have no front-end sales charge, so the full amount of your purchase is invested in the Fund. However, you will pay a contingent deferred sales charge if you redeem your shares within three years after you buy them. o If you redeem Class B shares during the first year after you buy them, the shares will be subject to a contingent deferred sales charge of 2%. The contingent deferred sales charge is 1% during the second and third years and 0% thereafter. o Under certain circumstances the contingent deferred sales charge may be waived; please see the Statement of Additional Information. o For approximately five years after you buy your Class B shares, they are subject to annual 12b-1 fees no greater than 1% of average daily net assets, of which 0.25% are service fees paid to the distributor, dealers or others for providing services and maintaining shareholder accounts. o Because of the higher 12b-1 fees, Class B shares have higher expenses and any dividends paid on these shares are lower than dividends on Class A and Class R shares. o Approximately five years after you buy them, Class B shares automatically convert into Class A shares with a 12b-1 fee of no more than 0.30% (contractually limited to 0.15% through April 30, 2006). Conversion may occur as late as three months after the fifth anniversary of purchase, during which time Class B's higher 12b-1 fees apply. o You may purchase only up to $100,000 of Class B shares at any one time. The limitation on maximum purchases varies for retirement plans. CLASS C o Class C shares have no front-end sales charge, so the full amount of your purchase is invested in the Fund. However, you will pay a contingent deferred sales charge of 1% if you redeem your shares within 12 months after you buy them. o Under certain circumstances the contingent deferred sales charge may be waived; please see the Statement of Additional Information. o Class C shares are subject to an annual 12b-1 fee no greater than 1% of average daily net assets, of which 0.25% are service fees paid to the distributor, dealers or others for providing services and maintaining shareholder accounts. o Because of the higher 12b-1 fees, Class C shares have higher expenses and any dividends paid on these shares are lower than dividends on Class A and Class R shares. o Unlike Class B shares, Class C shares do not automatically convert into another class. o You may purchase any amount less than $1,000,000 of Class C shares at any one time. The limitation on maximum purchases varies for retirement plans. CLASS R o Class R shares have no up-front sales charge, so the full amount of your purchase is invested in a Fund. Class R shares are not subject to a contingent deferred sales charge. o Class R shares are subject to an annual 12b-1 fee no greater than 0.60% of average daily net assets, which is lower than the 12b-1 fee for Class B and Class C shares. o Because of the higher 12b-1 fee, Class R shares have higher expenses and any dividends paid on these shares are lower than dividends on Class A shares. o Unlike Class B shares, Class R shares do not automatically convert into another class. 17 o Class R shares generally are available only to (i) qualified and non-qualified plan shareholders covering multiple employees (including 401(k), 401(a), 457, and non-custodial 403(b) plans, as well as other non-qualified deferred compensation plans) with assets (at the time shares are considered for purchase) of $10 million or less; and (ii) to IRA rollovers from plans maintained on Delaware's retirement recordkeeping system that are offering R Class shares to participants. Except as noted above, no other IRA accounts are eligible for Class R shares (e.g., no SIMPLE IRA's, SEP-IRA's, SAR-SEP IRA's, Roth IRA's, etc.). For purposes of determining plan asset levels, affiliated plans may be combined at the request of the plan sponsor. Each share class may be eligible for purchase through programs sponsored by financial intermediaries where such program requires the purchase of a specific class of shares. Any account holding Class A shares as of June 2, 2003 (the date Class R shares were made available) continues to be eligible to purchase Class A shares after that date. Any account holding Class R shares is not eligible to purchase Class A shares. DEALER COMPENSATION Your financial advisor who sells you shares of the Fund may be eligible to receive the following amounts as compensation for your investment in the Fund. These amounts are paid by the distributor to the securities dealer with whom your financial advisor is associated. CLASS A(1) CLASS B(2) CLASS C(3) CLASS R(4) ---------- ---------- ---------- ---------- COMMISSION (%) - 2.00% 1.00% - Investment up to $99,999 2.35% - - - $100,000 - $249,999 1.75% - - - $250,000 - $999,999 0.75% - - - $1,000,000 - $4,999,999 0.75% - - - $5,000,000 - $24,999,999 0.50% - - - $25,000,000 or more 0.25% - - - 12b-1 FEE TO DEALER 0.30% 0.15% 1.00% 0.60% (1) On sales of Class A shares, the Distributor re-allows to your securities dealer a portion of the front-end sales charge depending upon the amount you invested. Your securities dealer is eligible to receive up to 0.30% 12b-1 fee applicable to Class A shares. The maximum 12b-1 fee applicable to Class A shares is 0.30%, however the Distributor has contracted to limit this amount to 0.15% through April 30, 2006. (2) On sales of Class B shares, the Distributor pays your securities dealer an up-front commission of 2.00%. Your securities dealer also may be eligible to receive a 12b-1 fee of up to 0.15% from the date of purchase. After approximately eight years, Class B shares automatically convert into Class A shares and dealers may then be eligible to receive the 0.30% 12b-1 fee applicable to Class A. (3) On sales of Class C shares, the Distributor pays your securities dealer an up-front commission of 1.00%. The up-front commission includes an advance of the first year's 12b-1 service fee of up to 0.25%. During the first 12 months, the Distributor retains the full 1.00% 12b-1 fee to partially offset the up-front commission and the prepaid 0.25% service fee advanced at the time of purchase. Starting in the 13th month, your securities dealer may be eligible to receive the full 1.00% 12b-1 fee applicable to Class C. (4) On sales of Class R shares, the Distributor does not pay your securities dealer an up-front commission. Your securities dealer may be eligible to receive a 12b-1 of up to 0.60% from the date of purchase. 18 HOW TO REDUCE YOUR SALES CHARGE We offer a number of ways to reduce or eliminate the sales charge on shares. You may also need to provide information to your financial advisor or the Fund in order to qualify for a reduction in sales charges, such as your other Delaware Investments fund holdings and the names and their holdings of qualifying family members. Please refer to the Statement of Additional Information for detailed information and eligibility requirements. You can also get additional information from your financial advisor. You or your financial advisor must notify us at the time you purchase shares if you are eligible for any of these programs. Class R shares have no up-front sales charge.
SHARE CLASS ------------------------------------------------------------ PROGRAM HOW IT WORKS A B C - ------------------- ----------------------------------- ----------- -------------------------------------------- Letter of Intent Through a Letter of Intent you X Although the Letter of Intent and Rights of agree to invest a certain amount in Accumulation do not apply to the purchase of Delaware Investments Funds (except Class B and Class C shares, you can combine money market funds with no sales your purchase of Class A shares with your charge) over a 13-month period to purchase of Class B and Class C shares to qualify for reduced front-end sales fulfill your Letter of Intent or qualify for charges. Rights of Accumulation. Rights of You can combine your holdings or X Accumulation purchases of all funds in the Delaware Investments family (except money market funds with no sales charge) as well as the holdings and purchases of your spouse and children under 21 to qualify for reduced front-end sales charges. Reinvestment of Up to 12 months after you redeem For Class For Class B, your account Not Redeemed Shares shares, you can reinvest the A, you will will be credited with the available. proceeds without paying a sales not have to contingent deferred sales charge as noted to the right. pay an charge you previously paid additional on the amount you are front-end reinvesting. Your schedule sales for contingent deferred charge. sales charges and conversion to Class A will not start over again; it will pick up from the point at which you redeemed your shares. SIMPLE/IRA, These investment plans may qualify X There is no reduction in sales charges for SEP/IRA, SAR/SEP, for reduced sales charges by Class B or Class C shares for group purchases Prototype Profit combining the purchases of all by retirement plans. Sharing, Pension, members of the group. Members of 401(k), SIMPLE these groups may also qualify to 401(k), 403(b)(7), purchase shares without a front-end and 457 Retirement sales charge and may qualify for a Plans waiver of any contingent deferred sales charges.
19 HOW TO BUY SHARES [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] THROUGH YOUR FINANCIAL ADVISOR Your financial advisor can handle all the details of purchasing shares, including opening an account. Your advisor may charge a separate fee for this service. [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] BY MAIL Complete an investment slip and mail it with your check, made payable to the fund and class of shares you wish to purchase, to Delaware Investments, 2005 Market Street, Philadelphia, PA 19103-7094. If you are making an initial purchase by mail, you must include a completed investment application (or an appropriate retirement plan application if you are opening a retirement account) with your check. [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] BY WIRE Ask your bank to wire the amount you want to invest to Bank of New York, ABA #021000018, Bank Account number 8900403748. Include your account number and the name of the fund in which you want to invest. If you are making an initial purchase by wire, you must call us so we can assign you an account number. [GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL] BY EXCHANGE You can exchange all or part of your investment in one or more funds in the Delaware Investments family for shares of other funds in the family. Please keep in mind, however, that under most circumstances you are allowed to exchange only between like classes of shares. To open an account by exchange, call the Shareholder Service Center at 800 523-1918. [GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD] THROUGH AUTOMATED SHAREHOLDER SERVICES You can purchase or exchange shares through Delaphone, our automated telephone service, or through our web site, www.delawareinvestments.com. For more information about how to sign up for these services, call our Shareholder Service Center at 800 523-1918. Once you have completed an application, you can generally open an account with an initial investment of $1,000 and make additional investments at any time for as little as $100. If you are buying shares in an Individual Retirement Account (IRA) or Roth IRA, under the Uniform Gifts to Minors Act, or the Uniform Transfers to Minors Act, or through an Automatic Investing Plan, the minimum purchase is $250, and you can make additional investments of $25 or more. The minimum for a Coverdell Education Savings Account (formerly an "Education IRA") is $500. The minimums vary for retirement plans other than IRAs, Roth IRAs or Coverdell Education Savings Accounts. The price you pay for shares will depend on when we receive your purchase order. In particular, we reserve the right to reject any specific purchase order for any person whose transactions seem to follow a "market timing" pattern. If we or an authorized agent receives your order before the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), you will pay that day's closing share price which is based on the Fund's net asset value. If your order is received after the close of regular trading, you will pay the next business day's price. A business day is any day that the New York Stock Exchange is open for business. We reserve the right to reject any purchase order. We determine the Fund's net asset value (NAV) per share at the close of regular trading on the New York Stock Exchange each business day that the Exchange is open. We calculate this value by adding the market value of all the securities and assets in the Fund's portfolio, deducting all liabilities, and dividing the resulting number by the number of shares outstanding. The result is the net asset value per share. We generally price securities and other assets for which market quotations are readily available at their market value. We price fixed-income securities on 20 the basis of valuations provided to us by an independent pricing service that uses methods approved by the Board of Trustees. Any fixed-income securities that have a maturity of less than 60 days we price at amortized cost. For all other securities, we use methods approved by the Board of Trustees that are designed to price securities at their fair market value. FAIR VALUATION When a Fund uses fair value pricing, it may take into account any factors it deems appropriate. A Fund may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing may involve subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security. The Fund anticipates using fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. Funds may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. To account for this, the Fund may frequently value many foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Subject to the Board's oversight, the Fund's Board has delegated responsibility for valuing a Fund's assets to a Pricing Committee of the Manager, which operates under the policies and procedures approved by the Board, to value the Fund's assets on behalf of the Fund. The Pricing Committee values Fund assets as described above. RETIREMENT PLANS In addition to being an appropriate investment for your IRA, Roth IRA and Coverdell Education Savings Account, shares in the Fund may be suitable for group retirement plans. You may establish your IRA account even if you are already a participant in an employer-sponsored retirement plan. For more information on how shares in the Fund can play an important role in your retirement planning or for details about group plans, please consult your financial advisor, or call 800 523-1918. HOW TO REDEEM SHARES [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] THROUGH YOUR FINANCIAL ADVISOR Your financial advisor can handle all the details of redeeming your shares. Your advisor may charge a separate fee for this service. [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] BY MAIL You can redeem your shares (sell them back to the fund) by mail by writing to: Delaware Investments, 2005 Market Street, Philadelphia, PA 19103-7094. All owners of the account must sign the request, and for redemptions of $100,000 or more, you must include a signature guarantee for each owner. Signature guarantees are also required when you request redemption proceeds to be sent to an address other than the address of record on an account. [GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE] BY TELEPHONE You can redeem up to $100,000 of your shares by telephone. You may have the proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you may have the proceeds sent directly to your bank by wire. Bank information must be on file before you request a wire redemption. 21 [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] BY WIRE You can redeem $1,000 or more of your shares and have the proceeds deposited directly to your bank account, normally the next business day after we receive your request. If you request a wire deposit, a bank wire fee may be deducted from your proceeds. Bank information must be on file before you request a wire redemption. [GRAPHIC OMITTED: ILLUSTRATION OF A KEYPAD] THROUGH AUTOMATED SHAREHOLDER SERVICES You can redeem shares through Delaphone, our automated telephone service, or through our web site, www.delawareinvestments.com. For more information about how to sign up for these services, call our Shareholder Service Center at 800 523-1918. [GRAPHIC OMITTED: ILLUSTRATION OF A HAND HOLDING A PEN] THROUGH CHECKWRITING You may redeem Class A shares by writing checks of $500 or more. Checks must be signed by all owners of the account unless you indicate otherwise on your Investment Application. The checkwriting feature is not available for retirement plans. Also, because dividends are declared daily, you may not close your account by writing a check. When you write checks you are subject to bank regulations and may be subject to a charge if the check amount exceeds the value of your account. If you hold your shares in certificates, you must submit the certificates with your request to sell the shares. We recommend that you send your certificates by certified mail. When you send us a properly completed request to redeem or exchange shares, and we or an authorized agent receives the request before the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), you will receive the net asset value next determined after we receive your request. If we receive your request after the close of regular trading on the New York Stock Exchange, you will receive the net asset value next determined on the next business day. We will deduct any applicable contingent deferred sales charges. You may also have to pay taxes on the proceeds from your sale of shares. We will send you a check, normally the next business day, but no later than seven days after we receive your request to sell your shares. If you purchased your shares by check, we will wait until your check has cleared, which can take up to 15 days, before we send your redemption proceeds. If you are required to pay a contingent deferred sales charge when you redeem your shares, the amount subject to the fee will be based on the shares' net asset value when you purchased them or their net asset value when you redeem them, whichever is less. This arrangement assures that you will not pay a contingent deferred sales charge on any increase in the value of your shares. You also will not pay the charge on any shares acquired by reinvesting dividends or capital gains. If you exchange shares of one fund for shares of another, you do not pay a contingent deferred sales charge at the time of the exchange. If you later redeem those shares, the purchase price for purposes of the contingent deferred sales charge formula will be the price you paid for the original shares, not the exchange price. The redemption price for purposes of this formula will be the NAV of the shares you are actually redeeming. ACCOUNT MINIMUMS If you redeem shares and your account balance falls below the required account minimum of $1,000 ($250 for IRAs and Roth IRAs, Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts or accounts with automatic investing plans and $500 for Coverdell Education Savings Accounts) for three or more consecutive months, you will have until the end of the current calendar quarter to raise the balance to the minimum. If your account is not at the minimum by the required time, you will be charged a $9 fee for that quarter and each quarter after that until your account reaches the minimum balance. If your account does not reach the minimum balance, your Fund may redeem your account after 60 days' written notice to you. 22 SPECIAL SERVICES To help make investing with us as easy as possible, and to help you build your investments, we offer the following special services. AUTOMATIC INVESTING PLAN The Automatic Investing Plan allows you to make regular monthly or quarterly investments directly from your checking account. DIRECT DEPOSIT With Direct Deposit you can make additional investments through payroll deductions, recurring government or private payments such as Social Security or direct transfers from your bank account. WEALTH BUILDER OPTION With the Wealth Builder Option you can arrange automatic monthly exchanges between your shares in one or more Delaware Investments funds. Wealth Builder exchanges are subject to the same rules as regular exchanges (see below) and require a minimum monthly exchange of $100 per fund. ONLINE ACCOUNT ACCESS Account access is a password protected area of the Delaware Investments Web site that gives you access to your account information and allows you to perform transactions in a secure environment. ELECTRONIC DELIVERY With Delaware eDelivery you can receive your fund documents electronically instead of via the U.S. mail. When you sign up for eDelivery, you can access your account statements, shareholder reports, and other fund materials online, in a secure environment at any time, from anywhere. DIVIDEND REINVESTMENT PLAN Through our Dividend Reinvestment Plan, you can have your distributions reinvested in your account or the same share class in another fund in the Delaware Investments family. The shares that you purchase through the Dividend Reinvestment Plan are not subject to a front-end sales charge or to a contingent deferred sales charge. Under most circumstances, you may reinvest dividends only into like classes of shares. EXCHANGES You can exchange all or part of your shares, normally for shares of the same class in another Delaware Investments Fund without paying a front-end sales charge or a contingent deferred sales charge at the time of the exchange. We may refuse the purchase side of any exchange request, if, in the investment manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objectives and policies or would otherwise potentially be adversely affected. In particular, a pattern of exchanges that coincide with a "market timing" strategy may be refused. However, if you exchange shares from a money market fund that does not have a sales charge or from Class R shares of any fund you will pay any applicable sales charges on your new shares. When exchanging Class B and Class C shares of one fund for the same class of shares in other funds, your new shares will be subject to the same contingent deferred sales charge as the shares you originally purchased. The holding period for the contingent deferred sales charge will also remain the same, with the amount of time you held your original shares being credited toward the holding period of your new shares. You don't pay sales charges on shares that you acquired through the reinvestment of dividends. You may have to pay taxes on your exchange. When you exchange shares, you are purchasing shares in another fund so you should be sure to get a copy of the fund's prospectus and read it carefully before buying shares through an exchange. MONEYLINE(SM) ON DEMAND SERVICE Through our MoneyLine(SM) On Demand Service, you or your financial advisor may transfer money between your Fund account and your predesignated bank account by telephone request. This service is not available for retirement plans. MoneyLine has a minimum transfer of $25 and a maximum transfer of $50,000, except for purchases into IRAs. Delaware Investments does not charge a fee for this service; however, your bank may assess one. MONEYLINE DIRECT DEPOSIT SERVICE Through our MoneyLine Direct Deposit Service you can have $25 or more in dividends and distributions deposited directly to your bank account. Delaware Investments does not charge a fee for this service; however, your bank may assess one. This service is not available for retirement plans. 23 SYSTEMATIC WITHDRAWAL PLAN Through our Systematic Withdrawal Plan you can arrange a regular monthly or quarterly payment from your account made to you or someone you designate. If the value of your account is $5,000 or more, you can make withdrawals of at least $25 monthly, or $75 quarterly. You may also have your withdrawals deposited directly to your bank account through our MoneyLine Direct Deposit Service. The applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares redeemed via a Systematic Withdrawal Plan will be waived if the annual amount withdrawn in each year is less than 12% of the account balance on the date that the Plan is established. If the annual amount withdrawn in any year exceeds 12% of the account balance on the date that the Systematic Withdrawal Plan is established, all redemptions under the Plan will be subjected to the applicable contingent deferred sales charge, including an assessment for previously redeemed amounts under the Plan. FREQUENT TRADING OF FUND SHARES The Fund discourages purchases by market timers and purchase orders (including the purchase side of exchange orders) by shareholders identified as market timers may be rejected. The Fund's Board of Trustees has adopted policies and procedures designed to detect, deter and prevent trading activity detrimental to the Fund and its shareholders, such as market timing. The Fund will consider anyone who follows a pattern of market timing in any fund in the Delaware Investments Family of Funds or the Optimum Funds Trust to be a market timer and may consider anyone who has followed a similar pattern of market timing at an unaffiliated fund family to be a market timer. Market timing of a fund occurs when investors make consecutive rapid short-term "roundtrips", or in other words, purchases into a fund followed quickly by redemptions out of that fund. A short-term roundtrip is any redemption of fund shares within 20 business days of a purchase of that fund's shares. If you make a second such short-term roundtrip in a fund within the same calendar quarter of a previous short-term roundtrip in that fund, you may be considered a market timer. The purchase and sale of fund shares through the use of the exchange privilege are also included in determining whether market timing has occurred. The Fund also reserves the right to consider other trading patterns as market timing. Your ability to use the Fund's exchange privilege may be limited if you are identified as a market timer. If you are identified as a market timer, we will execute the redemption side of your exchange order but may refuse the purchase side of your exchange order. The Fund reserves the right to restrict, reject or cancel, without prior notice, any purchase order or exchange order for any reason, including any purchase order or exchange order accepted by any shareholder's financial intermediary or in any omnibus-type account. Transactions placed in violation of the Fund's market timing policy are not necessarily deemed accepted by the Fund and may be cancelled or revoked by the Fund on the next business day following receipt by the Fund. However, sales of Fund shares back to a Fund or redemptions will continue to be permitted in accordance with the terms of the Fund's current Prospectus. This may result in an undesirable situation where a shareholder with an account closed to new purchases could be faced with a costly redemption of Fund shares if, for example, these shares have declined in value, the shareholder recently paid a front-end sales charge or the shares are subject to a CDSC, or the sale results in adverse tax consequences to the shareholder. To avoid this risk, a shareholder should carefully monitor the purchases, sales, and exchanges of Fund shares and avoid frequent trading in Fund shares. The Fund reserves the right to modify this policy, including any monitoring procedures and the procedures to close accounts to new purchases established from time to time to effectuate this policy, at any time without notice. Though the implementation of this policy involves judgments that are inherently subjective and involves some selectivity in their application, we seek to make judgments and applications that are consistent with the interests of the Fund's shareholders. While we will seek to take actions that will detect market timing, we cannot represent that such trading activity can be completely eliminated. RISKS OF MARKET TIMING By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of the Fund's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management. In particular, a Fund may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. Excessive purchases and sales or exchanges of a Fund's shares may force the Fund to sell portfolio securities at 24 inopportune times to raise cash to accommodate short-term trading activity. In addition, a Fund may incur increased expenses if one or more shareholders engage in excessive or short-term trading. For example, a Fund may be forced to liquidate investments as a result of short-term trading and incur increased brokerage costs and realization of taxable capital gains without attaining any investment advantage. All of these factors may adversely affect Fund performance. A Fund that invests significantly in foreign securities may be particularly susceptible to short-term trading strategies. This is because foreign securities are typically traded on markets that close well before the time a Fund calculates its NAV at 4:00 p.m. Eastern Time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Fund share prices that are based on closing prices of foreign securities established some time before the Fund calculates its own share price. Any Fund that invests in securities that are, among other things, thinly traded, traded infrequently, or relatively illiquid has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences. Fund that may be adversely affected by such arbitrage include, in particular, funds that significantly invest in small cap securities, technology and other specific industry sector securities, and in certain fixed-income securities, such as high yield bonds, asset-backed securities, or municipal bonds. TRANSACTION MONITORING PROCEDURES The Fund, through its transfer agent, maintains surveillance procedures designed to detect excessive or short-term trading in Fund shares. This monitoring process involves several factors, which includes scrutinizing transactions in Fund shares for transactions in violation of the Fund's market timing policy or other patterns of short-term or excessive trading. For purposes of these transaction monitoring procedures, the Fund may consider trading activity in multiple accounts under common ownership, control, or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. These procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances, such as for certain retirement plans, to conform to plan exchange limits or U.S. Department of Labor regulations, or for certain automated or pre-established exchange, asset allocation or dollar cost averaging programs, or omnibus account arrangements. Omnibus account arrangements are common forms of holding shares of the Fund, particularly among certain brokers, dealers, and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Fund seeks to apply their monitoring procedures to these omnibus account arrangements and to the individual participant level in such accounts. In efforts to discourage market timers in such accounts the Fund may consider enforcement against market timers at the participant level and at the omnibus level, up to and including termination of the omnibus account. LIMITATIONS ON ABILITY TO DETECT AND CURTAIL MARKET TIMING Shareholders seeking to engage in market timing may employ a variety of strategies to avoid detection and, despite the efforts of the Fund and its agents to detect market timing in Fund shares, there is no guarantee that the Fund will be able to identify these shareholders or curtail their trading practices. In particular, the Fund may not be able to detect market timing in Fund shares attributable to a particular investor who effects purchase and/or exchange activity in Fund shares through omnibus accounts. Also, multiple tiers of these entities may exist, each utilizing an omnibus account arrangement, which may further compound the difficulty of detecting excessive or short duration trading activity in Fund shares. DIVIDENDS, DISTRIBUTIONS AND TAXES Dividends are declared daily and paid monthly. Short-term capital gains if any, may be paid quarterly, but the board of trustees may choose to distribute them less frequently. Long-term capital gains, if any, will be distributed annually. We automatically reinvest all dividends and capital gains, unless you direct us otherwise. In addition, in order to satisfy certain distribution requirements of the Tax Reform Act of 1986, the Funds may declare special year-end dividend and capital gains distributions during November and December to shareholders of record on a date in such month. Such distributions, if received by shareholders by January, are deemed to have been paid by the Funds and received by shareholders on the earlier of the date paid or December 31 of the prior year. 25 The tax status of your dividends from the Funds is the same whether you reinvest your dividends or receive them in cash. Distributions from the Funds' long-term capital gains are taxable as capital gains, while distributions from short-term capital gains and net investment income are generally taxable as ordinary income. The tax rate on capital gains is less than the tax rate on ordinary income. You also may be subject to state and local taxes on distributions. We will send you a statement each year by January 31 detailing the amount and nature of all dividends and capital gains that you were paid for the prior year. CERTAIN MANAGEMENT CONSIDERATIONS INVESTMENTS BY FUND OF FUNDS AND INVESTMENT VEHICLES THAT OPERATE SIMILARLY TO FUNDS OF FUNDS The Fund accepts investments from funds of funds, including those within Delaware Investments family, and investment vehicles that operate similarly to funds of funds, such as 529 plans. A "529 Plan" is a college savings program that operates under section 529 of the Internal Revenue Code. From time to time, the Fund may experience large investments or redemptions due to allocations or rebalancings by these funds of funds and/or similar investment vehicles. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on portfolio management. For example, the Fund may be required to sell securities or invest cash at times when it would not otherwise do so. These transactions could also have tax consequences if sales of securities result in gains, and could also increase transaction costs or portfolio turnover. The manager will monitor transactions by the funds of funds and/or similar investment vehicles and will attempt to minimize any adverse effects on the Fund and funds of funds and/or similar investment vehicle as a result of these transactions. 26 FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. [This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800 523-1918.]
CLASS A YEAR ENDED 12/31 ---------------------------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND 2004 2003 2002 2001(1) 2000 - ------------------------------------------------------------- -------- -------- -------- -------- -------- Net asset value, beginning of period INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gain (loss) on investments Total from investment operations LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income Return of capital Total dividends and distributions NET ASSET VALUE, END OF PERIOD TOTAL RETURN(3) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) Ratio of expenses to average net assets Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly Ratio of net investment income to average net assets Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly Portfolio turnover
(1) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require 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) Date of commencement of operations. Ratios have been annualized and total return has not been annualized. 27 (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 a waiver and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect.
CLASS B CLASS C YEAR ENDED 12/31 YEAR ENDED 12/31 --------------------------------------- --------------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND 2004 2003 2002 2001(1) 2000 2003 2002 2001(1) 2000 - --------------------------------------------- ------ ------ ------ ------- ------ ------ ------ ------ ------- ------ Net asset value, beginning of period INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gain (loss) on investments Total from investment operations LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income Return of capital Total dividends and distributions NET ASSET VALUE, END OF PERIOD TOTAL RETURN(3) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) Ratio of expenses to average net assets Ratio of expenses to average net assets prior to expense limitations and expenses paid indirectly Ratio of net investment income to average net assets Ratio of net investment income to average net assets prior to expense limitations and expenses paid indirectly Portfolio turnover
28 CLASS B YEAR ENDED 12/31 ----------------- Class R Period 6/2/03(2) through DELAWARE LIMITED-TERM GOVERNMENT FUND 2004 12/31/03 - ------------------------------------------------------ ---- --------- Net asset value, beginning of period INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gain (loss) on investments Total from investment operations LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income Return of capital Total dividends and distributions NET ASSET VALUE, END OF PERIOD TOTAL RETURN(3) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) Ratio of expenses to average net assets Ratio of expenses to average net assets prior to expense limitations and expenses paid indirectly Ratio of net investment income to average net assets Ratio of net investment income to average net assets prior to expense limitations and expenses paid indirectly Portfolio turnover 29 HOW TO READ THE FINANCIAL HIGHLIGHTS NET INVESTMENT INCOME (LOSS) Net investment income (loss) includes dividend and interest income earned from the Fund's investments; it is after expenses have been deducted. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS A realized gain occurs when we sell an investment at a profit, while a realized loss occurs when we sell an investment at a loss. When an investment increases or decreases in value but we do not sell it, we record an unrealized gain or loss. The amount of realized gain per share, if any, that we pay to shareholders would be under "Less dividends and distributions from - Net realized gain on investments." NET ASSET VALUE (NAV) This is the value of a mutual fund share, calculated by dividing the net assets by the number of shares outstanding. TOTAL RETURN This represents the rate that an investor would have earned or lost on an investment in a fund. In calculating this figure for the financial highlights table, we include applicable fee waivers, exclude front-end and contingent deferred sales charges, and assume the shareholder has reinvested all dividends and realized gains. NET ASSETS Net assets represent the total value of all the assets in a fund's portfolio, less any liabilities, that are attributable to that class of the fund. RATIO OF EXPENSES TO AVERAGE NET ASSETS The expense ratio is the percentage of net assets that a fund pays annually for operating expenses and management fees. These expenses include accounting and administration expenses, services for shareholders, and similar expenses. RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS We determine this ratio by dividing net investment income by average net assets. PORTFOLIO TURNOVER This figure tells you the amount of trading activity in a fund's portfolio. A turnover rate of 100% would occur if the Fund sold and replaced securities valued at 100% of its net assets within one year, if for example the Fund bought and sold all of the securities in its portfolio once in the course of a year, or frequently traded a single security. High turnover can result in increased transaction costs and tax liability for investors. 30 GLOSSARY HOW TO USE THIS GLOSSARY This glossary includes definitions of investment terms, many of which are used throughout the Prospectus. If you would like to know the meaning of an investment term that is not explained in the text please check the glossary. AMORTIZED COST Amortized cost is a method used to value a fixed-income security that starts with the face value of the security and then adds or subtracts from that value depending on whether the purchase price was greater or less than the value of the security at maturity. The amount greater or less than the par value is divided equally over the time remaining until maturity. AVERAGE MATURITY An average of when the individual bonds and other debt securities held in a portfolio will mature. BOND A debt security, like an IOU, issued by a company, municipality or government agency. In return for lending money to the issuer, a bond buyer generally receives fixed periodic interest payments and repayment of the loan amount on a specified maturity date. A bond's price changes prior to maturity and typically is inversely related to current interest rates. Generally, when interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. See Fixed-income securities. BOND RATINGS Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds. See also Nationally recognized statistical ratings organization. CAPITAL The amount of money you invest. CAPITAL APPRECIATION An increase in the value of an investment. CAPITAL GAINS DISTRIBUTIONS Payments to mutual fund shareholders of profits (realized gains) from the sale of a fund's portfolio securities. Usually paid once a year; may be either short-term gains or long-term gains. COMMISSION The fee an investor pays to a financial advisor for investment advice and help in buying or selling mutual funds, stocks, bonds or other securities. COMPOUNDING Earnings on an investment's previous earnings. CONSUMER PRICE INDEX (CPI) Measurement of U.S. inflation; represents the price of a basket of commonly purchased goods. CONTINGENT DEFERRED SALES CHARGE (CDSC) Fee charged by some mutual funds when shares are redeemed (sold back to the fund) within a set number of years; an alternative method for investors to compensate a financial advisor for advice and service, rather than an up-front commission. CORPORATE BOND A debt security issued by a corporation. See Bond. COST BASIS The original purchase price of an investment, used in determining capital gains and losses. 31 DEPRECIATION A decline in an investment's value. DIVERSIFICATION The process of spreading investments among a number of different securities, asset classes or investment styles to reduce the risks of investing. DIVIDEND DISTRIBUTION Payments to mutual fund shareholders of dividends passed along from the fund's portfolio of securities. DURATION A measurement of a fixed-income investment's price volatility. The larger the number, the greater the likely price change for a given change in interest rates. EXPENSE RATIO A mutual fund's total operating expenses, expressed as a percentage of its total net assets. Operating expenses are the costs of running a mutual fund, including management fees, offices, staff, equipment and expenses related to maintaining the fund's portfolio of securities and distributing its shares. They are paid from the fund's assets before any earnings are distributed to shareholders. FINANCIAL ADVISOR Financial professional (e.g., broker, banker, accountant, planner or insurance agent) who analyzes clients' finances and prepares personalized programs to meet objectives. FIXED-INCOME SECURITIES With fixed-income securities, the money you originally invest is paid back at a pre-specified maturity date. These securities, which include government, corporate or municipal bonds, as well as money market securities, typically pay a fixed rate of return (often referred to as interest). See Bond. GOVERNMENT SECURITIES Securities issued by the U.S. government or its agencies. They include Treasuries as well as agency-backed securities such as Fannie Maes. INFLATION The increase in the cost of goods and services over time. U.S. inflation is frequently measured by changes in the Consumer Price Index (CPI). INVESTMENT GOAL The objective, such as long-term capital growth or high current income, that a mutual fund pursues. MANAGEMENT FEE The amount paid by a mutual fund to the investment advisor for management services, expressed as an annual percentage of the fund's average daily net assets. MARKET CAPITALIZATION The value of a corporation determined by multiplying the current market price of a share of common stock by the number of shares held by shareholders. A corporation with one million shares outstanding and the market price per share of $10 has a market capitalization of $10 million. MATURITY The length of time until a bond issuer must repay the underlying loan principal to bondholders. MERRILL LYNCH ONE-TO-THREE YEAR TREASURY INDEX An unmanaged index of U.S. Treasury notes and bonds with maturities greater than or equal to one year and less than three years. It does not include inflation linked U.S. government bonds. 32 NASD REGULATION, INC. (NASDR)(SM) The independent subsidiary of the National Association of Securities Dealers, Inc. responsible for regulating the securities industry. NATIONALLY RECOGNIZED STATISTICAL RATINGS ORGANIZATION (NRSRO) A company that assesses the credit quality of bonds, commercial paper, preferred and common stocks and municipal short-term issues, rating the probability that the issuer of the debt will meet the scheduled interest payments and repay the principal. Ratings are published by such companies as Moody's Investors Service, Inc. (Moody's), Standard & Poor's (S&P) and Fitch, Inc. (Fitch). NET ASSETS Net assets for purposes of the Fund's 80% Policy means the total value of all assets in the Fund's portfolio, minus any liabilities, plus the amount of the Fund's borrowings, if any, for investment purposes. NET ASSET VALUE (NAV) The daily dollar value of one mutual fund share. Equal to a fund's net assets divided by the number of shares outstanding. PREFERRED STOCK Preferred stock has preference over common stock in the payment of dividends and liquidation of assets. Preferred stocks also often pay dividends at a fixed rate and are sometimes convertible into common stock. PRINCIPAL Amount of money you invest (also called capital). Also refers to a bond's original face value, due to be repaid at maturity. PROSPECTUS The official offering document that describes a mutual fund, containing information required by the SEC, such as investment objectives, policies, services and fees. REDEEM To cash in your shares by selling them back to the mutual fund. RISK Generally defined as variability of value; also credit risk, inflation risk, currency and interest rate risk. Different investments involve different types and degrees of risk. SALES CHARGE Charge on the purchase or redemption of fund shares sold through financial advisors. May vary with the amount invested. Typically used to compensate advisors for advice and service provided. SEC (SECURITIES AND EXCHANGE COMMISSION) Federal agency established by Congress to administer the laws governing the securities industry, including mutual fund companies. SHARE CLASSES Different classifications of shares; mutual fund share classes offer a variety of sales charge choices. SIGNATURE GUARANTEE Certification by a bank, brokerage firm or other financial institution that a customer's signature is valid; signature guarantees can be provided by members of the STAMP program. STANDARD DEVIATION A measure of an investment's volatility; for mutual funds, measures how much a fund's total return has typically varied from its historical average. 33 STATEMENT OF ADDITIONAL INFORMATION (SAI) The document serving as "Part B" of a fund's prospectus that provides more detailed information about the fund's organization, investments, policies and risks. STOCK An investment that represents a share of ownership (equity) in a corporation. Stocks are often referred to as common stocks or equities. TOTAL RETURN An investment performance measurement, expressed as a percentage, based on the combined earnings from dividends, capital gains and change in price over a given period. UNIFORM GIFTS TO MINORS ACT AND UNIFORM TRANSFERS TO MINORS ACT Federal and state laws that provide a simple way to transfer property to a minor with special tax advantages. VOLATILITY The tendency of an investment to go up or down in value by different magnitudes. Investments that generally go up or down in value in relatively small amounts are considered "low volatility" investments, whereas those investments that generally go up or down in value in relatively large amounts are considered "high volatility" investments. 34 DELAWARE LIMITED-TERM GOVERNMENT FUND Additional information about the Fund's investments is available in the Fund's annual and semiannual reports to shareholders. In the Fund's shareholder reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during the report period. You can find more detailed information about the Fund in the current Statement of Additional Information, which we have filed electronically with the Securities and Exchange Commission (SEC) and which is legally a part of this Prospectus. If you want a free copy of the Statement of Additional Information, the annual or semiannual report, or if you have any questions about investing in the Fund, you can write to us at 2005 Market Street, Philadelphia, PA 19103-7094, or call toll-free 800 523-1918. You may also obtain additional information about the Fund from your financial advisor. You can find reports and other information about the Fund on the EDGAR database on the SEC web site (http://www.sec.gov). You can also get copies of this information, after payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov or by writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Information about the Fund, including its Statement of Additional Information, can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can get information on the Public Reference Room by calling the SEC at 202 942-8090. WEB SITE www.delawareinvestments.com E-MAIL service@delinvest.com SHAREHOLDER SERVICE CENTER 800 523-1918 Call the Shareholder Service Center Monday to Friday, 8 a.m. to 7 p.m. Eastern Time: o For fund information, literature, price, yield and performance figures. o For information on existing regular investment accounts and retirement plan accounts including wire investments, wire redemptions, telephone redemptions and telephone exchanges. DELAPHONE SERVICE 800 362-FUND (800 362-3863) o For convenient access to account information or current performance information on all Delaware Investments Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. DELAWARE FUND SYMBOLS: CUSIP NASDAQ - ---------------------- --------------- ------------ Class A 245912308 DTRIX Class B 245912605 DTIBX Class C 245912704 DTICX Class R 245912803 DLTRX Investment Company Act file number: 811-3363 R-022 [--] IVES 4/05 DELAWARE INVESTMENTS(SM) -------------------------------------- A member of Lincoln Funancial Group (R) DELAWARE LIMITED-TERM GOVERNMENT FUND Institutional Class PROSPECTUS April __, 2005 FIXED INCOME The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the accuracy of this Prospectus, and any representation to the contrary is a criminal offense. TABLE OF CONTENTS FUND PROFILE PAGE Delaware Limited-Term Government Fund HOW WE MANAGE THE FUND PAGE Our investment strategies The securities we typically invest in The risks of investing in the Fund Disclosure of portfolio holdings information WHO MANAGES THE FUND PAGE Investment manager Portfolio managers Who's who? ABOUT YOUR ACCOUNT PAGE Investing in the Fund How to buy shares Fair valuation How to redeem shares Account minimum Frequent trading of Fund shares Distribution, distributions and taxes Certain management considerations FINANCIAL HIGHLIGHTS PAGE GLOSSARY PAGE 2 PROFILE: DELAWARE LIMITED-TERM GOVERNMENT FUND WHAT IS THE FUND'S GOAL? Delaware Limited-Term Government Fund seeks to provide a high stable level of income, while attempting to minimize fluctuations in principal and provide maximum liquidity. Although the Fund will strive to meet its goal, there is no assurance that it will. WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES? We invest primarily in short- and intermediate-term U.S. government securities. These are debt securities issued or guaranteed by the U.S., such as U.S. Treasuries, securities issued by U.S. government agencies or instrumentalities, such as securities of the Government National Mortgage Association, and securities that are privately issued but are 100% collateralized by securities or certificates issued or guaranteed by the U.S. government, its agencies or instrumentalities. We may also invest up to 20% of the Fund's net assets in corporate notes and bonds, certificates of deposit and obligations of U.S. and foreign banks, commercial paper, certain asset-backed securities and non-agency mortgage-backed securities. The level of income the Fund provides will vary depending on current interest rates and the specific securities in the portfolio. However, since longer-term rates are generally less volatile than short-term rates, the Fund's income may fluctuate less than a money market fund's income. Under normal circumstances, the Fund will invest at least 80% ("80% Policy") of its net assets in U.S. government securities. This 80% Policy cannot be changed without shareholder approval. However, shareholders would be given at least 60 days notice prior to any such change. WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? Investing in any mutual fund involves risk, including the risk that you may lose part or all of the money you invest. The value of your investment in the Fund will increase and decrease according to changes in the value of the securities in the Fund's portfolio. This Fund will be affected primarily by adverse changes in interest rates. When interest rates rise, the value of bonds in the portfolio will likely decline. For a more complete discussion of risk, please see "The risks of investing in the Fund" on page ____. An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. WHO SHOULD INVEST IN THE FUND o Investors with intermediate or long-term financial goals. o Investors seeking monthly income. o Investors who would like a relatively conservative income investment to help balance a growth-oriented long-term portfolio. o Investors seeking a high quality investment with a measure of capital preservation. WHO SHOULD NOT INVEST IN THE FUND o Investors with very short-term financial goals. o Investors who are unwilling to accept share prices that may fluctuate, especially over the short term. o Investors who want an investment with a fixed share price, such as a money market fund. You should keep in mind that an investment in the Fund is not a complete investment program; it should be considered just one part of your total financial plan. Be sure to discuss this Fund with your financial advisor to determine whether it is an appropriate choice for you. 3 HOW HAS DELAWARE LIMITED-TERM GOVERNMENT FUND PERFORMED? THIS BAR CHART AND TABLE can help you evaluate the risks of investing in the Fund. We show how returns before taxes for the Fund's Institutional Class shares have varied over the past ten calendar years, as well as the average annual returns for one-year, five-year and ten-year periods. The Fund's past performance is not necessarily an indication of how it will perform in the future. The returns for 2001, 2002, 2003 and 2004 reflect an expense limitation and would have been lower without the limitation. During the periods illustrated in this bar chart, the Institutional Class' highest return was ___% for the quarter ended _____________ and its lowest return was _____% for the quarter ended ________________. [GRAPHIC OMITTED: BAR CHART SHOWING YEAR BY YEAR TOTAL RETURN (INSTITUTIONAL CLASS)] YEAR-BY-YEAR TOTAL RETURN (Institutional Class) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- % % % % % % % % % % AVERAGE ANNUAL RETURNS for periods ending 12/31/04
1 YEAR 5 YEARS 10 YEARS ------ ------- -------- Return before taxes % % % Return after taxes on distributions % % % Return after taxes on distributions and sale of Fund shares % % % Merrill Lynch One-to-Three Year Treasury Index (reflects no deduction for fees, expenses or taxes) % % %
The Fund's returns above are compared to the performance of the Merrill Lynch One-to-Three Year Treasury Index. You should remember that unlike the Fund, the index is unmanaged and does not include the costs of operating a mutual fund, such as the cost of buying, selling and holding securities. Actual after-tax returns depend on the investor's individual tax situation and may differ from the returns shown. After-tax returns are not relevant for shares held in tax-deferred investment vehicles such as employer-sponsored 401(k) plans and individual retirement accounts. The after-tax returns shown are calculated using the highest individual federal marginal income tax rates in effect during the Fund's lifetime and do not reflect the impact of state and local taxes. The after-tax rate used is based on the current tax characterization of the elements of the Fund's returns (e.g., qualified vs. non-qualified dividends) and may be different than the final tax characterization of such elements. Past performance, both before and after taxes, is not a guarantee of future results. 4 WHAT ARE THE FUND'S FEES AND EXPENSES? YOU DO NOT PAY SALES CHARGES directly from your investments when you buy or sell shares of the Institutional Class. Maximum sales charge (load) imposed on none purchases as a percentage of offering price Maximum contingent deferred sales charge none (load) as a percentage of original purchase price or redemption price, whichever is lower Maximum sales charge (load) imposed none on reinvested dividends Redemption fees none Exchange fees(1) none ANNUAL FUND OPERATING EXPENSES are deducted from the Fund's assets. Management fees 0.50% Distribution and service (12b-1) fees none Other expenses ____% Total operating expenses ____% Fee waivers and payments(2) (____%) Net expenses ____% THIS EXAMPLE is intended to help you compare the cost of investing in the Fund to the cost of investing in other mutual funds with similar investment objectives. We show the cumulative amount of Fund expenses on a hypothetical investment of $10,000 with an annual 5% return over the time shown. (3) This is an example only, and does not represent future expenses, which may be greater or less than those shown here. 1 year $ ___ 3 years $ ___ 5 years $ ___ 10 years $ ___ (1) Exchanges are subject to the requirements of each fund in the Delaware Investments family. A front-end sales charge may apply if you exchange your shares into a fund that has a front-end sales charge. (2) The investment manager has contracted to waive fees and pay expenses through April 30, 2006 in order to prevent total operating expenses (excluding taxes, interest, brokerage fees, extraordinary expenses and certain insurance costs) from exceeding 0.65 of average daily net assets. (3) The Fund's actual rate of return may be greater or less than the hypothetical 5% return we use here. Also, this example reflects the net operating expenses with expense waivers for the one-year contractual period and total operating expenses without expense waivers for years two through ten. 5 HOW WE MANAGE THE FUND OUR INVESTMENT STRATEGIES We analyze economic and market conditions, seeking to identify the securities or market sectors that we think are the best investments for the Fund. Following are descriptions of how the portfolio managers pursue the Fund's investment goals. We take a disciplined approach to investing, combining investment strategies and risk management techniques that can help shareholders meet their goals. We invest primarily in short- and intermediate-term fixed income securities including: o securities issued or guaranteed by the U.S. government such as U.S. Treasuries; and o securities issued by U.S. government agencies or instrumentalities such as securities of the Government National Mortgage Association. We may invest in instruments that use these government securities as collateral. We may invest up to 20% of the Fund's net assets in corporate notes and bonds, certificates of deposit and obligations of both U.S. and foreign banks, commercial paper, certain asset-backed securities and non-agency mortgage-backed securities. The Fund's level of income and the stability of its share price will be directly affected by changes in short- and intermediate-term interest rates. We anticipate that the level of income could be higher than a money market fund. However, the Fund's share price will increase and decrease with changes in interest rates. This makes its risk level greater than that of a money market fund. We strive to reduce the effects of interest rate changes on the share price by maintaining an average effective duration of two to three years. The average effective duration is determined by averaging the individual effective duration of all securities in the portfolio. If we believe that interest rates are historically low, we may shorten the average effective duration to two years. Conversely, if we believe rates are high and therefore likely to go lower, we may increase average effective duration to as high as three years. The Fund's investment objective is non-fundamental. This means that the Board of Trustees may change the objective without obtaining shareholder approval. If the objective was changed, we would notify shareholders before the change in the objective became effective. 6 THE SECURITIES WE TYPICALLY INVEST IN Fixed-income securities offer the potential for greater income payments than stocks, and also may provide capital appreciation.
SECURITIES HOW WE USE THEM - ------------------------------------------------------------ -------------------------------------------------- DIRECT U.S. TREASURY OBLIGATIONS include Treasury bills, We may invest without limit in U.S. Treasury notes and bonds of varying maturities. U.S. Treasury securities, although they are typically not our securities are backed by the "full faith and credit" of the largest holding because they generally do not United States. offer as high a level of current income as other fixed-income securities. MORTGAGE-BACKED SECURITIES: Fixed-income securities that There is no limit on government-related represent pools of mortgages, with investors receiving mortgage-backed securities. principal and interest payments as the underlying mortgage loans are paid back. Many are issued and guaranteed against We may invest up to 35% of net assets in default by the U.S. government or its agencies or mortgage-backed securities issued by private instrumentalities, such as the Federal Home Loan Mortgage entities if at the time they are issued they are Corporation, Fannie Mae and the Government National Mortgage 100% collateralized by securities or certificates Association. Others are issued by private financial issued or guaranteed by the U.S. government, its institutions, with some fully collateralized by certificates agencies or instrumentalities. These securities issued or guaranteed by the government or its agencies or must be rated in one of the two highest categories instrumentalities. by a nationally recognized statistical rating organization (NRSRO) at the time of purchase. The Fund may also invest in mortgage-backed securities that are not government securities and are not directly guaranteed by the U.S. government in any way. They are secured by the underlying collateral of the private issuer. These include collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and commercial mortgage-backed securities (CMBSs). We may invest in these securities only if they are rated in the highest quality category, such as AAA, by an NRSRO. However, the Fund may not invest more than 20% of its net assets in securities that are not government securities or do not use government securities as collateral. ASSET-BACKED SECURITIES: Bonds or notes backed by accounts We may invest only in asset-backed securities receivable including home equity, automobile or credit rated in the highest quality category, such as loans. AAA, by an NRSRO. However, we may not invest more than 20% of the Fund's net assets in securities (including these asset-backed securities) that are not government securities or do not use government securities as collateral. REPURCHASE AGREEMENTS: An agreement between a buyer of Typically, we use repurchase agreements as a securities, such as a Fund, and a seller of securities in short-term investment for the Fund's cash which the seller agrees to buy the securities back within a position. In order to enter into these repurchase specified time at the same price the buyer paid for them, agreements, the Fund must have collateral of 102% plus an amount equal to an agreed upon interest rate. of the repurchase price. The Fund will only enter Repurchase agreements are often viewed as equivalent to into repurchase agreements in which the collateral cash. is comprised of U.S. government securities.
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SECURITIES HOW WE USE THEM - ------------------------------------------------------------ -------------------------------------------------- INTEREST RATE SWAP AND INDEX SWAP AGREEMENTS: In an interest We may use interest rate swaps to adjust the rate swap, a fund receives payments from another party based Fund's sensitivity to interest rates, or to hedge on a floating interest rate in return for making payments against changes in interest rates. based on a fixed interest rate. An interest rate swap can also work in reverse, with a fund receiving payments based Index swaps may be used to gain exposure to on a fixed interest rate and making payments based on a markets that the Fund invests in, such as the floating interest rate. In an index swap, a fund receives corporate bond market. gains or incurs losses based on the total return of an index, in exchange for making fixed or floating interest Interest rate swaps and index swaps will be rate payments to another party. considered illiquid securities (see below). OPTIONS AND FUTURES: Options represent a right to buy or At times when we anticipate adverse conditions, we sell a security or a group of securities at an agreed upon may want to protect gains on securities without price at a future date. The purchaser of an option may or actually selling them. We might use options or may not choose to go through with the transaction. The futures to neutralize the effect of any price seller of an option, however, must go through with the declines, without selling a bond or bonds, or as a transaction if its purchaser exercises the option. hedge against changes in interest rates. We may also sell an option contract (often referred to as "writing" an option) to earn additional income for the Fund. Futures contracts are agreements for the purchase or sale of Use of these strategies can increase the operating a security or a group of securities at a specified price, on costs of the Fund and can lead to loss of a specified date. Unlike purchasing an option, a futures principal. contract must be executed unless it is sold before the settlement date. Certain options and futures may be considered to be derivative securities. RESTRICTED SECURITIES: Privately placed securities whose We may invest in privately placed securities resale is restricted under securities law. including those that are eligible for resale only among certain institutional buyers without registration, which are commonly known as "Rule 144A Securities." Other restricted securities must be limited to 10% of total Fund assets. ILLIQUID SECURITIES: Securities that do not have a ready We may invest up to 10% of total assets in market and cannot be easily sold within seven days at illiquid securities. approximately the price that a Fund has valued them.
The Fund may also invest in other securities including certificates of deposit and obligations of both U.S. and foreign banks; corporate debt and commercial paper; and American Depositary Receipts. Please see the Statement of Additional Information for additional descriptions on these securities as well as those listed in the table above. BORROWING FROM BANKS The Fund may borrow money as a temporary measure for extraordinary or emergency purposes or to facilitate redemptions. The Fund will not borrow money in excess of one-third of the value of its net assets. LENDING SECURITIES The Fund may lend up to 25% of its assets to qualified brokers, dealers and investors for their use in securities transactions. These transactions, if any, may generate additional income for the Fund. 8 PURCHASING SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS The Fund may buy or sell securities on a when-issued or delayed delivery basis; that is, paying for securities before delivery or taking delivery at a later date. The Fund will designate cash or securities in amounts sufficient to cover its obligations, and will value the designated assets daily. PORTFOLIO TURNOVER We anticipate that the Fund's annual portfolio turnover may be greater than 100%. A turnover rate of 100% would occur if, for example, a fund bought and sold all of the securities in its portfolio once in the course of a year or frequently traded a single security. High turnover can result in increased transaction costs and tax liability for investors and may affect the Fund's performance. THE RISKS OF INVESTING IN THE FUND Investing in any mutual fund involves risk, including the risk that you may receive little or no return on your investment, and the risk that you may lose part or all of the money you invest. Before you invest in the Fund, you should carefully evaluate the risks. Because of the nature of the Fund, you should consider your investment to be a long-term investment that typically provides the best results when held for a number of years. Following are the chief risks you assume when investing in the Fund. Please see the Statement of Additional Information for further discussion of these risks and the other risks not discussed here.
RISKS HOW WE STRIVE TO MANAGE THEM - -------------------------------------------------- -------------------------------------------------- MARKET RISK: The risk that all or a majority of We maintain a long-term investment approach and the securities in a certain market - like the focus on high quality individual bonds that we stock or bond market - will decline in value believe can provide a steady stream of income because of factors such as economic conditions, regardless of interim fluctuations in the bond future expectations or investor confidence. market. We generally do not buy and sell securities for short-term purposes. Index swaps are subject to the same market risks In evaluating the use of an index swap, we as the investment market or sector that the index carefully consider how market changes could affect represents. Depending on the actual movements of the swap and how that compares to us investing the index and how well the portfolio manager directly in the market the swap is intended to forecasts those movements, a fund could experience represent. a higher or lower return than anticipated. INDUSTRY AND SECURITY RISK: The risk that the We diversify the Fund's assets across a variety of value of securities in a particular industry or sectors in the bond market. We also follow a the value of an individual stock or bond will rigorous selection process before choosing decline because of changing expectations for the securities for the portfolio. performance of that industry or for the individual company issuing the stock or bond. INTEREST RATE RISK: The risk that securities, Interest rate risk is the most significant risk particular bonds with longer maturities, will for this Fund. In striving to manage this risk, we decrease in value if interest rates rise. monitor economic conditions and the interest rate environment. We keep the average maturity of the Swaps may be particularly sensitive to interest portfolio as short as is prudent, in keeping with rate changes. Depending on the actual movements of our objective to provide high current income. interest rates and how well the portfolio manager anticipates them, a Fund could experience a higher We will not invest in swaps with maturities of or lower return than anticipated. more than two years. Each business day we will calculate the amount the Fund must pay for swaps it holds and will segregate enough cash or other liquid securities to cover that amount.
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RISKS HOW WE STRIVE TO MANAGE THEM - -------------------------------------------------- -------------------------------------------------- CREDIT RISK: The possibility that a bond's issuer By focusing primarily on U.S. Treasury securities (or an entity that insures the bond) will be and other securities that are backed by the U.S. unable to make timely payments of interest and government, we minimize the possibility that any principal. of the securities in our portfolio will not pay interest or principal. U.S. government securities are generally considered to be of the highest quality. When selecting non-government securities and the dealers with whom we do interest rate swaps, we focus on those with high quality ratings and do careful credit analysis before investing. PREPAYMENT RISK: The risk that homeowners will We take into consideration the likelihood of prepay mortgages during periods of low interest prepayment when we select mortgages. We may look rates, forcing a Fund to reinvest their money at for mortgage securities that have characteristics interest rates that might be lower than those on that make them less likely to be prepaid, such as the prepaid mortgage. Prepayment risk may also low outstanding loan balances or below-market affect other types of debt securities, but interest rates. generally to a lesser extent than mortgage securities. LIQUIDITY RISK: The possibility that securities U.S. Treasuries and other U.S. government debt cannot be readily sold within seven days at securities are typically the most liquid approximately the price that a fund has valued securities available. Therefore, liquidity risk is them. not a significant risk for this Fund. Swap agreements will be treated as illiquid securities, but most swap dealers will be willing to repurchase interest rate swaps.
DISCLOSURE OF PORTFOLIO HOLDINGS INFORMATION A description of the Fund's policies and procedures with respect to the disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information and on the Fund's website at www.delawarefunds.com. 10 WHO MANAGES THE FUND INVESTMENT MANAGER The Fund is managed by Delaware Management Company, a Fund of Delaware Management Business Trust, which is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. Delaware Management Company makes investment decisions for the Fund, manages the Fund's business affairs and provides daily administrative services. For these services, the manager was paid ___% of average daily net assets for the last fiscal year. PORTFOLIO MANAGERS Stephen R. Cianci and Paul Grillo have day-to-day responsibilities for making investment decisions for the Fund. STEPHEN R. CIANCI, Senior Vice President/Senior Portfolio Manager of the Fund, holds a BS and an MBA in Finance from Widener University. Mr. Cianci became co-manager of the Fund in January 1999. He joined Delaware Investments' fixed-income department in 1992 as an investment grade quantitative research analyst. In addition to his quantitative research responsibilities, Mr. Cianci also served as a mortgage-backed and asset-backed securities analyst. Mr. Cianci is an Adjunct Professor of Finance at Widener University and is a CFA charterholder. PAUL GRILLO, Vice President/Senior Portfolio Manager of the Fund, holds a bachelor's degree in Business Management from North Carolina State University and an MBA in Finance from Pace University. Mr. Grillo became co-manager of the Fund in January 1999. Prior to joining Delaware Investments in 1993, he served as Mortgage Strategist and Trader at the Dreyfus Corporation. He also served as Mortgage Strategist and Portfolio Manager at Chemical Investment Group and as Financial Analyst at Chemical Bank. Mr. Grillo is a CFA charterholder. 11 WHO'S WHO? This diagram shows the various organizations involved with managing, administering and servicing the Delaware Investments funds. [GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH MANAGING, ADMINISTERING, AND SERVICING THE DELAWARE INVESTMENTS FUNDS] BOARD OF TRUSTEES INVESTMENT MANAGER CUSTODIAN Delaware Management Company JPMorgan Chase Bank 2005 Market Street THE FUND 4 Chase Metrotech Center Philadelphia, PA 19103-7094 Brooklyn, NY 11245 DISTRIBUTOR SERVICE AGENT Delaware Distributors, L.P. Delaware Service Company, Inc. 2005 Market Street 2005 Market Street Philadelphia, PA 19103-7094 Philadelphia, PA 19103-7094 FINANCIAL INTERMEDIARY WHOLESALER Lincoln Financial Distributors, Inc. 2001 Market Street Philadelphia, PA 19103-7055 PORTFOLIO MANAGERS (see page ____ for details) SHAREHOLDERS BOARD OF TRUSTEES A mutual fund is governed by a Board of Trustees which has oversight responsibility for the management of the fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. Generally, at least 40% of the Board of Trustees must be independent of the fund's investment manager and distributor. However, the Delaware Limited-Term Government Fund relies on certain exemptive rules created by the SEC that require the Board of Trustees overseeing the Fund to be comprised of a majority of such independent Trustees. These independent fund Trustees, in particular, are advocates for shareholder interests. INVESTMENT MANAGER An investment manager is a company responsible for selecting portfolio investments consistent with the objective and policies stated in the mutual fund's prospectus. The investment manager places portfolio orders with broker/dealers and is responsible for obtaining the best overall execution of those orders. A written contract between a mutual fund and its investment manager specifies the services the manager performs. Most management contracts provide for the manager to receive an annual fee based on a percentage of the fund's average daily net assets. The manager is subject to numerous legal restrictions, especially regarding transactions between itself and the funds it advises. PORTFOLIO MANAGERS Portfolio managers are employed by the investment manager to make investment decisions for individual portfolios on a day-to-day basis. CUSTODIAN Mutual funds are legally required to protect their portfolio securities and most funds place them with a qualified bank custodian who segregates fund securities from other bank assets. DISTRIBUTOR Most mutual funds continuously offer new shares to the public through distributors who are regulated as broker/dealers and are subject to NASD Regulation, Inc. (NASDR(SM)) rules governing mutual fund sales practices. 12 FINANCIAL INTERMEDIARY WHOLESALER Pursuant to a contractual arrangement with Delaware Distributors, L.P., Lincoln Financial Distributors, Inc. (LFD) is primarily responsible for promoting the sale of Fund shares through broker/dealers, financial advisors and other financial intermediaries. SERVICE AGENT Mutual fund companies employ service agents (sometimes called transfer agents) to maintain records of shareholder accounts, calculate and disburse dividends and capital gains and prepare and mail shareholder statements and tax information, among other functions. Many service agents also provide customer service to shareholders. SHAREHOLDERS Like shareholders of other companies, mutual fund shareholders have specific voting rights, including the right to elect trustees. Material changes in the terms of a fund's management contract must be approved by a shareholder vote, and funds seeking to change fundamental investment policies must also seek shareholder approval. 13 ABOUT YOUR ACCOUNT INVESTING IN THE FUND Institutional Class shares are available for purchase only by the following: o retirement plans introduced by persons not associated with brokers or dealers that are primarily engaged in the retail securities business and rollover individual retirement accounts from such plans; o tax-exempt employee benefit plans of the Fund's manager or its affiliates and of securities dealer firms with a selling agreement with the distributor; o institutional advisory accounts of the Fund's manager, or its affiliates and those having client relationships with Delaware Investment Advisers, another Fund of Delaware Management Business Trust, or its affiliates and their corporate sponsors, as well as subsidiaries and related employee benefit plans and rollover individual retirement accounts from such institutional advisory accounts; o a bank, trust company or similar financial institution investing for its own account or for the account of its trust customers for whom the financial institution is exercising investment discretion in purchasing shares of the Class, except where the investment is part of a program that requires payment to the financial institution of a Rule 12b-1 Plan fee; or o registered investment advisors investing on behalf of clients who consist solely of institutions and high net-worth individuals having at least $1,000,000 entrusted to the advisor for investment purposes. Use of institutional class shares is restricted to advisors who are not affiliated or associated with a broker or dealer and who derive compensation for their services exclusively from their advisory clients. o certain plans qualified under Section 529 of the Internal Revenue Code for which the Fund's manager, distributor or service agent or one or more of their affiliates provide record keeping, administrative, investment management, marketing, distribution or similar services; or o programs sponsored by financial intermediaries where such program requires the purchase of Institutional Class shares. HOW TO BUY SHARES [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] BY MAIL Complete an investment slip and mail it with your check, made payable to the fund and class of shares you wish to purchase, to Delaware Investments, 2005 Market Street, Philadelphia, PA 19103-7094. If you are making an initial purchase by mail, you must include a completed investment application (or an appropriate retirement plan application if you are opening a retirement account) with your check. [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] BY WIRE Ask your bank to wire the amount you want to invest to Bank of New York, ABA #021000018, Bank Account number 8900403748. Include your account number and the name of the fund in which you want to invest. If you are making an initial purchase by wire, you must call us at 800 510-4015 so we can assign you an account number. [GRAPHIC OMITTED: ILLUSTRATION OF AN EXCHANGE SYMBOL] BY EXCHANGE You can exchange all or part of your investment in one or more funds in the Delaware Investments family for shares of other funds in the family. Please keep in mind, however, that you may not exchange your shares for Class B or Class C shares. To open an account by exchange, call your Client Services Representative at 800 510-4015. 14 [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] THROUGH YOUR FINANCIAL ADVISOR Your financial advisor can handle all the details of purchasing shares, including opening an account. Your advisor may charge a separate fee for this service. The price you pay for shares will depend on when we receive your purchase order. In particular, we reserve the right to reject any specific order for any person whose transactions seem to follow a "market timing" pattern. If we or an authorized agent receives your order before the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), you will pay that day's closing share price which is based on the Fund's net asset value. If your order is received after the close of regular trading, you will pay the next business day's price. A business day is any day that the New York Stock Exchange is open for business. We reserve the right to reject any purchase order. We determine the Fund's net asset value (NAV) per share at the close of regular trading on the New York Stock Exchange each business day that the Exchange is open. We calculate this value by adding the market value of all the securities and assets in a Fund's portfolio, deducting all liabilities, and dividing the resulting number by the number of shares outstanding. The result is the net asset value per share. We generally price securities and other assets for which market quotations are readily available at their market value. We price fixed-income securities on the basis of valuations provided to us by an independent pricing service that uses methods approved by the Board of Trustees. Any fixed-income securities that have a maturity of less than 60 days we price at AMORTIZED cost. For all other securities, we use methods approved by the Board of Trustees that are designed to price securities at their fair market value. FAIR VALUATION When a Fund uses fair value pricing, it may take into account any factors it deems appropriate. A Fund may determine fair value based upon developments related to a specific security, current valuations of foreign stock indices (as reflected in U.S. futures markets) and/or U.S. sector or broader stock market indices. The prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. Fair value pricing may involve subjective judgments and it is possible that the fair value determined for a security is materially different than the value that could be realized upon the sale of that security. The Fund anticipates using fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the early closing of the exchange on which a security is traded or suspension of trading in the security. Funds may use fair value pricing more frequently for securities primarily traded in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. To account for this, the Fund may frequently value many foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available. Subject to the Board's oversight, the Fund's Board has delegated responsibility for valuing a Fund's assets to a Pricing Committee of the Manager, which operates under the policies and procedures approved by the Board, to value the Fund's assets on behalf of the Fund. The Pricing Committee values Fund assets as described above. HOW TO REDEEM SHARES [GRAPHIC OMITTED: ILLUSTRATION OF AN ENVELOPE] BY MAIL You can redeem your shares (sell them back to the fund) by mail by writing to: Delaware Investments, 2005 Market Street, Philadelphia, PA 19103-7094. All owners of the account must sign the request, and for redemptions of more than $100,000, you must include a signature guarantee for each owner. You can also fax your written request to 267 256-8992. Signature guarantees are also required when you request redemption proceeds to be sent to an address other than the address of record on an account. 15 [GRAPHIC OMITTED: ILLUSTRATION OF A TELEPHONE] BY TELEPHONE You can redeem up to $100,000 of your shares by telephone. You may have the proceeds sent to you by check, or, if you redeem at least $1,000 of shares, you may have the proceeds sent directly to your bank by wire. Bank information must be on file before you request a wire redemption. [GRAPHIC OMITTED: ILLUSTRATION OF A JAGGED LINE] BY WIRE You can redeem $1,000 or more of your shares and have the proceeds deposited directly to your bank account, normally the next business day after we receive your request. Bank information must be on file before you request a wire redemption. [GRAPHIC OMITTED: ILLUSTRATION OF A PERSON] THROUGH YOUR FINANCIAL ADVISOR Your financial advisor can handle all the details of redeeming your shares. Your advisor may charge a separate fee for this service. If you hold your shares in certificates, you must submit the certificates with your request to sell the shares. We recommend that you send your certificates by certified mail. When you send us a properly completed request to redeem or exchange shares, and we or an authorized agent receives the request before the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), you will receive the net asset value next determined after we receive your request. If we receive your request after the close of regular trading on the New York Stock Exchange, you will receive the net asset value next determined on the next business day. You may also have to pay taxes on the proceeds from your sale of shares. We will send you a check, normally the next business day, but no later than seven days after we receive your request to sell your shares. If you purchased your shares by check, we will wait until your check has cleared, which can take up to 15 days, before we send your redemption proceeds. THROUGH CHECKWRITING You may redeem Class A shares by writing checks of $500 or more. Checks must be signed by all owners of the account unless you indicate otherwise on your Investment Application. The checkwriting feature is not available for retirement plans. Also, because dividends are declared daily, you may not close your account by writing a check. When you write checks you are subject to bank regulations and may be subject to a charge if the check amount exceeds the value of your account. ACCOUNT MINIMUM If you redeem shares and your account balance falls below $250, the Fund may redeem your account after 60 days' written notice to you. EXCHANGES You can exchange all or part of your shares for shares, normally of the same class in another Delaware Investments Fund. We may refuse the purchase side of any exchange request, if, in the investment manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objectives and policies or would otherwise potentially be adversely affected. In particular, a pattern of exchanges that coincide with a "market timing" strategy may be refused. If you exchange shares to a fund that has a sales charge you will pay any applicable sales charges on your new shares. You don't pay sales charges on shares that are acquired through the reinvestment of dividends. You may have to pay taxes on your exchange. When you exchange shares, you are purchasing shares in another fund so you should be sure to get a copy of the fund's prospectus and read it carefully before buying shares through an exchange. You may not exchange your shares for Class B and Class C shares of the funds in the Delaware Investments family. FREQUENT TRADING OF FUND SHARES The Fund discourages purchases by market timers and purchase orders (including the purchase side of exchange orders) by shareholders identified as market timers may be rejected. The Fund's Board of Trustees has adopted policies and procedures designed to detect, deter and prevent trading activity detrimental to the Fund and its shareholders, such as market timing. The Fund will consider anyone who follows a pattern of market timing in any fund in the Delaware Investments Family of Funds or the Optimum Funds Trust to be a market timer and may consider anyone who has followed a similar pattern of market timing at an unaffiliated fund family to be a market timer. 16 Market timing of a fund occurs when investors make consecutive rapid short-term "roundtrips", or in other words, purchases into a fund followed quickly by redemptions out of that fund. A short-term roundtrip is any redemption of fund shares within 20 business days of a purchase of that fund's shares. If you make a second such short-term roundtrip in a fund within the same calendar quarter of a previous short-term roundtrip in that fund, you may be considered a market timer. The purchase and sale of fund shares through the use of the exchange privilege are also included in determining whether market timing has occurred. The Fund also reserves the right to consider other trading patterns as market timing. Your ability to use the Fund's exchange privilege may be limited if you are identified as a market timer. If you are identified as a market timer, we will execute the redemption side of your exchange order but may refuse the purchase side of your exchange order. The Fund reserves the right to restrict, reject or cancel, without prior notice, any purchase order or exchange order for any reason, including any purchase order or exchange order accepted by any shareholder's financial intermediary or in any omnibus-type account. Transactions placed in violation of the Fund's market timing policy are not necessarily deemed accepted by the Fund and may be cancelled or revoked by the Fund on the next business day following receipt by the Fund. However, sales of Fund shares back to a Fund or redemptions will continue to be permitted in accordance with the terms of the Fund's current Prospectus. This may result in an undesirable situation where a shareholder with an account closed to new purchases could be faced with a costly redemption of Fund shares if, for example, these shares have declined in value, the shareholder recently paid a front-end sales charge or the shares are subject to a CDSC, or the sale results in adverse tax consequences to the shareholder. To avoid this risk, a shareholder should carefully monitor the purchases, sales, and exchanges of Fund shares and avoid frequent trading in Fund shares. The Fund reserves the right to modify this policy, including any monitoring procedures and the procedures to close accounts to new purchases established from time to time to effectuate this policy, at any time without notice. Though the implementation of this policy involves judgments that are inherently subjective and involves some selectivity in their application, we seek to make judgments and applications that are consistent with the interests of the Fund's shareholders. While we will seek to take actions that will detect market timing, we cannot represent that such trading activity can be completely eliminated. RISKS OF MARKET TIMING By realizing profits through short-term trading, shareholders that engage in rapid purchases and sales or exchanges of the Fund's shares dilute the value of shares held by long-term shareholders. Volatility resulting from excessive purchases and sales or exchanges of Fund shares, especially involving large dollar amounts, may disrupt efficient portfolio management. In particular, a Fund may have difficulty implementing its long-term investment strategies if it is forced to maintain a higher level of its assets in cash to accommodate significant short-term trading activity. Excessive purchases and sales or exchanges of a Fund's shares may force the Fund to sell portfolio securities at inopportune times to raise cash to accommodate short-term trading activity. In addition, a Fund may incur increased expenses if one or more shareholders engage in excessive or short-term trading. For example, a Fund may be forced to liquidate investments as a result of short-term trading and incur increased brokerage costs and realization of taxable capital gains without attaining any investment advantage. All of these factors may adversely affect Fund performance. A Fund that invests significantly in foreign securities may be particularly susceptible to short-term trading strategies. This is because foreign securities are typically traded on markets that close well before the time a Fund calculates its NAV at 4:00 p.m. Eastern Time, which gives rise to the possibility that developments may have occurred in the interim that would affect the value of these securities. The time zone differences among international stock markets can allow a shareholder engaging in a short-term trading strategy to exploit differences in Fund share prices that are based on closing prices of foreign securities established some time before the Fund calculates its own share price. Any Fund that invests in securities that are, among other things, thinly traded, traded infrequently, or relatively illiquid has the risk that the current market price for the securities may not accurately reflect current market values. A shareholder may seek to engage in short-term trading to take advantage of these pricing differences. Fund that may be adversely affected by such arbitrage include, in particular, funds that significantly invest in small cap securities, technology and other specific industry sector securities, and in certain fixed-income securities, such as high yield bonds, asset-backed securities, or municipal bonds. 17 TRANSACTION MONITORING PROCEDURES The Fund, through its transfer agent, maintains surveillance procedures designed to detect excessive or short-term trading in Fund shares. This monitoring process involves several factors, which includes scrutinizing transactions in Fund shares for transactions in violation of the Fund's market timing policy or other patterns of short-term or excessive trading. For purposes of these transaction monitoring procedures, the Fund may consider trading activity in multiple accounts under common ownership, control, or influence. Trading activity identified by either, or a combination, of these factors, or as a result of any other information available at the time, will be evaluated to determine whether such activity might constitute excessive or short-term trading. These procedures may be modified from time to time, as necessary or appropriate to improve the detection of excessive or short-term trading or to address specific circumstances, such as for certain retirement plans, to conform to plan exchange limits or U.S. Department of Labor regulations, or for certain automated or pre-established exchange, asset allocation or dollar cost averaging programs, or omnibus account arrangements. Omnibus account arrangements are common forms of holding shares of the Fund, particularly among certain brokers, dealers, and other financial intermediaries, including sponsors of retirement plans and variable insurance products. The Fund seeks to apply their monitoring procedures to these omnibus account arrangements and to the individual participant level in such accounts. In efforts to discourage market timers in such accounts the Fund may consider enforcement against market timers at the participant level and at the omnibus level, up to and including termination of the omnibus account. LIMITATIONS ON ABILITY TO DETECT AND CURTAIL MARKET TIMING Shareholders seeking to engage in market timing may employ a variety of strategies to avoid detection and, despite the efforts of the Fund and its agents to detect market timing in Fund shares, there is no guarantee that the Fund will be able to identify these shareholders or curtail their trading practices. In particular, the Fund may not be able to detect market timing in Fund shares attributable to a particular investor who effects purchase and/or exchange activity in Fund shares through omnibus accounts. Also, multiple tiers of these entities may exist, each utilizing an omnibus account arrangement, which may further compound the difficulty of detecting excessive or short duration trading activity in Fund shares. DIVIDENDS, DISTRIBUTIONS AND TAXES Dividends are declared daily and paid monthly. Short-term capital gains if any, may be paid quarterly, but the board of trustees may choose to distribute them less frequently. Long-term capital gains, if any, will be distributed annually. We automatically reinvest all dividends and capital gains, unless you direct us to do otherwise. In addition, in order to satisfy certain distribution requirements of the Tax Reform Act of 1986, the Funds may declare special year-end dividend and capital gains distributions during November and December to shareholders of record on a date in such month. Such distributions, if received by shareholders by January, are deemed to have been paid by the Funds and received by shareholders on the earlier of the date paid or December 31 of the prior year. The tax status of your dividends from the Funds is the same whether you reinvest your dividends or receive them in cash. Distributions from the Funds' long-term capital gains are taxable as capital gains, while distributions from short-term capital gains and net investment income are generally taxable as ordinary income. The tax rate on capital gains is less than the tax rate on ordinary income. You also may be subject to state and local taxes on distributions. Tax laws are subject to change, so we urge you to consult your tax advisor about your particular tax situation and how it might be affected by current tax law. We will send you a statement each year by January 31 detailing the amount and nature of all dividends and capital gains that you were paid for the prior year. 18 CERTAIN MANAGEMENT CONSIDERATIONS INVESTMENTS BY FUND OF FUNDS AND INVESTMENT VEHICLES THAT OPERATE SIMILARLY TO FUNDS OF FUNDS The Fund accepts investments from funds of funds, including those within Delaware Investments family, and investment vehicles that operate similarly to funds of funds, such as 529 plans. A "529 Plan" is a college savings program that operates under section 529 of the Internal Revenue Code. From time to time, the Fund may experience large investments or redemptions due to allocations or rebalancings by these funds of funds and/or similar investment vehicles. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on portfolio management. For example, the Fund may be required to sell securities or invest cash at times when it would not otherwise do so. These transactions could also have tax consequences if sales of securities result in gains, and could also increase transaction costs or portfolio turnover. The manager will monitor transactions by the funds of funds and/or similar investment vehicles and will attempt to minimize any adverse effects on the Fund and funds of funds and/or similar investment vehicle as a result of these transactions. 19 FINANCIAL HIGHLIGHTS THE FINANCIAL HIGHLIGHTS TABLE is intended to help you understand the Fund's financial performance. All "per share" information reflects financial results for a single Fund share. [This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request by calling 800 523-1918.]
INSTITUTIONAL CLASS YEAR ENDED 12/31 ----------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND 2004 2003 2002 2001(2) 2000 - ------------------------------------------------------------- ---- ---- ---- ------- ---- Net asset value, beginning of period INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income Net realized and unrealized gain (loss) on investments Total from investment operations LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income Return of capital Total dividends and distributions NET ASSET VALUE, END OF PERIOD TOTAL RETURN(1) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) Ratio of expenses to average net assets Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly Ratio of net investment income to average net assets Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly Portfolio turnover
(1) 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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require 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. 20 HOW TO READ THE FINANCIAL HIGHLIGHTS NET INVESTMENT INCOME Net investment income includes dividend and interest income earned from a fund's investments; it is after expenses have been deducted. NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS A realized gain occurs when we sell an investment at a profit, while a realized loss occurs when we sell an investment at a loss. When an investment increases or decreases in value but we do not sell it, we record an unrealized gain or loss. The amount of realized gain per share, if any, that we pay to shareholders would be listed under "Less dividends and distributions from - Net realized gain on investments." NET ASSET VALUE (NAV) This is the value of a mutual fund share, calculated by dividing the net assets by the number of shares outstanding. TOTAL RETURN This represents the rate that an investor would have earned or lost on an investment in a fund. In calculating this figure for the financial highlights table, we include applicable fee waivers and assume the shareholder has reinvested all dividends and realized gains. NET ASSETS Net assets represent the total value of all the assets in a fund's portfolio, less any liabilities that are attributable to that class of the fund. RATIO OF EXPENSES TO AVERAGE NET ASSETS The expense ratio is the percentage of net assets that a fund pays annually for operating expenses and management fees. These expenses include accounting and administration expenses, services for shareholders, and similar expenses. RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS We determine this ratio by dividing net investment income by average net assets. PORTFOLIO TURNOVER This figure tells you the amount of trading activity in a fund's portfolio. A turnover rate of 100% would occur if the Fund sold and replaced securities valued at 100% of its net assets within one year, if for example the Fund bought and sold all of the securities in its portfolio once in the course of a year or frequently traded a single security. High turnover can result in increased transaction costs and tax liability for investors. 21 GLOSSARY HOW TO USE THIS GLOSSARY This glossary includes definitions of investment terms, many of which are used throughout the Prospectus. If you would like to know the meaning of an investment term that is not explained in the text please check the glossary. AMORTIZED COST Amortized cost is a method used to value a fixed-income security that starts with the face value of the security and then adds or subtracts from that value depending on whether the purchase price was greater or less than the value of the security at maturity. The amount greater or less than the par value is divided equally over the time remaining until maturity. AVERAGE MATURITY An average of when the individual bonds and other debt securities held in a portfolio will mature. BOND A debt security, like an IOU, issued by a company, municipality or government agency. In return for lending money to the issuer, a bond buyer generally receives fixed periodic interest payments and repayment of the loan amount on a specified maturity date. A bond's price changes prior to maturity and typically is inversely related to current interest rates. Generally, when interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. See Fixed-income securities. BOND RATINGS Independent evaluations of creditworthiness, ranging from Aaa/AAA (highest quality) to D (lowest quality). Bonds rated Baa/BBB or better are considered investment grade. Bonds rated Ba/BB or lower are commonly known as junk bonds. See also Nationally recognized statistical ratings organization. CAPITAL The amount of money you invest. CAPITAL APPRECIATION An increase in the value of an investment. CAPITAL GAINS DISTRIBUTIONS Payments to mutual fund shareholders of profits (realized gains) from the sale of a fund's portfolio securities. Usually paid once a year; may be either short-term gains or long-term gains. COMPOUNDING Earnings on an investment's previous earnings. CONSUMER PRICE INDEX (CPI) Measurement of U.S. inflation; represents the price of a basket of commonly purchased goods. CORPORATE BOND A debt security issued by a corporation. See Bond. COST BASIS The original purchase price of an investment, used in determining capital gains and losses. DEPRECIATION A decline in an investment's value. DIVERSIFICATION The process of spreading investments among a number of different securities, asset classes or investment styles to reduce the risks of investing. 22 DIVIDEND DISTRIBUTION Payments to mutual fund shareholders of dividends passed along from the fund's portfolio of securities. DIVIDEND DISTRIBUTION Payments to mutual fund shareholders of dividends passed along from the fund's portfolio of securities. DURATION A measurement of a fixed-income investment's price volatility. The larger the number, the greater the likely price change for a given change in interest rates. EXPENSE RATIO A mutual fund's total operating expenses, expressed as a percentage of its total net assets. Operating expenses are the costs of running a mutual fund, including management fees, offices, staff, equipment and expenses related to maintaining the fund's portfolio of securities and distributing its shares. They are paid from the fund's assets before any earnings are distributed to shareholders. FINANCIAL ADVISOR Financial professional (e.g., broker, banker, accountant, planner or insurance agent) who analyzes clients' finances and prepares personalized programs to meet objectives. FIXED-INCOME SECURITIES With fixed-income securities, the money you originally invest is paid back at a pre-specified maturity date. These securities, which include government, corporate or municipal bonds, as well as money market securities, typically pay a fixed rate of return (often referred to as interest). See Bond. GOVERNMENT SECURITIES Securities issued by the U.S. government or its agencies. They include Treasuries as well as agency-backed securities such as Fannie Maes. INFLATION The increase in the cost of goods and services over time. U.S. inflation is frequently measured by changes in the Consumer Price Index (CPI). INVESTMENT GOAL The objective, such as long-term capital growth or high current income, that a mutual fund pursues. MANAGEMENT FEE The amount paid by a mutual fund to the investment advisor for management services, expressed as an annual percentage of the fund's average daily net assets. MARKET CAPITALIZATION The value of a corporation determined by multiplying the current market price of a share of common stock by the number of shares held by shareholders. A corporation with one million shares outstanding and the market price per share of $10 has a market capitalization of $10 million. MATURITY The length of time until a bond issuer must repay the underlying loan principal to bondholders. MERRILL LYNCH ONE-TO-THREE YEAR TREASURY INDEX An unmanaged index of U.S. Treasury notes and bonds with maturities greater than or equal to one year and less than three years. It does not include inflation linked U.S. government bonds. NASD REGULATION, INC. (NASDR(SM)) The Independent subsidiary of the National Association of Securities Dealers, Inc. responsible for regulating the securities industry. NATIONALLY RECOGNIZED STATISTICAL RATINGS ORGANIZATION (NRSRO) A company that assesses the credit quality of bonds, commercial paper, preferred and common stocks and municipal short-term issues, rating the probability that the issuer of the debt will meet the scheduled interest 23 payments and repay the principal. Ratings are published by such companies as Moody's Investors Service, Inc. (Moody's), Standard & Poor's (S&P) and Fitch, Inc. (Fitch). NET ASSETS Net assets for purposes of the Fund's 80% Policy means the total value of all assets in the Fund's portfolio, minus any liabilities, plus the amount of the Fund's borrowings, if any, for investment purposes. NET ASSET VALUE (NAV) The daily dollar value of one mutual fund share. Equal to a fund's net assets divided by the number of shares outstanding. PREFERRED STOCK Preferred stock has preference over common stock in the payment of dividends and liquidation of assets. Preferred stocks also often pay dividends at a fixed rate and are sometimes convertible into common stock. PRINCIPAL Amount of money you invest (also called capital). Also refers to a bond's original face value, due to be repaid at maturity. PROSPECTUS The official offering document that describes a mutual fund, containing information required by the SEC, such as investment objectives, policies, services and fees. REDEEM To cash in your shares by selling them back to the mutual fund. RISK Generally defined as variability of value; also credit risk, inflation risk, currency and interest rate risk. Different investments involve different types and degrees of risk. SALES CHARGE Charge on the purchase or redemption of fund shares sold through financial advisors. May vary with the amount invested. Typically used to compensate advisors for advice and service provided. SEC (SECURITIES AND EXCHANGE COMMISSION) Federal agency established by Congress to administer the laws governing the securities industry, including mutual fund companies. SHARE CLASSES Different classifications of shares; mutual fund share classes offer a variety of sales charge choices. SIGNATURE GUARANTEE Certification by a bank, brokerage firm or other financial institution that a customer's signature is valid; signature guarantees can be provided by members of the STAMP program. STANDARD DEVIATION A measure of an investment's volatility; for mutual funds, measures how much a fund's total return has typically varied from its historical average. STATEMENT OF ADDITIONAL INFORMATION (SAI) The document serving as "Part B" of a fund's prospectus that provides more detailed information about the fund's organization, investments, policies and risks. STOCK An investment that represents a share of ownership (equity) in a corporation. Stocks are often referred to as common stocks or equities. 24 TOTAL RETURN An investment performance measurement, expressed as a percentage, based on the combined earnings from dividends, capital gains and change in price over a given period. VOLATILITY The tendency of an investment to go up or down in value by different magnitudes. Investments that generally go up or down in value in relatively small amounts are considered "low volatility" investments, whereas those investments that generally go up or down in value in relatively large amounts are considered "high volatility" investments. 25 DELAWARE LIMITED-TERM GOVERNMENT FUND Additional information about the Fund's investments is available in the Fund's annual and semiannual reports to shareholders. In the Fund's shareholder reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during the report period. You can find more detailed information about the Fund in the current Statement of Additional Information, which we have filed electronically with the Securities and Exchange Commission (SEC) and which is legally a part of this Prospectus. If you want a free copy of the Statement of Additional Information, the annual or semiannual report, or if you have any questions about investing in the Fund, you can write to us at 2005 Market Street, Philadelphia, PA 19103-7094, or call toll-free 800 510-4015. You may also obtain additional information about the Fund from your financial advisor. You can find reports and other information about the Fund on the EDGAR database on the SEC web site (http://www.sec.gov). You can also get copies of this information, after payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov or by writing to the Public Reference Section of the SEC, Washington, D.C. 20549-0102. Information about the Fund, including its Statement of Additional Information, can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can get information on the Public Reference Room by calling the SEC at 202 942-8090. WEB SITE www.delawareinvestments.com E-MAIL service@delinvest.com CLIENT SERVICES REPRESENTATIVE 800 510-4015 DELAPHONE SERVICE 800 362-FUND (800 362-3863) For convenient access to account information or current performance information on all Delaware Investments Funds seven days a week, 24 hours a day, use this Touch-Tone(R) service. DELAWARE FUND SYMBOLS: CUSIP NASDAQ - ---------------------- --------- ------ Institutional Class 245912506 DTINX Investment Company Act file number: 811-3363 PR-047 [--] IVES 4/05 Delaware Investments includes funds with a wide range of ----------------------------------------------------- investment objectives. Stock funds, income funds, national DELAWARE LIMITED-TERM GOVERNMENT FUND and state-specific tax-exempt funds, money market funds, global and international funds and closed-end funds give A CLASS investors the ability to create a portfolio that fits B CLASS their personal financial goals. For more information, C CLASS shareholders of the Fund Classes should contact their R CLASS financial advisor or call Delaware Investments at INSTITUTIONAL CLASS 800 523-1918, and shareholders of the Institutional Class should contact Delaware Investments at 800 510-4015. DELAWARE LIMITED-TERM GOVERNMENT FUNDS ----------------------------------------------------- INVESTMENT MANAGER Delaware Management Company 2005 Market Street PART B Philadelphia, PA 19103-7094 STATEMENT OF NATIONAL DISTRIBUTOR ADDITIONAL INFORMATION Delaware Distributors, L.P. ----------------------------------------------------- 2005 Market Street Philadelphia, PA 19103-7094 SHAREHOLDER SERVICING, APRIL __, 2005 DIVIDEND DISBURSING, ACCOUNTING SERVICES AND TRANSFER AGENT Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 LEGAL COUNSEL Stradley, Ronon, Stevens & Young, LLP 2005 Market Street Philadelphia, PA 19103-7094 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 2001 Market Street Philadelphia, PA 19103-7055 CUSTODIAN JPMorgan Chase Bank 4 Chase Metrotech Center Brooklyn, NY 11245
DELAWARE INVESTMENTS(SM) ------------------------------------- A member of Lincoln Financial Group(R) STATEMENT OF ADDITIONAL INFORMATION APRIL __, 2005 DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS DELAWARE LIMITED-TERM GOVERNMENT FUND 2005 MARKET STREET PHILADELPHIA, PA 19103-7094 FOR MORE INFORMATION ABOUT INSTITUTIONAL CLASS: 800 510-4015 FOR PROSPECTUS, PERFORMANCE AND INFORMATION ON EXISTING ACCOUNTS OF CLASS A SHARES, CLASS B SHARES, CLASS C SHARES AND CLASS R SHARES: NATIONWIDE 800 523-1918 DEALER SERVICES: (BROKER/DEALERS ONLY) NATIONWIDE 800 362-7500 Delaware Group Limited-Term Government Funds ("Limited-Term Funds") is a professionally-managed mutual fund of the series type which currently offers one series of shares: Delaware Limited-Term Government Fund (the "Fund"). The Fund offers Class A Shares, Class B Shares, Class C Shares, Class R (Class A Shares, Class B Shares, Class C and Class R Shares together referred to as the "Fund Classes"), and Institutional Class shares ("Institutional Class"). All references to "shares" in this Part B refer to all Classes of shares of Limited-Term Funds, except where noted. This Statement of Additional Information ("Part B" of the registration statement) supplements the information contained in the current Prospectus for the Fund Classes dated February 27, 2004 and the current Prospectus for the Institutional Class dated April __, 2005, as they may be amended from time to time. Part B should be read in conjunction with the respective Class' Prospectus. Part B is not itself a prospectus but is, in its entirety, incorporated by reference into each Class' Prospectus. A Prospectus relating to the Fund Classes and a Prospectus relating to the Institutional Class may be obtained by writing or calling your investment dealer or by contacting the Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at the above address or by calling the above phone numbers. [The Fund's financial statements, the notes relating thereto, the financial highlights and the report of independent registered public accounting firm are incorporated by reference from the Annual Report into this Part B.] The Annual Report will accompany any request for Part B. The Annual Report can be obtained, without charge, by calling 800 523-1918.
TABLE OF CONTENTS Page - -------------------------------------------------------------------- ---- Cover Page 1 Investment Objective and Policies 2 Investments 4 Accounting and Tax Issues 12 Performance Information 14 Trading Practices and Brokerage 18 Purchasing Shares 20 Investment Plans 32 Determining Offering Price and Net Asset Value 41 Redemption and Exchange 41 Income Dividends and Realized Securities Profits Distributions 49 Investment Management Agreement 52 Officers and Trustees 55 General Information 61 Financial Statements 65 Appendix A - Ratings 66
1 INVESTMENT OBJECTIVE AND POLICIES INVESTMENT RESTRICTIONS FUNDAMENTAL RESTRICTIONS - Limited-Term Funds has adopted the following restrictions for the Fund which cannot be changed without approval by the holders of a "majority" of the Fund's outstanding shares, which is a vote by the holders of the lesser of a) 67% or more of the voting securities present in person or by proxy at a meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy; or b) more than 50% of the outstanding voting securities. The percentage limitations contained in the restrictions and policies set forth herein apply at the time of purchase of securities. THE FUND SHALL NOT: 1. Make investments that will result in the concentration (as that term may be defined in the Investment Company Act of 1940 (the "1940 Act"), any rule or order thereunder, or U.S. Securities and Exchange Commission ("SEC") staff interpretation thereof) of its investments in the securities of issuers primarily engaged in the same industry, provided that this restriction does not limit the Fund from investing in obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities, or in tax-exempt obligations or certificates of deposit. 2. Borrow money or issue senior securities, except as the 1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, may permit. 3. Underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933 (the "1933 Act"). 4. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. 5. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. 6. Make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests. NON-FUNDAMENTAL RESTRICTIONS - In addition to the fundamental policies and investment restrictions described above, and the various general investment policies described in the prospectus, the Fund will be subject to the following investment restrictions, which are considered non-fundamental and may be changed by the Board of Trustees without shareholder approval. 1. The Fund is permitted to invest in other investment companies, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, or without regard to percentage limits in connection with a merger, reorganization, consolidation or other similar transaction. However, the Fund may not operate as a "fund of funds" which invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are utilized as investments by such a "fund of funds." 2. The Fund may not invest more than 15% of its net assets in securities which it cannot sell or dispose of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment. 2 The Fund is also subject to the following investment restrictions, which are considered non-fundamental and may be changed by the Board of Trustees without shareholder approval. THE FUND SHALL NOT: 1. Invest more than 5% of the market or other fair value of its assets in the securities of any one issuer (other than obligations of, or guaranteed by, the U.S. government, its agencies or instrumentalities). The Fund has been advised by the staff of the SEC that it is the staff's position that, under the 1940 Act, the Fund may invest (a) no more than 10% of its assets in the aggregate in certain CMOs and REMICs which are deemed to be investment companies under the 1940 Act and issue their securities pursuant to an exemptive order from the SEC, and (b) no more than 5% of its assets in any single issue of such CMOs or REMICs. 2. Make loans, except to the extent that purchases of debt obligations (including repurchase agreements) in accordance with the Fund's investment objective and policies are considered loans and except that the Fund may loan up to 25% of its assets to qualified broker/dealers or institutional investors for their use relating to short sales or other security transactions. 3. Purchase or sell real estate but this shall not prevent the Fund from investing in securities secured by real estate or interests therein. 4. Purchase more than 10% of the outstanding voting or nonvoting securities of any issuer, or invest in companies for the purpose of exercising control or management. 5. Engage in the underwriting of securities of other issuers, except that in connection with the disposition of a security, the Fund may be deemed to be an "underwriter" as that term is defined in the 1933 Act. 6. Make any investment which would cause more than 25% of the market or other fair value of its total assets to be invested in the securities of issuers all of which conduct their principal business activities in the same industry. This restriction does not apply to obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. 7. Write, purchase or sell options, puts, calls or combinations thereof, except that the Fund may: (a) write covered call options with respect to any part or all of its portfolio securities; (b) purchase call options to the extent that the premiums paid on all outstanding call options do not exceed 2% of the Fund's total assets; (c) write secured put options; (d) purchase put options to the extent that the premiums on all outstanding put options do not exceed 2% of the Fund's total assets and only if the Fund owns the security covered by the put option at the time of purchase. The Fund may sell put options or call options previously purchased or enter into closing transactions with respect to such options. 8. Enter into futures contracts or options thereon, except that the Fund may enter into futures contracts to the extent that not more than 5% of the Fund's assets are required as futures contract margin deposits and only to the extent that obligations under such contracts or transactions represent not more than 20% of the Fund's assets. 9. Purchase securities on margin or make short sales of securities. 10. Invest in warrants or rights except where acquired in units or attached to other securities. 11. Purchase or retain the securities of any issuer any of whose officers, trustees or security holders is a Trustee or officer of Limited-Term Funds or of its investment manager if or so long as the trustees and officers of Limited-Term Funds and of its investment manager together own beneficially more than 5% of any class of securities of such issuer. 3 12. Invest in interests in oil, gas or other mineral exploration or development programs. 13. Invest more than 10% of the Fund's total assets in repurchase agreements maturing in more than seven days and other illiquid assets. 14. Borrow money in excess of one-third of the value of its net assets and then only as a temporary measure for extraordinary purposes or to facilitate redemptions. The Fund has no intention of increasing its net income through borrowing. Any borrowing will be done from a bank and to the extent that such borrowing exceeds 5% of the value of the Fund's net assets, asset coverage of at least 300% is required. In the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days thereafter (not including Sunday or holidays) or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%. The Fund will not pledge more than 10% of its net assets. The Fund will not issue senior securities as defined in the 1940 Act, except for notes to banks. Securities will not be purchased while the Fund has an outstanding borrowing. Although not a fundamental investment restriction, the Fund currently does not invest its assets in real estate limited partnerships. The Funds' investment objective and policies are described in the Prospectus. Certain additional investment information is provided below. The Fund will invest in securities for income earnings rather than trading for profit. The Fund will not vary portfolio investments, except to: 1. eliminate unsafe investments and investments not consistent with the preservation of the capital or the tax status of the investments of the Fund; 2. honor redemption orders, meet anticipated redemption requirements, and negate gains from discount purchases; 3. reinvest the earnings from securities in like securities; or 4. defray normal administrative expenses. INVESTMENTS AVERAGE EFFECTIVE MATURITY The Fund limits its average effective dollar weighted portfolio maturity to no more than three to five years. However, many of the securities in which the Fund invests will have remaining maturities in excess of five years. Some of the securities in the Fund's portfolio may have periodic interest rate adjustments based upon an index such as the 91-day Treasury Bill rate. This periodic interest rate adjustment tends to lessen the volatility of the security's price. With respect to securities with an interest rate adjustment period of one year or less, the Fund will, when determining average weighted maturity, treat such a security's maturity as the amount of time remaining until the next interest rate adjustment. Instruments such as GNMA, FNMA, FHLMC securities and similar securities backed by amortizing loans generally have shorter effective maturities than their stated maturities. This is due to changes in amortization caused by demographic and economic forces such as interest rate movements. These effective maturities are calculated based upon historical payment patterns. For purposes of determining the Fund's average effective maturity, the maturities of such securities will be calculated based upon the issuing agency's payment factors using industry-accepted valuation models. 4 MORTGAGE-BACKED SECURITIES In addition to mortgage-backed securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, the Fund may also invest up to 35% of its assets in securities issued by certain private, nongovernment corporations, such as financial institutions, if the securities are fully collateralized at the time of issuance by securities or certificates issued or guaranteed by the U.S. government, its agencies or instrumentalities. Two principal types of mortgage-backed securities are collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs). The Fund currently invests in privately-issued CMOs and REMICs only if they are rated at the time of purchase in the two highest grades by a nationally-recognized rating agency. CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders and collateralized by a pool of mortgages held under an indenture. CMOs are issued in a number of classes or series with different maturities. The classes or series are retired in sequence as the underlying mortgages are repaid. Prepayment may shorten the stated maturity of the obligation and can result in a loss of premium, if any has been paid. Certain of these securities may have variable or floating interest rates and others may be stripped (securities which provide only the principal or interest feature of the underlying security). Stripped mortgage securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of stripped mortgage security will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the "interest-only" class), while the other class will receive all of the principal (the "principal-only" class). The yield to maturity on an interest-only class is extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the security's yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories. Although stripped mortgage securities are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, these securities were only recently developed. As a result, established trading markets have not yet been fully developed and, accordingly, these securities are generally illiquid and to such extent, together with any other illiquid investments, will not exceed 10% of the Fund's net assets. REMICs, which were authorized under the Tax Reform Act of 1986, are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities and certain REMICs also may be stripped. The Fund may also invest in CMOs, REMICs and commercial mortgage-backed securities (CMBS) that are not issued or guaranteed by, or fully collateralized by securities issued or guaranteed by, the U.S. government, its agencies or instrumentalities ("non-agency mortgage-backed securities"). These securities are secured by the underlying collateral of the private issuer. The Fund may invest its assets in such privately-issued CMOs, REMICs and CMBS only if the securities are rated in the top rating category by a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa by Moody's). The Fund may not invest more than 20% of its assets in securities, including CMOs, REMICS and CMBS, that are not issued or guaranteed by, or fully collateralized by securities issued or guaranteed by, the U.S. government, its agencies or instrumentalities. CMBS are issued by special purpose entities that represent an undivided interest in a portfolio of mortgage loans backed by commercial properties. The loans are collateralized by various types of commercial property, which include, but are not limited to, multi-family housing, retail shopping centers, office space, hotels and health care facilities. Private lenders, such as banks or insurance companies, originate these loans and then sell the loans directly into a CMBS trust or other entity. CMBS are subject to credit risk, prepayment risk and extension risk. The Manager addresses credit risk by investing in CMBS that are rated in the top rating category by a 5 nationally-recognized statistical rating organization. Although prepayment risk is present, it is of a lesser degree in the CMBS than in the residential mortgage market. Unlike other asset classes, commercial loans have structural impediments to refinancing that include lockout periods, prepayment penalties, yield maintenance and defeasance. These devices reduce the uncertainty introduced by prepayment options. The Manager carefully analyzes the composition and proportions of various prepayment provisions to protect against unscheduled payments. Extension risk is the risk that balloon payments (i.e., the final payment on commercial mortgages, which are substantially larger than other periodic payments under the mortgage) are deferred beyond their originally scheduled date for payment. Extension risk measures the impact of a borrower's ability to pay the balloon payment in a timely fashion, while maintaining loan payments in accordance with the terms specified in the loan. For the investor, extension will increase the average life of the security, generally resulting in lower yield for discount bonds and a higher yield for premium bonds. The Manager models and stress tests extension risk and invests only in structures where extension risk is acceptable under various scenarios. ASSET-BACKED SECURITIES The Fund may invest in securities which are backed by assets such as receivables on home equity and credit loans, receivables regarding automobile, mobile home and recreational vehicle loans, wholesale dealer floor plans and leases or other loans or financial receivables currently available or which may be developed in the future. Such receivables are securitized in either a pass-through or a pay-through structure. Pass-through securities provide investors with an income stream consisting of both principal and interest payments in respect of the receivables in the underlying pool. Pay-through asset-backed securities are debt obligations issued usually by a special purpose entity, which are collateralized by the various receivables and in which the payments on the underlying receivables provide the funds to pay the debt service on the debt obligations issued. The rate of principal payment on asset-backed securities generally depends on the rate of principal payments received on the underlying assets. Such rate of payments may be affected by economic and various other factors such as changes in interest rates or the concentration of collateral in a particular geographic area. Therefore, the yield may be difficult to predict and actual yield to maturity may be more or less than the anticipated yield to maturity. Due to the shorter maturity of the collateral backing such securities, there tends to be less of a risk of substantial prepayment than with mortgage-backed securities but the risk of such a prepayment does exist. Such asset-backed securities do, however, involve certain risks not associated with mortgage-backed securities, including the risk that security interests cannot be adequately or in many cases ever established, and other risks which may be peculiar to particular classes of collateral. For example, with respect to credit card receivables, a number of state and federal consumer credit laws give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the outstanding balance. In the case of automobile receivables, there is a risk that the holders may not have either a proper or first security interest in all of the obligations backing such receivables due to the large number of vehicles involved in a typical issuance and technical requirements under state laws. Therefore recoveries on repossessed collateral may not always be available to support payments on the securities. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two categories: (i) liquidity protection, and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provisions of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments due on the underlying pool is timely. Protection against losses resulting from ultimate default enhances the likelihood of payments of the obligations on at least some of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security. Examples of credit support arising out of the structure of the transaction include "senior-subordinated securities" (multiple class securities with one or more classes subordinate to other classes as to the payment of 6 principal thereof and interest thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class), creation of "reserve funds" (where cash or investments, sometimes funded from a portion of the payments on the underlying assets, are held in reserve against future losses) and "over collateralization" (where the scheduled payments on, or the principal amount of, the underlying assets exceeds that required to make payments of the securities and pay any servicing or other fees). The degree of credit support provided for each issue is generally based on historical information respecting the level of credit information respecting the level of credit risk associated with the underlying assets. Delinquencies or losses in excess of those anticipated could adversely affect the return on an investment in such issue. OPTIONS The Fund may purchase call options, write call options on a covered basis, write secured put options and purchase put options on a covered basis only, and will not engage in option writing strategies for speculative purposes. The Fund may invest in options that are either Exchange listed or traded over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may not be possible to close option positions and this may have an adverse impact on the Fund's ability to effectively hedge its securities. The Fund will not, however, invest more than 10% of its assets in illiquid securities. A. COVERED CALL WRITING -- The Fund may write covered call options from time to time on such portion of its portfolio, without limit, as Delaware Management Company (the "Manager") determines is appropriate in seeking to obtain the Fund's investment objective. A call option gives the purchaser of such option the right to buy, and the writer, in this case the Fund, has the obligation to sell the underlying security at the exercise price during the option period. The advantage to the Fund of writing covered calls is that the Fund receives a premium which is additional income. However, if the security rises in value, the Fund may not fully participate in the market appreciation. During the option period, a covered call option writer may be assigned an exercise notice by the broker/dealer through whom such call option was sold, requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time in which the writer effects a closing purchase transaction. A closing purchase transaction cannot be effected with respect to an option once the option writer has received an exercise notice for such option. With respect to options on actual portfolio securities owned by the Fund, the Fund may enter into closing purchase transactions. A closing purchase transaction is one in which the Fund, when obligated as a writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable the Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. The Fund may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirety offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. Conversely, a gain resulting from a closing purchase transaction could be offset in whole or in part by a decline in the market value of the underlying security. If a call option expires unexercised, the Fund will realize a short-term capital gain in the amount of the premium on the option less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security during the option period. If a call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security and the proceeds of the sale of the security plus the amount of the premium on the option less the commission paid. 7 The market value of a call option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the price volatility of the underlying security and the time remaining until the expiration date. The Fund will write call options only on a covered basis, which means that the Fund will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, the Fund would be required to continue to hold a security which it might otherwise wish to sell or deliver a security it would want to hold. Options written by the Fund will normally have expiration dates between one and nine months from the date written. The exercise price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. B. PURCHASING CALL OPTIONS -- The Fund may purchase call options to the extent that premiums paid by the Fund do not aggregate more than 2% of the Fund's total assets. The advantage of purchasing call options is that the Fund may alter portfolio characteristics, and modify portfolio maturities without incurring the cost associated with portfolio transactions. The Fund may, following the purchase of a call option, liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same Fund as the option previously purchased. The Fund will realize a profit from a closing sale transaction if the price received on the transaction is more than the premium paid to purchase the original call option; the Fund will realize a loss from a closing sale transaction if the price received on the transaction is less than the premium paid to purchase the original call option. Although the Fund will generally purchase only those call options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an Exchange will exist for any particular option, or at any particular time, and for some options no secondary market on a Exchange may exist. In such event, it may not be possible to effect closing transactions in particular options, with the results that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of such options and upon the subsequent disposition of the underlying securities acquired through the exercise of such options. Further, unless the price of the underlying security changes sufficiently, a call option purchased by the Fund may expire without any value to the Fund. C. PURCHASING PUT OPTIONS -- The Fund will only purchase put options to the extent that the premiums on all outstanding put options do not exceed 2% of the Fund's total assets. A put option purchased by the Fund gives it the right to sell one of its securities for an agreed price up to an agreed date. However, the Fund must pay a premium for this right, whether it exercises it or not. The Fund will, at all times during which it holds a put option, own the security covered by such option. The Fund intends to purchase put options in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option ("protective puts"). The ability to purchase put options will allow the Fund to protect an unrealized gain in an appreciated security in its portfolio without actually selling the security. If the security does not drop in value, the Fund will lose the value of the premium paid. The Fund may sell a put option which it has previously purchased prior to the sale of the securities underlying such option. Such sales will result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold. The Fund may sell a put option purchased on individual portfolio securities. Additionally, the Fund may enter into closing sale transactions. A closing sale transaction is one in which the Fund, when it is the holder of an outstanding option, liquidates its position by selling an option of the same series as the option previously purchased. D. WRITING PUT OPTIONS -- The Fund may also write put options on a secured basis which means that the Fund will maintain in a segregated account with its custodian, cash or U.S. government securities in an amount not less than the exercise price of the option at all times during the option period. The amount of cash or U.S. 8 government securities held in the segregated account will be adjusted on a daily basis to reflect changes in the market value of the securities covered by the put option written by the Fund. Secured put options will generally be written in circumstances where the Manager wishes to purchase the underlying security for the Fund's portfolio at a price lower than the current market price of the security. In such event, the Fund would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Following the writing of a put option, the Fund may wish to terminate the obligation to buy the security underlying the option by effecting a closing purchase transaction. This is accomplished by buying an option of the same series as the option previously written. The Fund may not, however, effect such a closing transaction after it has been notified of the exercise of the option. FUTURES Futures contracts are agreements for the purchase or sale for future delivery of securities. While futures contracts provide for the delivery of securities, deliveries usually do not occur. A purchase of a futures contract means the acquisition of a contractual right to obtain delivery to the Fund of the securities called for by the contract at a specified price during a specified future month. The Fund will not enter into futures contracts to the extent that more than 5% of the Fund's assets are required as futures contract margin deposits and will not engage in such transactions to the extent that obligations relating to such transactions exceed 20% of the Fund's assets. Contracts are generally terminated by entering into an offsetting transaction. When the Fund enters into a futures transaction, it must deliver to the futures commission merchant selected by the Fund an amount referred to as "initial margin." This amount is maintained by the futures commission merchant in an account at the Fund's custodian bank. Thereafter, a "variation margin" may be paid by the Fund to, or drawn by the Fund from, such account in accordance with controls set for such account, depending upon changes in the price of the underlying securities subject to the futures contract. In addition, when the Fund engages in futures transactions, to the extent required by the SEC, it will maintain with its custodian, assets in a segregated account to cover its obligations with respect to such contracts, which assets will consist of cash, cash equivalents or high quality debt securities from its portfolio in an amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the margin payments made by the Fund with respect to such futures contracts. The Fund may enter into such futures contracts to protect against the adverse effects of fluctuations in interest rates without actually buying or selling such securities. Similarly, when it is expected that interest rates may decline, futures contracts may be purchased to hedge in anticipation of subsequent purchases of government securities at higher prices. With respect to options on futures contracts, when the Fund is not fully invested, it may purchase a call option on a futures contract to hedge against a market advance due to declining interest rates. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at the expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any increase in the price of government securities which the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it receives. Depending on the degree of correlation between the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from existing options on futures may, to some extent, be reduced or increased by changes in the value of portfolio securities. The Fund will purchase a put option on a futures contract to hedge the Fund's portfolio against the risk of rising interest rates. 9 To the extent that interest rates move in an unexpected direction, the Fund may not achieve the anticipated benefits of futures contracts or options on futures contracts or may realize a loss. For example, if the Fund is hedged against the possibility of an increase in interest rates which would adversely affect the price of government securities held in its portfolio and interest rates decrease instead, the Fund will lose part or all of the benefit of the increased value of its government securities which it has because it will have offsetting losses in its futures position. In addition, in such situations, if the Fund had insufficient cash, it may be required to sell government securities from its portfolio to meet daily variation margin requirements. Such sales of government securities may, but will not necessarily, be at increased prices which reflect the rising market. The Fund may be required to sell securities at a time when it may be disadvantageous to do so. Further, with respect to options on futures contracts, the Fund may seek to close out an option position by writing or buying an offsetting position covering the same securities or contracts and have the same exercise price and expiration date. The ability to establish and close out positions on options will be subject to the maintenance of a liquid secondary market, which cannot be assured. CORPORATE DEBT The Fund may invest in corporate notes and bonds rated A or above. Excerpts from Moody's Investors Service, Inc. ("Moody's") description of those categories of bond ratings: Aaa--judged to be the best quality. They carry the smallest degree of investment risk; Aa--judged to be of high quality by all standards; A--possess favorable attributes and are considered "upper medium" grade obligations. Excerpts from Standard & Poor's ("S&P") description of those categories of bond ratings: AAA--highest grade obligations. They possess the ultimate degree of protection as to principal and interest; AA--also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in a small degree; A--strong ability to pay interest and repay principal although more susceptible to changes in circumstances. COMMERCIAL PAPER The Fund may invest in short-term promissory notes issued by corporations which at the time of purchase are rated P-1 and/or A-1. Commercial paper ratings P-1 by Moody's and A-1 by S&P are the highest investment grade category. BANK OBLIGATIONS The Fund may invest in certificates of deposit, bankers' acceptances and other short-term obligations of U.S. commercial banks and their overseas branches and foreign banks of comparable quality, provided each such bank combined with its branches has total assets of at least one billion dollars. Any obligations of foreign banks shall be denominated in U.S. dollars. Obligations of foreign banks and obligations of overseas branches of U.S. banks are subject to somewhat different regulations and risks than those of U.S. domestic banks. In particular, a foreign country could impose exchange controls which might delay the release of proceeds from that country. Such deposits are not covered by the Federal Deposit Insurance Corporation. Because of conflicting laws and regulations, an issuing bank could maintain that liability for an investment is solely that of the overseas branch which could expose the Fund to a greater risk of loss. The Fund will only buy short-term instruments in nations where these risks are minimal. The Fund will consider these factors along with other appropriate factors in making an investment decision to acquire such obligations and will only acquire those which, in the opinion of management, are of an investment quality comparable to other debt securities bought by the Fund. PORTFOLIO LOAN TRANSACTIONS The Fund may loan up to 25% of its assets to qualified broker/dealers or institutional investors for their use relating to short sales or other security transactions. It is the understanding of the Manager that the staff of the SEC permits portfolio lending by registered investment companies if certain conditions are met. These conditions are as follows: 1) each transaction must have 100% collateral in the form of cash, short-term U.S. government securities, or irrevocable letters of credit payable by 10 banks acceptable to the Fund from the borrower; 2) this collateral must be valued daily and should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund; 3) Limited-Term Funds must be able to terminate the loan after notice, at any time; 4) the Fund must receive reasonable interest on any loan, and any dividends, interest or other distributions on the lent securities, and any increase in the market value of such securities; 5) the Fund may pay reasonable custodian fees in connection with the loan; and 6) the voting rights on the lent securities may pass to the borrower; however, if the trustees of Limited-Term Funds know that a material event will occur affecting an investment loan, they must either terminate the loan in order to vote the proxy or enter into an alternative arrangement with the borrower to enable the trustees to vote the proxy. The major risk to which the Fund would be exposed on a loan transaction is the risk that the borrower would go bankrupt at a time when the value of the security goes up. Therefore, the Fund will only enter into loan arrangements after a review of all pertinent facts by the Manager, under the supervision of the Board of Trustees, including the creditworthiness of the borrowing broker, dealer or institution and then only if the consideration to be received from such loans would justify the risk. Creditworthiness will be monitored on an ongoing basis by the Manager. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES The Fund may purchase securities on a when-issued or delayed delivery basis. In such transactions, instruments are purchased with payment and delivery taking place in the future in order to secure what is considered to be an advantageous yield or price at the time of the transaction. Delivery of and payment for these securities may take as long as a month or more after the date of the purchase commitment. The Fund will designate cash or securities in amounts sufficient to cover its obligations, and will value the designated assets daily. The payment obligation and the interest rates that will be received are each fixed at the time the Fund enters into the commitment and no interest accrues to the Fund until settlement. Thus, it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. REPURCHASE AGREEMENTS Under a repurchase agreement, the Fund acquires ownership and possession of a security, and the seller agrees to buy the security back at a specified time and higher price. If the seller is unable to repurchase the security, the Fund could experience delays and losses in liquidating the securities. To minimize this possibility, the Fund considers the creditworthiness of banks and dealers when entering into repurchase agreements. RESTRICTED SECURITIES While maintaining oversight, the Board of Trustees has delegated to the Manager the day-to-day functions of determining whether or not individual Rule 144A Securities are liquid for purposes of the Fund's 10% limitation on investments in illiquid assets. The Board has instructed the Manager to consider the following factors in determining the liquidity of a Rule 144A Security: (i) the frequency of trades and trading volume for the security; (ii) whether at least three dealers are willing to purchase or sell the security and the number of potential purchasers; (iii) whether at least two dealers are making a market in the security; and (iv) the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). If the Manager determines that a Rule 144A Security which was previously determined to be liquid is no longer liquid and, as a result, the Fund's holdings of illiquid securities exceed the Fund's 10% limit on investment in such securities, the Manager will determine what action to take to ensure that the Fund continues to adhere to such limitation. CONCENTRATION In applying the Fund's fundamental policy concerning concentration that is described above, it is a matter of non-fundamental policy that: (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified 11 finance will each be considered a separate industry; and (iii) asset backed securities will be classified according to the underlying assets securing such securities. ACCOUNTING AND TAX ISSUES The following supplements the information in the Classes' Prospectuses under the heading Dividends, distributions and taxes. When the Fund writes a call option, an amount equal to the premium received by it is included in the Fund's assets and liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently "marked to market" to reflect the current market value of the option written. The current market value of a written option is the last sale price on the principal Exchange on which such option is traded or, in the absence of a sale, the mean between the last bid and asked prices. If an option which the Fund has written expires on its stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a short-term gain (or loss if the cost of the closing transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. The premium paid by the Fund for the purchase of a put option is recorded in the section of the Fund's assets and liabilities as an investment and subsequently adjusted daily to the current market value of the option. For example, if the current market value of the option exceeds the premium paid, the excess would be unrealized appreciation and, conversely, if the premium exceeds the current market value, such excess would be unrealized depreciation. If a put option which the Fund has purchased expires on the stipulated expiration date, the Fund realizes a long- or short-term capital loss for federal income tax purposes in the amount of the cost of the option. If the Fund sells the put option, it realizes a long- or short-term capital gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If the Fund exercises a put option, it realizes a capital gain or loss (long-term or short-term, depending on the holding period of the underlying security) from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. However, since the purchase of a put option is treated as a short sale for federal income tax purposes, the holding period of the underlying security will be affected by such a purchase. The initial margin deposits made when entering into futures contracts are recognized as assets due from the broker. During the period the futures contract is open, changes in the value of the contract will be reflected at the end of each day. Regulated futures contracts held by the Fund at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes. Any unrealized gain or loss on futures contracts will therefore be recognized and deemed to consist of 60% long-term capital gain or loss and 40% short-term capital gain or loss. Therefore, adjustments are made to the tax basis in the futures contract to reflect the gain or loss recognized at year end. OTHER TAX REQUIREMENTS -- The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, a Fund generally pay no federal income tax on the income and gains it distributes. The Trustees reserve the right not to maintain the qualification of a Fund as a regulated investment company if it determines such course of action to be beneficial to shareholders. In such case, the Fund would be subject to federal, and possibly state, corporate taxes on its taxable income and gains, and distributions to you would be taxed as ordinary income dividends to the extent of the Fund's earnings and profits. 12 In order to qualify as a regulated investment company for federal income tax purposes, the Fund must meet certain specific requirements, including: (i) The Fund must maintain a diversified portfolio of securities, wherein no security (other than U.S. government securities and securities of other regulated investment companies) can exceed 25% of the Fund's total assets, and, with respect to 50% of the Fund's total assets, no investment (other than cash and cash items, U.S. Government securities and securities of other regulated investment companies) can exceed 5% of the Fund's total assets or 10% of the outstanding voting securities of the issuer; (ii) The Fund must derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or disposition of stock and securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities, or currencies; (iii) The Fund must distribute to its shareholders at least 90% of its investment company taxable income and net tax-exempt income for each of its fiscal years. The Code requires each Fund to distribute at least 98% of its taxable ordinary income earned during the calendar year, 98% of its net capital gain earned during the 12 month period ending October 31 and 100% of any undistributed amount from the prior year to you by December 31 of each year in order to avoid federal excise tax. Each Fund intends as a matter of policy to declare and pay sufficient dividends in December or January (which are treated by you as received in December) but does not guarantee and can give no assurances that its distributions will be sufficient to eliminate all such taxes. When a Fund holds an option or contract which substantially diminishes the risk of loss with respect to another position of the Fund (as might occur in some hedging transactions), this combination of positions could be treated as a "straddle" for tax purposes, possibly resulting in deferral of losses, adjustments in the holding periods and conversion of short-term capital losses into long-term capital losses. Under rules relating to "Constructive Sale Transactions", a Fund must recognize gain (but not loss) on any constructive sale of an appreciated financial position in stock, a partnership interest or certain debt instruments. A Fund will generally be treated as making a constructive sale when it: 1) enters into a short sale on the same or substantially identical property; 2) enters into an offsetting notional principal contract; or 3) enters into a futures or forward contract to deliver the same or substantially identical property. Other transactions (including certain financial instruments called collars) will be treated as constructive sales as provided in Treasury regulations. There are also certain exceptions that apply for transactions that are closed before the end of the 30th day after the close of the taxable year. DISCLOSURE OF PORTFOLIO HOLDINGS INFORMATION The Funds adopted a policy generally prohibiting providing portfolio holdings to any person until after thirty calendar days have passed. We post a list of each Fund's portfolio holdings monthly, with a thirty day lag, on the Fund's website, www.delawarefunds.com. In addition, on a ten day lag, we also make available a month-end summary listing of the number of each Fund's securities, country and asset allocations, and top ten securities and sectors by percentage of holdings for each Fund. This information is available publicly to any and all shareholders free of charge once posted on the website by calling 1-800-523-1918. Other entities, including institutional investors and intermediaries that distribute the Fund's shares, are generally treated similarly and are not provided with the Fund's portfolio holdings in advance of when they are generally available to the public. Third-party service providers and affiliated persons of the Fund are provided with the Fund's portfolio holdings only to the extent necessary to perform services under agreements relating to the Funds. 13 Third-party rating agencies and consultants who have signed agreements ("Non-Disclosure Agreements") with the Fund or the Manager may receive portfolio holdings information more quickly than the thirty day lag. The Non-Disclosure Agreements require that the receiving entity hold the information in the strictest confidence and prohibit the receiving entity from disclosing the information or trading on the information (either in Fund shares or in shares of the Fund's portfolio securities). In addition, the receiving party must agree to provide copies of any research or reports generated using the portfolio holdings information in order to allow for monitoring of use of the information. Neither the Fund, the Manager nor any affiliate receive any compensation or consideration with respect to these agreements. Non-Disclosure Agreements must be approved by a member of the Manager's Legal Department and Compliance Department and any deviation in the use of the portfolio holdings information by the receiving party must be approved in writing by the Fund's Chief Compliance Officer prior to such use. PERFORMANCE INFORMATION From time to time, the Fund may state total return for each Class in advertisements and other types of literature. Any statements of total return performance data for a Class will be accompanied by information on the average annual compounded rate of return for that Class over, as relevant, the most recent one-, five- and ten-year (or life of fund, if applicable) periods. The Fund may also advertise aggregate and average compounded return information of each Class over additional periods of time. In presenting performance information for Class A Shares, the Limited CDSC, applicable only to certain redemptions of those shares, will not be deducted from any computations of total return. See the Prospectus for the Fund Classes for a description of the Limited CDSC and the limited instances in which it applies. All references to a CDSC in this Performance Information section will apply to Class B Shares or Class C Shares. Total return performance of each Class will reflect the appreciation or depreciation of principal, reinvestment of income and any capital gains distributions paid during any indicated period, and the impact of the maximum front-end sales charge or CDSC, if any, paid on the illustrated investment amount, annualized. The results will not reflect any income taxes, if applicable, payable by shareholders on the reinvested distributions included in the calculations. As securities prices fluctuate, an illustration of past performance should not be considered as representative of future results. The average annual total rate of return for each Class is based on a hypothetical $1,000 investment that includes capital appreciation and depreciation during the stated periods. The following formula will be used for the actual computations: P(1+T) n = ERV Where: P = a hypothetical initial purchase order of $1,000 from which, in the case of only Class A Shares, the maximum front-end sales charge is deducted; T = average annual total return; n = number of years; ERV = redeemable value of the hypothetical $1,000 purchase at the end of the period after the deduction of the applicable CDSC, if any, with respect to Class B Shares and Class C Shares. 14 Aggregate or cumulative total return is calculated in a similar manner, except that the results are not annualized. Each calculation assumes the maximum front-end sales charge, if any, is deducted from the initial $1,000 investment at the time it is made with respect to Class A Shares and that all distributions are reinvested at net asset value, and, with respect to Class B Shares and Class C Shares, reflects the deduction of the CDSC that would be applicable upon complete redemption of such shares. In addition, the Fund may present total return information that does not reflect the deduction of the maximum front-end sales charge or any applicable CDSC. The average annual total return performance is shown below for each Class through December 31, 2002 computed as described above. The average annual total return for Class A Shares at offer reflects the maximum front-end sales charge of 2.75% paid on the purchase of shares. The average annual total return for Class A Shares at net asset value (NAV) does not reflect the payment of any front-end sales charge. The average annual total return for Class B Shares and Class C Shares including deferred sales charge reflects the deduction of the applicable CDSC that would be paid if the shares were redeemed on December 31, 2002. The average annual total return for Class B Shares and Class C Shares excluding deferred sales charge assumes the shares were not redeemed on December 31, 2002 and therefore does not reflect the deduction of a CDSC. Actual after-tax returns depend on the investor's individual tax situation and may differ from the returns shown. After-tax returns are not relevant for shares held in tax-deferred investment vehicles such as employer-sponsored 401(k) plans and individual retirement accounts. The after-tax returns shown are calculated using the highest individual federal marginal income tax rates in effect during the Fund's lifetime and do not reflect the impact of state and local taxes. Past performance, both before and after taxes, is not a guarantee of future results. Securities prices fluctuated during the periods covered and past results should not be considered as representative of future performance. 15 The average annual total return for each Class (except Class R) is shown for the 1 year, 5 year, or 10 year period ending December 31, 2004. If a Class has not been in existence for a full 1, 5 or 10 year period, then Lifetime returns are shown. AVERAGE ANNUAL TOTAL RETURN(1)
1 YEAR 5 YEARS 10 YEARS ENDED ENDED ENDED LIFE OF 12/31/04 12/31/04 12/31/04 FUND(4) ---------- ---------- ---------- ---------- Class A Shares (at offer before taxes)(2) % % % % Class A Shares (at offer after taxes on distributions)(2) % % % % Class A Shares (at offer after taxes on distributions and sale of fund shares)(2) % % % % Class A Shares (at NAV before taxes)(2) % % % % Class B Shares (including CDSC before taxes)(3) % % % % Class B Shares (including CDSC after taxes on distributions)(3) % % % % Class B Shares (including CDSC after taxes on distributions and sale of fund shares)(3) % % % % Class B Shares (excluding CDSC before taxes)(3) % % % % Class C Shares (including CDSC before taxes) % % % % Class C Shares (including CDSC after taxes on distributions) % % % % Class C Shares (including CDSC after taxes on distributions and sale of fund shares) % % % % Class C Shares (excluding CDSC before taxes) % % % % Class R Shares (before taxes) % % % % Class R Shares (after taxes on distributions) % % % % Class R Shares (after taxes on distributions and sale of fund shares) % % % % Institutional Class Shares (before taxes) % % % % Institutional Class Shares (after taxes on distributions) % % % % Institutional Class Shares (after taxes on distributions and sale of fund shares) % % % %
(1) Reflects applicable expense caps in effect during the periods. See Investment Management Agreement and Sub-Advisory Agreement for information regarding expense caps for the Funds. In the absence of such voluntary waivers, performance would have been affected negatively. (2) Effective June 9, 1997, the maximum front-end sales charge was reduced from 3.00% to 2.75%. The above performance numbers are calculated using 2.75% as the applicable sales charge for all time periods, and are more favorable than they would have been had they been calculated using the former front-end sales charges. (3) Effective November 18, 2002, the CDSC schedule for Class B Shares will be changed to: 2.00% during the first year, 1.00% during the second and third years and 0% thereafter. The above figures have been calculated using this new schedule. (4) Class A Shares commenced operations on November 24, 1985. Institutional Class Shares commenced operations on June 1, 1992. Class B Shares commenced operations on May 2, 1994. Class C Shares commenced operations on November 29, 1995. Class R Shares commenced operations on June 2, 2003. 16 The Fund may also quote the current yield for each Class in advertisements and investor communications. The yield computation is determined by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period and annualizing the resulting figure, according to the following formula: a-b YIELD = 2[(-------- + 1)(6) - 1] cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; d = the maximum offering price per share on the last day of the period. The above formula will be used in calculating quotations of yield of each Class, based on specified 30-day periods identified in advertising by the Fund. The 30-day yields as of December 31, 2004 using this formula are shown below. Yield assumes the maximum front-end sales charge, if any, and does not reflect the deduction of any CDSC or Limited CDSC. Actual yield may be affected by variations in front-end sales charges on investments. Past performance, such as is reflected in quoted yields, should not be considered as a representation of the results which may be realized from an investment in any class of the Fund in the future. Class A Shares 2.86% Class B Shares 2.06% Class C Shares 2.06% Class R Shares 2.46% Institutional Shares 3.06% On December 31, 2004, the average effective weighted average portfolio maturity was [____] years for the Fund. Investors should note that the income earned and dividends paid by the Fund will vary with the fluctuation of interest rates and performance of the portfolio. The net asset value of the fund may change. Unlike money market funds, the Fund invests in longer-term securities that fluctuate in value and do so in a manner inversely correlated with changing interest rates. The Fund's net asset value will tend to rise when interest rates fall. Conversely, the Fund's net asset value will tend to fall as interest rates rise. Normally, fluctuations in interest rates have a greater effect on the prices of longer-term bonds. The value of the securities held in the Fund will vary from day to day and investors should consider the volatility of the Fund's net asset value as well as its yield before making a decision to invest. 17 TRADING PRACTICES AND BROKERAGE Portfolio transactions are executed by the Manager on behalf of the Fund in accordance with the standards described below. Brokers, dealers and banks are selected to execute transactions for the purchase or sale of portfolio securities on the basis of the Manager's judgment of their professional capability to provide the service. The primary consideration is to have brokers, dealers or banks execute transactions at best execution. Best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order and other factors affecting the overall benefit obtained by the account on the transaction. Trades are generally made on a net basis where securities are either bought or sold directly from or to a broker, dealer or bank. In these instances, there is no direct commission charged, but there is a spread (the difference between the buy and sell price) which is the equivalent of a commission. When a commission is paid, the Fund pays reasonably competitive brokerage commission rates based upon the professional knowledge of the Manager's trading department as to rates paid and charged for similar transactions throughout the securities industry. In some instances, the Fund pays a minimal share transaction cost when the transaction presents no difficulty. During the past three fiscal years, the following aggregate dollar amounts of brokerage commissions were paid by the Fund: DECEMBER 31 -------------------------------- 2004 2003 2002 ------ ------ ------ Delaware Limited-Term Government Fund $_____ $_____ $_____ The Manager may allocate out of all commission business generated by all of the funds and accounts under its management, brokerage business to brokers or dealers who provide brokerage and research services. These services include advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; providing information on economic factors and trends; assisting in determining portfolio strategy; providing computer software and hardware used in security analyses; and providing portfolio performance evaluation and technical market analyses. Such services are used by the Manager in connection with its investment decision-making process with respect to one or more funds and accounts managed by it, and may not be used, or used exclusively, with respect to the fund or account generating the brokerage. As provided in the Securities Exchange Act of 1934 and the Fund's Investment Management Agreement, higher commissions are permitted to be paid to broker/dealers who provide brokerage and research services than to broker/dealers who do not provide such services, if such higher commissions are deemed reasonable in relation to the value of the brokerage and research services provided. Although transactions are directed to broker/dealers who provide such brokerage and research services, Limited-Term Funds believes that the commissions paid to such broker/dealers are not, in general, higher than commissions that would be paid to broker/dealers not providing such services and that such commissions are reasonable in relation to the value of the brokerage and research services provided. In some instances, services may be provided to the Manager which constitute in some part brokerage and research services used by the Manager in connection with its investment decision-making process and constitute in some part services used by the Manager in connection with administrative or other functions not related to its investment decision-making process. In such cases, the Manager will make a good faith allocation of brokerage and research services and will pay out of its own resources for services used by the Manager in connection with administrative or other functions not related to its investment decision-making process. In addition, so long as no fund is disadvantaged, portfolio transactions which generate commissions or their equivalent are allocated to broker/dealers who provide daily portfolio pricing services to the Fund and to other funds in the Delaware Investments family. Subject to best execution, commissions allocated to brokers providing such pricing services may or may not be generated by the funds receiving the pricing service. 18 The Manager may place a combined order for two or more accounts or funds engaged in the purchase or sale of the same security if, in its judgment, joint execution is in the best interest of each participant and will result in best execution. Transactions involving commingled orders are allocated in a manner deemed equitable to each account or fund. When a combined order is executed in a series of transactions at different prices, each account participating in the order may be allocated an average price obtained from the executing broker. It is believed that the ability of the accounts to participate in volume transactions will generally be beneficial to the accounts and funds. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or fund may obtain, it is the opinion of the Manager and Limited-Term Funds' Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Consistent with NASDR(SM), and subject to seeking best execution, the Manager may place orders with broker/dealers that have agreed to defray certain Fund expenses such as custodian fees. PORTFOLIO TURNOVER Portfolio trading will be undertaken principally to accomplish the Fund's objective in relation to anticipated movements in the general level of interest rates. The Fund is free to dispose of portfolio securities at any time, subject to complying with the Internal Revenue Code and the 1940 Act, when changes in circumstances or conditions make such a move desirable in light of the investment objective. The Fund will not attempt to achieve or be limited to a predetermined rate of portfolio turnover. Such turnover always will be incidental to transactions undertaken with a view to achieving the Fund's investment objective. The degree of portfolio activity may affect brokerage costs of a Fund and taxes payable by a Fund's shareholders. A turnover rate of 100% would occur if, for example, a fund bought and sold all of the securities in its portfolio once in the course of the year or frequently traded a single security. In investing to achieve its investment objective, a Fund may hold securities for any period of time. To the extent the Fund realizes gains on securities held for less than six months, such gains are taxable to the shareholder subject to tax or to a Fund at ordinary income tax rates. The turnover rate also may be affected by cash requirements from redemptions and repurchases of Fund shares. High portfolio turnover involves correspondingly greater brokerage costs and may affect taxes payable by shareholders that are subject to federal income taxes. The portfolio turnover rate of the Fund is calculated by dividing the lesser of purchases or sales of portfolio securities for the particular fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the particular fiscal year, exclusive of securities whose maturities at the time of acquisition are one year or less. The Fund may be expected to engage in active and frequent trading of portfolio securities, which means that portfolio turnover can be expected to exceed 100%. The Fund has, in the past, experienced portfolio turnover rates that were significantly in excess of 100%. During the past two fiscal years ended December 31, 2004 and 2003, the Fund's portfolio turnover rates were [___%] and [___%], respectively. The investment strategy for the Fund has not changed and we do expect the Fund's portfolio turnover rate to exceed 100% this year, unless unexpected market conditions prevail. 19 PURCHASING SHARES The Distributor serves as the national distributor for the Fund's shares and has agreed to use its best efforts to sell shares of the Fund. See the Prospectuses for information on how to invest. Shares of the Fund are offered on a continuous basis and may be purchased through authorized investment dealers or directly by contacting Limited-Term Funds or the Distributor. The minimum initial investment generally is $1,000 for Class A Shares, Class B Shares and Class C Shares. Subsequent purchases of such Classes generally must be at least $100. The initial and subsequent investment minimums for Class A Shares will be waived for purchases by officers, trustees and employees of any Delaware Investments fund, the Manager or any of the Manager's affiliates if the purchases are made pursuant to a payroll deduction program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act and shares purchased in connection with an Automatic Investing Plan are subject to a minimum initial purchase of $250 and a minimum subsequent purchase of $25. Accounts opened under the Delaware Investments Asset Planner service are subject to a minimum initial investment of $2,000 per Asset Planner Strategy selected. There are no minimum purchase requirements for Class R and the Institutional Class, but certain eligibility requirements must be satisfied. Each purchase of Class B Shares is subject to a maximum purchase limitation of $100,000. For Class C Shares, each purchase must be in an amount that is less than $1,000,000. See Investment Plans for purchase limitations applicable to retirement plans. Limited-Term Funds will reject any purchase order for more than $100,000 of Class B Shares and $1,000,000 or more of Class C Shares. An investor may exceed these limitations by making cumulative purchases over a period of time. In doing so, an investor should keep in mind, however, that reduced front-end sales charges apply to investments of $50,000 or more in Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C Shares and generally are not subject to a CDSC. Selling dealers are responsible for transmitting orders promptly. Limited-Term Funds reserves the right to reject any order for the purchase of its shares of the Fund if in the opinion of management such rejection is in the Fund's best interest. If a purchase is canceled because your check is returned unpaid, you are responsible for any loss incurred. The Fund can redeem shares from your account(s) to reimburse itself for any loss, and you may be restricted from making future purchases in any of the funds in the Delaware Investments family. The Fund reserves the right to reject purchase orders paid by third-party checks or checks that are not drawn on a domestic branch of a United States financial institution. If a check drawn on a foreign financial institution is accepted, you may be subject to additional bank charges for clearance and currency conversion. The Fund also reserves the right, following shareholder notification, to charge a service fee on non-retirement accounts that, as a result of redemption, have remained below the minimum stated account balance for a period of three or more consecutive months. Holders of such accounts may be notified of their insufficient account balance and advised that they have until the end of the current calendar quarter to raise their balance to the stated minimum. If the account has not reached the minimum balance requirement by that time, the Fund will charge a $9 fee for that quarter and each subsequent calendar quarter until the account is brought up to the minimum balance. The service fee will be deducted from the account during the first week of each calendar quarter for the previous quarter, and will be used to help defray the cost of maintaining low-balance accounts. No fees will be charged without proper notice, and no CDSC will apply to such assessments. The Fund also reserves the right, upon 60 days' written notice, to involuntarily redeem accounts that remain under the minimum initial purchase amount as a result of redemptions. An investor making the minimum initial investment may be subject to involuntary redemption without the imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or her account. 20 The NASD has adopted amendments to its Conduct Rules, relating to investment company sales charges. Limited-Term Funds and the Distributor intend to operate in compliance with these rules. Class A Shares are purchased at the offering price which reflects a maximum front-end sales charge of 2.75%; however, lower front-end sales charges apply for larger purchases. See the table in the Fund Classes' Prospectus. Class A Shares are also subject to annual 12b-1 Plan expenses for the life of the investment. Class B Shares are purchased at net asset value and are subject to a CDSC of: (i) 2.00% if shares are redeemed within the first year of purchase; and (ii) 1.00% if shares are redeemed during the second and third years following purchase and 0% thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which are higher than those to which Class A Shares are subject and are assessed against the Class B Shares for approximately five years after purchase. Class B Shares will automatically convert to Class A Shares at the end of approximately five years after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of 0.30% (contractually limited to 0.15% through April 30, 2006) of average daily net assets of such shares. See Automatic Conversion of Class B Shares, below. Class C Shares are purchased at net asset value and are subject to a CDSC of 1% if shares are redeemed within 12 months following purchase. Class C Shares are also subject to annual 12b-1 Plan expenses for the life of the investment which are equal to those to which Class B Shares are subject. Class R Shares are purchased at the net asset value per share without the imposition of a front-end or contingent deferred sales charge. Class R Shares are subject to annual 12b-1 Plan expenses for the life of the investment. Institutional Class shares are purchased at the net asset value per share without the imposition of a front-end or contingent deferred sales charge or 12b-1 Plan expenses. Class A Shares, Class B Shares, Class C Shares, Class R and Institutional Class Shares represent a proportionate interest in the Fund's assets and will receive a proportionate interest in the Fund's income, before application, as to Class A, Class B, Class C and Class R Shares, of any expenses under the Fund's 12b-1 Plans. See Plans Under Rule 12b-1 for the Fund Classes under Purchasing Shares, and Determining Offering Price and Net Asset Value in this Part B. Beginning March 1, 2004, the Distributor has contracted to waive 0.15% of the payment of 12b-1 Plan expenses by the Funds' Class A shares through April 30, 2006. Certificates representing shares purchased are not ordinarily issued unless, in the case of Class A Shares or Institutional Class shares, a shareholder submits a specific request. Certificates are not issued in the case of Class B Shares, Class C Shares or Class R Shares or in the case of any retirement plan account including self-directed IRAs. However, purchases not involving the issuance of certificates are confirmed to the investor and credited to the shareholder's account on the books maintained by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have the same rights of ownership with respect to such shares as if certificates had been issued. An investor that is permitted to obtain a certificate may receive a certificate representing full share denominations purchased by sending a letter signed by each owner of the account to the Transfer Agent requesting the certificate. No charge is assessed by Limited-Term Funds for any certificate issued. A shareholder may be subject to fees for replacement of a lost or stolen certificate, under certain conditions, including the cost of obtaining a bond covering the lost or stolen certificate. Please contact the Fund for further information. Investors who hold certificates representing any of their shares may only redeem those shares by written request. The investor's certificate(s) must accompany such request. ALTERNATIVE PURCHASE ARRANGEMENTS - CLASS A, B AND C SHARES The alternative purchase arrangements of Class A Shares, Class B Shares and Class C Shares permit investors to choose the method of purchasing shares that is most suitable for their needs given the amount of their 21 purchase, the length of time they expect to hold their shares and other relevant circumstances. Investors should determine whether, given their particular circumstances, it is more advantageous to purchase Class A Shares and incur a front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of 0.30% [(contractually limited to 0.15% through April 30, 2006) of the average daily net assets of Class A Shares, or to purchase either Class B or Class C Shares and have the entire initial purchase amount invested in the Fund with the investment thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are subject to a CDSC if the shares are redeemed within three years of purchase, and Class C Shares are subject to a CDSC if the shares are redeemed within 12 months of purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service fees to be paid to the Distributor, dealers or others for providing personal service and/or maintaining shareholder accounts) of average daily net assets of the respective Class. Class B Shares will automatically convert to Class A Shares at the end of approximately five years after purchase and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of 0.30% (contractually limited to 0.15% through April 30, 2006) of average daily net assets of such shares. Unlike Class B Shares, Class C Shares do not convert to another Class. The higher 12b-1 Plan expenses on Class B Shares and Class C Shares will be offset to the extent a return is realized on the additional money initially invested upon the purchase of such shares. However, there can be no assurance as to the return, if any, that will be realized on such additional money. In addition, the effect of any return earned on such additional money will diminish over time. In comparing Class B Shares to Class C Shares, investors should also consider the duration of the annual 12b-1 Plan expenses to which each of the classes is subject and the desirability of an automatic conversion feature, which is available only for Class B Shares. Class R Shares have no front-end sales charge and are not subject to a CDSC, but incur annual 12b-1 expenses of up to a maximum of 0.60%. Class A Shares generally are not available for purchase by anyone qualified to purchase Class R Shares. In comparing Class B Shares and Class C Shares to Class R Shares, investors should consider the higher 12b-1 Plan expenses on Class B Shares and Class C Shares. Investors also should consider the fact that, like Class B Shares and Class C Shares, Class R Shares do not have a front-end sales charge and, unlike Class B Shares and Class C Shares, Class R Shares are not subject to a CDSC. In Comparing Class B Shares to Class R shares, investors should also consider the duration of the annual 12b-1 Plan expenses to which each Class is subject and the desirability of an automatic conversion feature to Class A Shares (with lower annual 12b-1 Plan fees), which is available only for Class B Shares and does not subject the investor to a CDSC. For the distribution and related services provided to, and the expenses borne on behalf of, the Fund, the Distributor and others will be paid, in the case of Class A Shares, from the proceeds of the front-end sales charge and 12b-1 Plan fees, in the case of Class B Shares and Class C Shares, from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred upon redemption, and in the case of Class R Shares, from the proceeds of the 12b-1 Plan fees. Financial advisors may receive different compensation for selling Class A Shares, Class B Shares, Class C Shares and Class R Shares. Investors should understand that the purpose and function of the respective 12b-1 Plans (including for Class R Shares) and the CDSCs applicable to Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and the front-end sales charge applicable to Class A Shares in that such fees and charges are used to finance the distribution of the respective Classes. See Plans Under Rule 12b-1 for the Fund Classes. Dividends, if any, paid on Class A Shares, Class B Shares, Class C Shares, Class R Shares and Institutional Class Shares will be calculated in the same manner, at the same time and on the same day and will be in the same amount, except that the amounts of 12b-1 Plan expenses relating to Class A Shares, Class B Shares, Class C Shares and Class R Shares will be borne exclusively by such shares. See Determining Offering Price and Net Asset Value. 22 CLASS A SHARES Purchases of $100,000 or more of Class A Shares at the offering price carry reduced front-end sales charges as shown in the table in the Fund Classes' Prospectus, and may include a series of purchases over a 13-month period under a Letter of Intention signed by the purchaser. See Special Purchase Features - Class A Shares, below for more information on ways in which investors can avail themselves of reduced front-end sales charges and other purchase features. From time to time, upon written notice to all of its dealers, the Distributor may hold special promotions for specified periods during which the Distributor may reallow to dealers up to the full amount of the front-end sales. In addition, certain dealers who enter into an agreement to provide extra training and information on Delaware Investments products and services and who increase sales of Delaware Investments funds may receive an additional commission of up to 0.15% of the offering price in connection with sales of Class A Shares. Such dealers must meet certain requirements in terms of organization and distribution capabilities and their ability to increase sales. The Distributor should be contacted for further information on these requirements as well as the basis and circumstances upon which the additional commission will be paid. Participating dealers may be deemed to have additional responsibilities under the securities laws. Dealers who receive 90% or more of the sales charge may be deemed to be underwriters under the 1933 Act. DEALER'S COMMISSION As described in the Prospectus, for initial purchases of Class A Shares of $1,000,000 or more, a dealer's commission may be paid by the Distributor to financial advisors through whom such purchases are effected. In determining a financial advisor's eligibility for the dealer's commission, purchases of Class A Shares of other Delaware Investments funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and Exchange) may be aggregated with those of the Class A Shares of the Fund. Financial advisors also may be eligible for a dealer's commission in connection with certain purchases made under a Letter of Intention or pursuant to an investor's Right of Accumulation. Financial advisors should contact the Distributor concerning the applicability and calculation of the dealer's commission in the case of combined purchases. An exchange from other Delaware Investments funds will not qualify for payment of the dealer's commission, unless a dealer's commission or similar payment has not been previously paid on the assets being exchanged. The schedule and program for payment of the dealer's commission are subject to change or termination at any time by the Distributor at its discretion. CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES Class B Shares and Class C Shares are purchased without a front-end sales charge. Class B Shares redeemed within three years of purchase may be subject to a CDSC at the rates set forth above, and Class C Shares redeemed within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the net asset value at the time of purchase of the shares being redeemed or the net asset value of those shares at the time of redemption. No CDSC will be imposed on increases in net asset value above the initial purchase price, nor will a CDSC be assessed on redemptions of shares acquired through reinvestment of dividends or capital gains distributions. For purposes of this formula, the "net asset value at the time of purchase" will be the net asset value at purchase of Class B Shares or Class C Shares of the Fund, even if those shares are later exchanged for shares of another Delaware Investments fund. In the event of an exchange of the shares, the "net asset value of such shares at the time of redemption" will be the net asset value of the shares that were acquired in the exchange. See Waiver of Contingent Deferred Sales Charge--Class B Shares and Class C Shares under Redemption and Exchange for the Fund Classes for a list of the instances in which the CDSC is waived. During the fourth year after purchase and, thereafter, until converted automatically into Class A Shares, Class B Shares will still be subject to the annual 12b-1 Plan expenses of up to 1% of average daily net assets of those 23 shares. At the end of approximately five years after purchase, the investor's Class B Shares will be automatically converted into Class A Shares of the Fund. See Automatic Conversion of Class B Shares under Redemption and Exchange. Such conversion will constitute a tax-free exchange for federal income tax purposes. Investors are reminded that the Class A Shares into which Class B Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% (contractually limited to 0.15% through April 30, 2006) of average daily net assets of such shares. In determining whether a CDSC applies to a redemption of Class B Shares, it will be assumed that shares held for more than three years are redeemed first, followed by shares acquired through the reinvestment of dividends or distributions, and finally by shares held longest during the three-year period. With respect to Class C Shares, it will be assumed that shares held for more than 12 months are redeemed first followed by shares acquired through the reinvestment of dividends or distributions, and finally by shares held for 12 months or less. DEFERRED SALES CHARGE ALTERNATIVE - CLASS B SHARES Class B Shares may be purchased at net asset value without a front-end sales charge and, as a result, the full amount of the investor's purchase payment will be invested in Fund shares. The Distributor currently anticipates compensating dealers or brokers for selling Class B Shares at the time of purchase from its own assets in an amount equal to no more than 2% of the dollar amount purchased. In addition, from time to time, upon written notice to all of its dealers, the Distributor may hold special promotions for specified periods during which the Distributor may pay additional compensation to dealers or brokers for selling Class B Shares at the time of purchase. As discussed below, however, Class B Shares are subject to annual 12b-1 Plan expenses and, if redeemed within three years of purchase, a CDSC. Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the Distributor and others for providing distribution and related services, and bearing related expenses, in connection with the sale of Class B Shares. These payments support the compensation paid to dealers or brokers for selling Class B Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may be in an amount equal to no more than 1% annually. The combination of the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Fund to sell Class B Shares without deducting a front-end sales charge at the time of purchase. Holders of Class B Shares who exercise the exchange privilege described below will continue to be subject to the CDSC schedule for Class B Shares as described in this Part B, even after the exchange. See Redemption and Exchange. AUTOMATIC CONVERSION OF CLASS B SHARES Class B Shares, other than shares acquired through reinvestment of dividends, held for five years after purchase are eligible for automatic conversion into Class A Shares. Conversions of Class B Shares into Class A Shares will occur only four times in any calendar year, on the 18th day or next business day of March, June, September and December (each, a "Conversion Date"). If the fifth anniversary after a purchase of Class B Shares falls on a Conversion Date, an investor's Class B Shares will be converted on that date. If the fifth anniversary occurs between Conversion Dates, an investor's Class B Shares will be converted on the next Conversion Date after such anniversary. Consequently, if a shareholder's fifth anniversary falls on the day after a Conversion Date, that shareholder will have to hold Class B Shares for as long as three additional months after the fifth anniversary of purchase before the shares will automatically convert into Class A Shares. Class B Shares of the Fund acquired through a reinvestment of dividends will convert to the corresponding Class A Shares of that fund (or, in the case of Delaware Group Cash Reserve, the Delaware Cash Reserve Fund Consultant Class) pro-rata with Class B Shares of that fund not acquired through dividend reinvestment. All such automatic conversions of Class B Shares will constitute tax-free exchanges for federal income tax purposes. 24 LEVEL SALES CHARGE ALTERNATIVE - CLASS C SHARES Class C Shares may be purchased at net asset value without a front-end sales charge and, as a result, the full amount of the investor's purchase payment will be invested in Fund shares. The Distributor currently compensates dealers or brokers for selling Class C Shares at the time of purchase from its own assets in an amount equal to no more than 1% of the dollar amount purchased. As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a CDSC. Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the Distributor and others for providing distribution and related services, and bearing related expenses, in connection with the sale of Class C Shares. These payments support the compensation paid to dealers or brokers for selling Class C Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may be in an amount equal to no more than 1% annually. Holders of Class C Shares who exercise the exchange privilege described below will continue to be subject to the CDSC schedule for Class C Shares as described in this Part B. See Redemption and Exchange. PLANS UNDER RULE 12B-1 FOR THE FUND CLASSES Pursuant to Rule 12b-1 under the 1940 Act, Limited-Term Funds has adopted a separate plan for each of Class A Shares, Class B Shares, Class C Shares and Class R Shares of the Fund (the "Plans"). Each Plan permits the Fund to pay for certain distribution, promotional and related expenses involved in the marketing of only the Class of shares to which the Plan applies. The Plans do not apply to the Institutional Class of shares. Such shares are not included in calculating the Plans' fees, and the Plans are not used to assist in the distribution and marketing of shares of the Institutional Class. Shareholders of the Institutional Class may not vote on matters affecting the Plans. The Plans permit the Fund, pursuant to the Distribution Agreement, to pay out of the assets of Class A Shares, Class B Shares, Class C Shares and Class R Shares monthly fees to the Distributor for its services and expenses in distributing and promoting sales of shares of such classes. These expenses include, among other things, preparing and distributing advertisements, sales literature and prospectuses and reports used for sales purposes, compensating sales and marketing personnel, and paying distribution and maintenance fees to securities brokers and dealers who enter into agreements with the Distributor. The Plan expenses relating to Class B and Class C Shares are also used to pay the Distributor for advancing the commission costs to dealers with respect to the initial sale of such shares. In addition, the Fund may make payments out of the assets of Class A, Class B, Class C and Class R Shares directly to other unaffiliated parties, such as banks, who either aid in the distribution of shares of, or provide services to, such classes. The maximum aggregate fee payable by the Fund under the Plans, and the Fund's Distribution Agreement, is on an annual basis up to 0.30% of Class A Shares' average daily net assets for the year, up to 1% (0.25% of which are service fees to be paid to the Distributor, dealers and others for providing personal service and/or maintaining shareholder accounts) of each of the Class B Shares' and the Class C Shares' average daily net assets for the year and up to 0.60% of Class R Shares' average daily net assets for the year. Limited-Term Funds' Board of Trustees may reduce these amounts at any time. The Distributor has agreed to waive these distribution fees to the extent such fees for any day exceeds the net investment income realized by the Fund Classes for such day. On May 21, 1987, the Board of Trustees set the fee for Class A Shares, pursuant to its Plan, at 0.15% of average daily net assets. This fee was effective until May 31, 1992. Effective June 1, 1992, the Board of Trustees has determined that the annual fee, payable on a monthly basis, under the Plan, will be equal to the sum of: (i) the amount obtained by multiplying 0.10% by the average daily net assets represented by Class A Shares which were originally purchased prior to June 1, 1992 in the Investors Series I class (which was converted into what is now referred to as Class A Shares) on June 1, 1992 pursuant to a Plan of Recapitalization approved by shareholders of the Investors Series I class), and (ii) the amount obtained by multiplying 0.15% by the average daily net assets represented by all other Class A Shares. While this is the method to be used to calculate the 12b-1 fees to be paid by 25 Class A Shares, the fee is a Class expense so that all shareholders regardless of whether they originally purchased or received shares in the Investors Series I class, or in one of the other classes that is now known as Class A Shares will bear 12b-1 expenses at the same rate. While this describes the current formula for calculating the fees which will be payable under the Class A Shares' Plan beginning June 1, 1992, the Plan permits a full 0.30% (contractually limited to 0.15% through April 30, 2006) on all assets of Class A Shares to be paid at any time following appropriate Board approval. All of the distribution expenses incurred by the Distributor and others, such as broker/dealers, in excess of the amount paid on behalf of Class A, Class B, Class C and Class R Shares would be borne by such persons without any reimbursement from such Fund Classes. Subject to seeking best execution, the Fund may, from time to time, buy or sell portfolio securities from or to firms which receive payments under the Plans. From time to time, the Distributor may pay additional amounts from its own resources to dealers for aid in distribution or for aid in providing administrative services to shareholders. The Plans and the Distribution Agreement, as amended, have been approved by the Board of Trustees of Limited-Term Funds, including a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of Limited-Term Funds and who have no direct or indirect financial interest in the Plans, by vote cast in person at a meeting duly called for the purpose of voting on the Plans and such Distribution Agreement. Continuation of the Plans and the Distribution Agreement, as amended, must be approved annually by the Board of Trustees in the same manner as specified above. Each year, the trustees must determine whether continuation of the Plans is in the best interest of shareholders of, respectively, Class A Shares, Class B Shares, Class C Shares and Class R Shares and that there is a reasonable likelihood of the Plan relating to the Fund Class providing a benefit to that Class. The Plans and the Distribution Agreement, as amended, may be terminated at any time without penalty by a majority of those trustees who are not "interested persons" or by a majority vote of the outstanding voting securities of the relevant Fund Class. Any amendment materially increasing the percentage payable under the Plans must likewise be approved by a majority vote of the outstanding voting securities of the relevant Fund Class, as well as by a majority vote of those trustees who are not "interested persons." With respect to the Class A Shares' Plan, any material increase in the maximum percentage payable thereunder must be approved by a majority of the outstanding voting Class B Shares. Also, any other material amendment to the Plans must be approved by a majority vote of the trustees, including a majority of the noninterested trustees of Limited-Term Funds having no interest in the Plans. In addition, in order for the Plans to remain effective, the selection and nomination of trustees who are not "interested persons" of Limited-Term Funds must be effected by the trustees who themselves are not "interested persons" and who have no direct or indirect financial interest in the Plans. Persons authorized to make payments under the Plans must provide written reports at least quarterly to the Board of Trustees for their review. 26 For the fiscal year ended December 31, 2004, 12b-1 Plan payments from the Class A Shares, Class B Shares and Class C Shares are shown below.
Class A Shares Class B Shares Class C Shares Class R Shares -------------- -------------- -------------- -------------- Advertising $____ $____ $____ $____ Annual/Semiannual Reports $____ $____ $____ $____ Broker Trails $____ $____ $____ $____ Broker Sales Charges $____ $____ $____ $____ Dealer Service Expenses $____ $____ $____ $____ Interest on Broker Sales Charges $____ $____ $____ $____ Commissions to Wholesalers $____ $____ $____ $____ Promotional-Broker Meetings $____ $____ $____ $____ Promotional-Other $____ $____ $____ $____ Prospectus Printing $____ $____ $____ $____ Telephone $____ $____ $____ $____ Wholesaler Expenses $____ $____ $____ $____ Other $____ $____ $____ $____ Total $____ $____ $____ $____
OTHER PAYMENTS TO DEALERS - CLASS A SHARES, CLASS B SHARES CLASS C SHARES AND CLASS R SHARES From time to time, at the discretion of the Distributor, all registered broker/dealers whose aggregate sales of Fund Classes exceed certain limits as set by the Distributor, may receive from the Distributor an additional payment of up to 0.25% of the dollar amount of such sales. The Distributor may also provide additional promotional incentives or payments to dealers that sell shares of the Delaware Investments family of funds. In some instances, these incentives or payments may be offered only to certain dealers who maintain, have sold or may sell certain amounts of shares. The Distributor may also pay a portion of the expense of preapproved dealer advertisements promoting the sale of Delaware Investments fund shares. SPECIAL PURCHASE FEATURES - CLASS A SHARES BUYING CLASS A SHARES AT NET ASSET VALUE Class A Shares of the Fund may be purchased at net asset value under the Delaware Investments Dividend Reinvestment Plan and, under certain circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege. Current and former officers, trustees/directors and employees of Limited-Term Funds, any other fund in the Delaware Investments family, the Manager, or any of the Manager's current affiliates and those that may in the future be created, legal counsel to the funds and registered representatives and employees of broker/dealers who have entered into Dealer's Agreements with the Distributor may purchase Class A Shares and any such class of shares of any of the other funds in the Delaware Investments family, including any fund that may be created, at the net asset value per share. Family members (regardless of age) of such persons at their direction, and any employee benefit plan established by any of the foregoing funds, corporations, counsel or broker/dealers may also purchase Class A Shares at net asset value. Purchases of Class A Shares may also be made by clients of registered representatives of an authorized investment dealer at net asset value within 12 months after the registered representative changes employment, if the purchase is funded by proceeds from an investment where a front-end sales charge, contingent deferred sales charge or other sales charge has been assessed. Purchases of Class A Shares may also be made at net asset value by bank employees who provide services in connection with agreements between the bank and unaffiliated brokers or dealers concerning sales of shares of funds in the Delaware Investments family. Officers, directors and key employees of 27 institutional clients of the Manager or any of its affiliates may purchase Class A Shares at net asset value. Moreover, purchases may be effected at net asset value for the benefit of the clients of brokers, dealers and registered investment advisors affiliated with a broker or dealer, if such broker, dealer or investment advisor has entered into an agreement with the Distributor providing specifically for the purchase of Class A Shares in connection with special investment products, such as wrap accounts or similar fee based programs. Investors may be charged a fee when effecting transactions in Class A Shares through a broker or agent that offers these special investment products. Purchases of Class A Shares at net asset value may also be made by the following: financial institutions investing for the account of their trust customers if they are not eligible to purchase shares of the Institutional Class of the Fund; any group retirement plan (excluding defined benefit pension plans), or such plans of the same employer, for which plan participant records are maintained on the Retirement Financial Services, Inc. (formerly known as Delaware Investment & Retirement Services, Inc.) proprietary record keeping system that (i) has in excess of $500,000 of plan assets invested in Class A Shares of funds in the Delaware Investments family and any stable value account available to investment advisory clients of the Manager or its affiliates; or (ii) is sponsored by an employer that has at any point after May 1, 1997 had more than 100 employees while such plan has held Class A Shares of a fund in the Delaware Investments family and such employer has properly represented to, and received written confirmation back from, Retirement Financial Services, Inc. in writing that it has the requisite number of employees. See Group Investment Plans for information regarding the applicability of the Limited CDSC. Purchases of Class A Shares at net asset value may be made by retirement plans that are maintained on retirement platforms sponsored by financial intermediary firms, provided the financial intermediary firm has entered into a Class A Share NAV Agreement with respect to such retirement platform. Purchases of Class A Shares at net asset value may also be made by bank sponsored retirement plans that are no longer eligible to purchase Institutional Class Shares or purchase interests in a collective trust as a result of a change in distribution arrangements. Purchases of Class A Shares at net asset value may also be made by any group retirement plan (excluding defined benefit pension plans) that purchases shares through a retirement plan alliance program that requires shares to be available at net asset value, provided Retirement Financial Services, Inc. either is the sponsor of the alliance program or has a product participation agreement with the sponsor of the alliance program. Investments in Class A Shares made by plan level and/or participant retirement accounts that are for the purpose of repaying a loan taken from such accounts will be made at net asset value. Loan repayments made to a fund account in connection with loans originated from accounts previously maintained by another investment firm will also be invested at net asset value. Limited-Term Funds must be notified in advance that the trade qualifies for purchase at net asset value. ALLIED PLANS Class A Shares are available for purchase by participants in certain 401(k) Defined Contribution Plans ("Allied Plans") which are made available under a joint venture agreement between the Distributor and another institution through which mutual funds are marketed and which allow investments in Class A Shares of designated Delaware Investments funds ("eligible Delaware Investments fund shares"), as well as shares of designated classes of non-Delaware Investments funds ("eligible non-Delaware Investments fund shares"). Class B Shares and Class C Shares are not eligible for purchase by Allied Plans. With respect to purchases made in connection with an Allied Plan, the value of eligible Delaware Investments and eligible non-Delaware Investments fund shares held by the Allied Plan may be combined with the dollar amount of new purchases by that Allied Plan to obtain a reduced front-end sales charge on additional purchases of eligible Delaware Investments fund shares. See Combined Purchases Privilege, below. 28 Participants in Allied Plans may exchange all or part of their eligible Delaware Investments fund shares for other eligible Delaware Investments fund shares or for eligible non-Delaware Investments fund shares at net asset value without payment of a front-end sales charge. However, exchanges of eligible fund shares, both Delaware Investments and non-Delaware Investments, which were not subject to a front end sales charge, will be subject to the applicable sales charge if exchanged for eligible Delaware Investments fund shares to which a sales charge applies. No sales charge will apply if the eligible fund shares were previously acquired through the exchange of eligible shares on which a sales charge was already paid or through the reinvestment of dividends. See Investing by Exchange in this Part B. A dealer's commission may be payable on purchases of eligible Delaware Investments fund shares under an Allied Plan. In determining a financial advisor's eligibility for a dealer's commission on net asset value purchases of eligible Delaware Investments fund shares in connection with Allied Plans, all participant holdings in the Allied Plan will be aggregated. See Class A Shares, above. The Limited CDSC is applicable to redemptions of net asset value purchases from an Allied Plan on which a dealer's commission has been paid. Waivers of the Limited CDSC, as described under Waiver of Limited Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to redemptions by participants in Allied Plans except in the case of exchanges between eligible Delaware Investments and non-Delaware Investments fund shares. When eligible Delaware Investments fund shares are exchanged into eligible non-Delaware Investments fund shares, the Limited CDSC will be imposed at the time of the exchange, unless the joint venture agreement specifies that the amount of the Limited CDSC will be paid by the financial advisor or selling dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and Exchange in this Part B. LETTER OF INTENTION The reduced front-end sales charges described above with respect to Class A Shares are also applicable to the aggregate amount of purchases made within a 13-month period pursuant to a written Letter of Intention provided by the Distributor and signed by the purchaser, and not legally binding on the signer or Limited-Term Funds which provides for the holding in escrow by the Transfer Agent, of 5% of the total amount of Class A Shares intended to be purchased until such purchase is completed within the 13-month period. A Letter of Intention may be dated to include shares purchased up to 90 days prior to the date the Letter is signed. The 13-month period begins on the date of the earliest purchase. If the intended investment is not completed, except as noted below, the purchaser will be asked to pay an amount equal to the difference between the front-end sales charge on Class A Shares purchased at the reduced rate and the front-end sales charge otherwise applicable to the total shares purchased. If such payment is not made within 20 days following the expiration of the 13-month period, the Transfer Agent will surrender an appropriate number of the escrowed shares for redemption in order to realize the difference. Such purchasers may include the value (at offering price at the level designated in their Letter of Intention) of all their shares of the Fund and of any class of any of the other mutual funds in Delaware Investments (except shares of any Delaware Investments fund which do not carry a front-end sales charge, CDSC or Limited CDSC other than shares of Delaware Group Premium Fund beneficially owned in connection with the ownership of variable insurance products, unless they were acquired through an exchange from a Delaware Investments fund which carried a front-end sales charge, CDSC or Limited CDSC) previously purchased and still held as of the date of their Letter of Intention toward the completion of such Letter. Employers offering a Delaware Investments retirement plan may also complete a Letter of Intention to obtain a reduced front-end sales charge on investments of Class A Shares made by the plan. The aggregate investment level of the Letter of Intention will be determined and accepted by the Transfer Agent at the point of plan establishment. The level and any reduction in front-end sales charge will be based on actual plan participation and the projected investments in Delaware Investments funds that are offered with a front-end sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent reserves the right to adjust the signed Letter of Intention based on this acceptance criteria. The 13-month period will begin on the date this Letter of Intention is accepted by the Transfer Agent. If actual investments exceed the anticipated level and equal an amount that would qualify the plan for further discounts, any front-end sales charges will be automatically adjusted. In the event this Letter of Intention is not 29 fulfilled within the 13-month period, the plan level will be adjusted (without completing another Letter of Intention) and the employer will be billed for the difference in front-end sales charges due, based on the plan's assets under management at that time. Employers may also include the value (at offering price at the level designated in their Letter of Intention) of all their shares intended for purchase that are offered with a front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and Class C Shares of the Fund and other Delaware Investments funds which offer corresponding classes of shares may also be aggregated for this purpose. COMBINED PURCHASES PRIVILEGE In determining the availability of the reduced front-end sales charge previously set forth with respect to Class A Shares, purchasers may combine the total amount of any combination of Class A Shares, Class B Shares and/or Class C Shares of the Fund, as well as shares of any other class of any of the other Delaware Investments funds (except shares of any Delaware Investments fund which do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund beneficially owned in connection with the ownership of variable insurance products, unless they were acquired through an exchange from a Delaware Investments fund which carried a front-end sales charge, CDSC or Limited CDSC). In addition, assets held by investment advisory clients of the Manager or its affiliates in a stable value account may be combined with other Delaware Investments fund holdings. The privilege also extends to all purchases made at one time by an individual; or an individual, his or her spouse and their children under 21; or a trustee or other fiduciary of trust estates or fiduciary accounts for the benefit of such family members (including certain employee benefit programs). RIGHT OF ACCUMULATION In determining the availability of the reduced front-end sales charge with respect to the Class A Shares, purchasers may also combine any subsequent purchases of Class A Shares, Class B Shares and Class C Shares of the Fund, as well as shares of any other class of any of the other Delaware Investments funds which offer such classes (except shares of any Delaware Investments fund which do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium Fund beneficially owned in connection with the ownership of variable insurance products, unless they were acquired through an exchange from a Delaware Investments fund which carried a front-end sales charge, CDSC or Limited CDSC). If, for example, any such purchaser has previously purchased and still holds Class A Shares and/or shares of any other of the classes described in the previous sentence with a value of $40,000 and subsequently purchases $60,000 at offering price of additional shares of Class A Shares, the charge applicable to the $60,000 purchase would currently be 2.00%. For the purpose of this calculation, the shares presently held shall be valued at the public offering price that would have been in effect were the shares purchased simultaneously with the current purchase. Investors should refer to the table of sales charges for Class A Shares to determine the applicability of the Right of Accumulation to their particular circumstances. 12-MONTH REINVESTMENT PRIVILEGE Holders of Class A Shares and Class B Shares of the Fund (and of the Institutional Class holding shares which were acquired through an exchange from one of the other mutual funds in the Delaware Investments family offered with a front-end sales charge) who redeem such shares have one year from the date of redemption to reinvest all or part of their redemption proceeds in the same Class of the Fund or in the same Class of any of the other funds in the Delaware Investments family. In the case of Class A Shares, the reinvestment will not be assessed a front-end sales charge and in the case of Class B Shares, the amount of the CDSC previously charged on the redemption will be reimbursed by the Distributor. The reinvestment will be subject to applicable eligibility and minimum purchase requirements and must be in states where shares of such other funds may be sold. This reinvestment privilege does not extend to Class A Shares where the redemption of the shares triggered the payment of a Limited CDSC. Persons investing redemption proceeds from direct investments in mutual funds in the Delaware Investments family, offered without a front-end sales charge will be required to pay the applicable sales charge when purchasing Class A Shares. The reinvestment privilege does not extend to a redemption of Class C Shares. 30 Any such reinvestment cannot exceed the redemption proceeds (plus any amount necessary to purchase a full share). The reinvestment will be made at the net asset value next determined after receipt of remittance. In the case of Class B Shares, the time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions as well as the automatic conversion into Class A Shares. A redemption and reinvestment of Class B Shares could have income tax consequences. Shareholders will receive from the Distributor the amount of the CDSC paid at the time of redemption as part of the reinvested shares, which may be treated as a capital gain to the shareholder for tax purposes. It is recommended that a tax advisor be consulted with respect to such transactions. Any reinvestment directed to a fund in which the investor does not then have an account will be treated like all other initial purchases of the fund's shares. Consequently, an investor should obtain and read carefully the prospectus for the fund in which the investment is intended to be made before investing or sending money. The prospectus contains more complete information about the fund, including charges and expenses. Investors should consult their financial advisors or the Transfer Agent, which also serves as each Fund's shareholder servicing agent, about the applicability of the Class A Limited CDSC in connection with the features described above. GROUP INVESTMENT PLANS Group Investment Plans which are not eligible to purchase shares of the Institutional Class may also benefit from the reduced front-end sales charges for investments in Class A Shares described in the Prospectus, based on total plan assets. If a company has more than one plan investing in the Delaware Investments family of funds, then the total amount invested in all plans would be used in determining the applicable front-end sales charge reduction upon each purchase, both initial and subsequent, upon notification to the Fund in which the investment is being made at the time of each such purchase. Employees participating in such Group Investment Plans may also combine the investments made in their plan account when determining the applicable front-end sales charge on purchases to non-retirement Delaware Investments investment accounts if they so notify the Fund in which they are investing in connection with each purchase. See Retirement Plans for the Fund Classes under Investment Plans in this Part B for information about Retirement Plans. The Limited CDSC is generally applicable to any redemptions of net asset value purchases made on behalf of a group retirement plan on which a dealer's commission has been paid only if such redemption is made pursuant to a withdrawal of the entire plan from a fund in the Delaware Investments family. See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and Exchange in this Part B. Notwithstanding the foregoing, the Limited CDSC for Class A Shares on which a dealer's commission has been paid will be waived in connection with redemptions by certain group defined contribution retirement plans that purchase shares through a retirement plan alliance program which requires that shares will be available at net asset value, provided that RFS either is the sponsor of the alliance program or has a product participation agreement with the sponsor of the alliance program that specifies that the Limited CDSC will be waived. CLASS R SHARES Class R Shares generally are available only to (i) qualified and non-qualified plan shareholders covering multiple employees (including 401(k), 401(a), 457, and non-custodial 403(b) plans, as well as other non-qualified deferred compensation plans) with assets (at the time shares are considered for purchase) of $10 million or less; and (ii) to IRA rollovers from plans maintained on Delaware's retirement recordkeeping system that are offering R Class shares to participants. 31 INSTITUTIONAL CLASS The Institutional Class is available for purchase only by: (a) retirement plans introduced by persons not associated with brokers or dealers that are primarily engaged in the retail securities business and rollover individual retirement accounts from such plans; (b) tax-exempt employee benefit plans of the Manager or its affiliates and securities dealer firms with a selling agreement with the Distributor; (c) institutional advisory accounts of the Manager or its affiliates and those having client relationships with Delaware Investment Advisers, an affiliate of the Manager, or its other affiliates and their corporate sponsors, as well as subsidiaries and related employee benefit plans and rollover individual retirement accounts from such institutional advisory accounts; (d) a bank, trust company and similar financial institution investing for its own account or for the account of its trust customers for whom such financial institution is exercising investment discretion in purchasing shares of the Class, except where the investment is part of a program that requires payment of the financial institution of a Rule 12b-1 Plan fee; (e) registered investment advisors investing on behalf of clients that consist solely of institutions and high net-worth individuals having at least $1,000,000 entrusted to the advisor for investment purposes, but only if the advisor is not affiliated or associated with a broker or dealer and derives compensation for its services exclusively from its clients for such advisory services; (f) certain plans qualified under Section 529 of the Internal Revenue Code for which Delaware Service Company, Inc., the Distributor, or the Manager or one or more of their affiliates provide record keeping, administrative, investment management, marketing, distribution or similar services; and (g) Programs sponsored by financial intermediaries where such program requires the purchase of Institutional Class shares. Shares of Institutional Class are available for purchase at net asset value, without the imposition of a front-end or contingent deferred sales charge and are not subject to Rule 12b-1 expenses. INVESTMENT PLANS REINVESTMENT PLAN/OPEN ACCOUNT Unless otherwise designated by shareholders in writing, dividends from net investment income and distributions from realized securities profits, if any, will be automatically reinvested in additional shares in which an investor has an account (based on the net asset value in effect on the reinvestment date) and will be credited to the shareholder's account on that date. All dividends and distributions of the Institutional Class are reinvested in the accounts of the holders of such shares (based on the net asset value in effect on the reinvestment date). Confirmations of any distributions from realized securities profits will be mailed to shareholders in the first quarter of each fiscal year. Under the Reinvestment Plan/Open Account, shareholders may purchase and add full and fractional shares to their plan accounts at any time either through their investment dealers or by sending a check or money order to the Fund and Class in which shares are being purchased. Such purchases, which must meet the minimum subsequent purchase requirements set forth in the Prospectuses and this Part B, are made for Class A Shares at the public offering price, and for the Class B Shares, Class C Shares, Class R Shares and the Institutional Classes at the net asset value, at the end of the day of receipt. A reinvestment plan may be terminated at any time. This plan does not assure a profit nor protect against depreciation in a declining market. REINVESTMENT OF DIVIDENDS IN OTHER DELAWARE INVESTMENTS FAMILY OF FUNDS Subject to applicable eligibility and minimum initial purchase requirements and the limitations set forth below, holders of Class A Shares, Class B Shares, Class C Shares and Class R Shares may automatically reinvest dividends and/or distributions in any of the mutual funds in the Delaware Investments, including the Fund, in states where their shares may be sold. Such investments will be at net asset value at the close of business on the reinvestment date without any front-end sales charge or service fee. The shareholder must notify the Transfer Agent in writing and must have established an account in the fund into which the dividends and/or distributions are to be invested. Any reinvestment directed to a fund in which the investor does not then have an account will be treated like all other initial purchases of a fund's shares. Consequently, an investor should obtain and read carefully the 32 prospectus for the fund in which the investment is intended to be made before investing or sending money. The prospectus contains more complete information about the fund, including charges and expenses. Subject to the following limitations, dividends and/or distributions from other funds in Delaware Investments may be invested in shares of the Fund, provided an account has been established. Dividends from Class A Shares may not be directed to Class B Shares, Class C Shares or Class R Shares. Dividends from Class B Shares may only be directed to other Class B Shares, dividends from Class C Shares may only be directed to other Class C Shares and dividends from Class R Shares may only be directed to other Class R Shares. Capital gains and/or dividend distributions for participants in the following retirement plans are automatically reinvested into the same Delaware Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans. INVESTING BY EXCHANGE If you have an investment in another mutual fund in the Delaware Investments family, you may write and authorize an exchange of part or all of your investment into shares of the Fund. If you wish to open an account by exchange, call the Shareholder Service Center for more information. All exchanges are subject to the eligibility and minimum purchase requirements set forth in the Fund's prospectus. See Redemption and Exchange in this Part B for more complete information concerning your exchange privileges. Holders of Class A Shares of the Fund may exchange all or part of their shares for certain of the shares of other funds in the Delaware Investments family, including other Class A Shares, but may not exchange their Class A Shares for Class B Shares, Class C Shares or Class R Shares of the Fund or of any other fund in the Delaware Investments family. Holders of Class B Shares of the Fund are permitted to exchange all or part of their Class B Shares only into Class B Shares of other Delaware Investments funds. Similarly, holders of Class C Shares of the Fund are permitted to exchange all or part of their Class C Shares only into Class C Shares of other Delaware Investments funds. Class B Shares of the Fund and Class C Shares of the Fund acquired by exchange will continue to carry the CDSC and, in the case of Class B Shares, the automatic conversion schedule of the fund from which the exchange is made. The holding period of Class B Shares of the Fund acquired by exchange will be added to that of the shares that were exchanged for purposes of determining the time of the automatic conversion into Class A Shares of the Fund. Holders of Class R Shares of the Fund are permitted to exchange all or part of their Class R Shares only into Class R Shares of other Delaware Investments funds or, if Class R Shares are not available for a particular fund, into the Class A Shares of such fund. Permissible exchanges into Class A Shares of the Fund will be made without a front-end sales charge, except for exchanges of shares that were not previously subject to a front-end sales charge (unless such shares were acquired through the reinvestment of dividends). Permissible exchanges into Class B Shares or Class C Shares of the Fund will be made without the imposition of a CDSC by the fund from which the exchange is being made at the time of the exchange. INVESTING PROCEEDS FROM ELIGIBLE 529 PLANS The proceeds of a withdrawal from an Eligible 529 Plan which are directly reinvested in a substantially similar class of the Delaware Investments Family of Funds will qualify for treatment as if such proceeds had been exchanged from another Fund within the Delaware Investments Family of Funds rather than transferred from the Eligible 529 Plan, as described under "INVESTMENT PLANS - Investing by Exchange." The treatment of your redemption proceeds from an Eligible 529 Plan described in this paragraph does not apply if you take possession of the proceeds of the withdrawal and subsequently reinvest them (i.e., the transfer is not made directly). Similar benefits may also be extended to direct transfers from a substantially similar class of the Delaware Investments Family of Funds into an Eligible 529 Plan. 33 INVESTING BY ELECTRONIC FUND TRANSFER Direct Deposit Purchase Plan -- Investors may arrange for the Fund to accept for investment in Class A Shares, Class B Shares, Class C Shares or Class R Shares, through an agent bank, preauthorized government or private recurring payments. This method of investment assures the timely credit to the shareholder's account of payments such as social security, veterans' pension or compensation benefits, federal salaries, Railroad Retirement benefits, private payroll checks, dividends, and disability or pension fund benefits. It also eliminates lost, stolen and delayed checks. Automatic Investing Plan -- Shareholders of Class A Shares, Class B Shares and Class C Shares may make automatic investments by authorizing, in advance, monthly or quarterly payments directly from their checking account for deposit into their Fund account. This type of investment will be handled in either of the following ways. (1) If the shareholder's bank is a member of the National Automated Clearing House Association ("NACHA"), the amount of the investment will be electronically deducted from his or her account by Electronic Fund Transfer ("EFT"). The shareholder's checking account will reflect a debit each month at a specified date although no check is required to initiate the transaction. (2) If the shareholder's bank is not a member of NACHA, deductions will be made by preauthorized checks, known as Depository Transfer Checks. Should the shareholder's bank become a member of NACHA in the future, his or her investments would be handled electronically through EFT. This option is not available to participants in the following plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans. * * * Initial investments under the Direct Deposit Purchase Plan and the Automatic Investing Plan must be for $250 or more and subsequent investments under such plans must be for $25 or more. An investor wishing to take advantage of either service must complete an authorization form. Either service can be discontinued by the shareholder at any time without penalty by giving written notice. Payments to the Fund from the federal government or its agencies on behalf of a shareholder may be credited to the shareholder's account after such payments should have been terminated by reason of death or otherwise. Any such payments are subject to reclamation by the federal government or its agencies. Similarly, under certain circumstances, investments from private sources may be subject to reclamation by the transmitting bank. In the event of a reclamation, the Fund may liquidate sufficient shares from a shareholder's account to reimburse the government or the private source. In the event there are insufficient shares in the shareholder's account, the shareholder is expected to reimburse the Fund. DIRECT DEPOSIT PURCHASES BY MAIL Shareholders may authorize a third party, such as a bank or employer, to make investments directly to their Fund accounts. The Fund will accept these investments, such as bank-by-phone, annuity payments and payroll allotments, by mail directly from the third party. Investors should contact their employers or financial institutions who in turn should contact Limited-Term Funds for proper instructions. MONEYLINE(SM) ON DEMAND You or your investment dealer may request purchases of Fund Class shares by phone using MoneyLine(SM) On Demand. When you authorize the Fund to accept such requests from you or your investment dealer, funds will be withdrawn from (for share purchases) your predesignated bank account. Your request will be processed the same day if you call prior to 4 p.m., Eastern Time. There is a $25 minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions. It may take up to four business days for the transactions to be completed. You can initiate this service by completing an Account Services form. If your name and address are not identical to the name and address on your 34 Fund account, you must have your signature guaranteed. The Fund does not charge a fee for this service; however, your bank may charge a fee. WEALTH BUILDER OPTION Shareholders can use the Wealth Builder Option to invest in the Fund Classes through regular liquidations of shares in their accounts in other mutual funds in the Delaware Investments family. Shareholders of the Fund Classes may elect to invest in one or more of the other mutual funds in Delaware Investments family through the Wealth Builder Option. If in connection with the election of the Wealth Builder Option, you wish to open a new account to receive the automatic investment, such new account must meet the minimum initial purchase requirements described in the prospectus of the fund that you select. All investments under this option are exchanges and are therefore subject to the same conditions and limitations as other exchanges noted above. Under this automatic exchange program, shareholders can authorize regular monthly investments (minimum of $100 per fund) to be liquidated from their account and invested automatically into other mutual funds in the Delaware Investments family, subject to the conditions and limitations set forth in the Fund Classes' Prospectus. The investment will be made on the 20th day of each month (or, if the fund selected is not open that day, the next business day) at the public offering price or net asset value, as applicable, of the fund selected on the date of investment. No investment will be made for any month if the value of the shareholder's account is less than the amount specified for investment. Periodic investment through the Wealth Builder Option does not insure profits or protect against losses in a declining market. The price of the fund into which investments are made could fluctuate. Since this program involves continuous investment regardless of such fluctuating value, investors selecting this option should consider their financial ability to continue to participate in the program through periods of low fund share prices. This program involves automatic exchanges between two or more fund accounts and is treated as a purchase of shares of the fund into which investments are made through the program. See Redemption and Exchange for a brief summary of the tax consequences of exchanges. Shareholders can terminate their participation in Wealth Builder at any time by giving written notice to the fund from which exchanges are made. This option is not available to participants in the following plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans. This option also is not available to shareholders of the Institutional Classes. ASSET PLANNER To invest in Delaware Investments funds using the Asset Planner asset allocation service, you should complete an Asset Planner Account Registration Form, which is available only from a financial advisor or investment dealer. Effective September 1, 1997, the Asset Planner Service is only available to financial advisors or investment dealers who have previously used this service. The Asset Planner service offers a choice of four predesigned asset allocation strategies (each with a different risk/reward profile) in predetermined percentages in Delaware Investments funds. With the help of a financial advisor, you may also design a customized asset allocation strategy. The sales charge on an investment through the Asset Planner service is determined by the individual sales charges of the underlying funds and their percentage allocation in the selected Strategy. Exchanges from existing Delaware Investments accounts into the Asset Planner service may be made at net asset value under the circumstances described under Investing by Exchange. Also see Buying Class A Shares at Net Asset Value. The minimum initial investment per Strategy is $2,000; subsequent investments must be at least $100. Individual fund minimums do not apply to investments made using the Asset Planner service. Class A, Class B, Class C and Class R Shares are available through the Asset Planner service. Generally, only shares within the same class may be used within the same Strategy. However, Class A Shares of the Fund and of other funds in the Delaware Investments family may be used in the same Strategy with consultant class shares that are offered by certain other Delaware Investments funds. 35 An annual maintenance fee, currently $35 per Strategy, is due at the time of initial investment and by September 30 of each subsequent year. The fee, payable to Delaware Service Company, Inc. to defray extra costs associated with administering the Asset Planner service, will be deducted automatically from one of the funds within your Asset Planner account if not paid by September 30. However, effective November 1, 1996, the annual maintenance fee is waived until further notice. Investors who utilize the Asset Planner for an IRA will continue to pay an annual IRA fee of $15 per Social Security number. Investors will receive a customized quarterly Strategy Report summarizing all Asset Planner investment performance and account activity during the prior period. Confirmation statements will be sent following all transactions other than those involving a reinvestment of distributions. Certain shareholder services are not available to investors using the Asset Planner service, due to its special design. These include Delaphone, Checkwriting, Wealth Builder Option and Letter of Intention. Systematic Withdrawal Plans are available after the account has been open for two years. RETIREMENT PLANS FOR THE FUND CLASSES An investment in a Fund may be suitable for tax-deferred retirement plans. Delaware Investments offers a full spectrum of retirement plans, including a 401(k) Defined Contribution Plan, an Individual Retirement Account ("IRA") and the new Roth IRA and a Coverdell Education Savings Account. Among the retirement plans that Delaware Investments offers, Class B Shares are available only for Individual Retirement Accounts, SIMPLE IRAs, Roth IRAs, Coverdell Education Savings Accounts, Simplified Employee Pension Plans, Salary Reduction Simplified Employee Pension Plans, 403(b)(7) Plans and 457 Deferred Compensation Plans. The CDSC may be waived on certain redemptions of Class B Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares under Redemption and Exchange in this Part B for a list of the instances in which the CDSC is waived. Purchases of Class B Shares are subject to a maximum purchase limitation of $100,000 for retirement plans. Purchases of Class C Shares must be in an amount that is less than $1,000,000 for such plans. The maximum purchase limitations apply only to the initial purchase of shares by the retirement plan. For information concerning the applicability of a CDSC upon redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales Charge - Class B Shares and Class C Shares. Minimum investment limitations generally applicable to other investors do not apply to retirement plans other than IRAs, for which there is a minimum initial purchase of $250 and a minimum subsequent purchase of $25, regardless of which Class is selected. Retirement plans may be subject to plan establishment fees, annual maintenance fees and/or other administrative or trustee fees. Fees are based upon the number of participants in the plan as well as the services selected. Additional information about fees is included in retirement plan materials. Fees are quoted upon request. Annual maintenance fees may be shared by Delaware Management Trust Company, the Transfer Agent, other affiliates of the Manager and others that provide services to such Plans. Certain shareholder investment services available to non-retirement plan shareholders may not be available to retirement plan shareholders. Certain retirement plans may qualify to purchase shares of the Institutional Class shares. See Institutional Class, above. For additional information on any of the plans and Delaware's retirement services, call the Shareholder Service Center telephone number. IT IS ADVISABLE FOR AN INVESTOR CONSIDERING ANY ONE OF THE RETIREMENT PLANS DESCRIBED BELOW TO CONSULT WITH AN ATTORNEY, ACCOUNTANT OR A QUALIFIED RETIREMENT PLAN CONSULTANT. FOR FURTHER DETAILS, INCLUDING APPLICATIONS FOR ANY OF THESE PLANS, CONTACT YOUR INVESTMENT DEALER OR THE DISTRIBUTOR. Taxable distributions from the retirement plans described below may be subject to withholding. 36 Please contact your investment dealer or the Distributor for the special application forms required for the Plans described below. PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS Prototype Plans are available for self-employed individuals, partnerships, corporations and other eligible forms of organizations. These plans can be maintained as Section 401(k), profit sharing or money purchase pension plans. Contributions may be invested only in Class A Shares, Class C Shares and Class R Shares. INDIVIDUAL RETIREMENT ACCOUNT ("IRA") A document is available for an individual who wants to establish an IRA and make contributions which may be tax-deductible, even if the individual is already participating in an employer-sponsored retirement plan. Even if contributions are not deductible for tax purposes, as indicated below, earnings will be tax-deferred. In addition, an individual may make contributions on behalf of a spouse who has no compensation for the year; however, the deductibility of such contributions may be restricted based on certain income limits. IRA DISCLOSURES The Taxpayer Relief Act of 1997 provides new opportunities for investors. Individuals have five types of tax-favored IRA accounts that can be utilized depending on the individual's circumstances. A new Roth IRA and a Coverdell Education Savings Account are available in addition to the existing deductible IRA and non-deductible IRA. DEDUCTIBLE AND NON-DEDUCTIBLE IRAS An individual can contribute up to $3,000 to his or her IRA each year through 2004. Contributions may or may not be deductible depending upon the taxpayer's adjusted gross income ("AGI") and whether the taxpayer is an active participant in an employer sponsored retirement plan. In June of 2001, The Economic Growth and Tax Relief Reconciliation Act of 2001 was signed into law and makes significant changes to the annual contribution limits. The current amount of $3,000 will rise to $5,000 in 2008, with annual inflation adjustments thereafter. Individuals who have attained age 50 by the end of the calendar year will be eligible to make additional "catch-up" contributions of $500 for 2002 through 2005, and $1,000 beginning in 2006. The annual contribution limits through 2008 are as follows: CALENDAR YEAR UNDER AGE 50 AGE 50 AND ABOVE ------------- ------------ ---------------- 2005 $4,000 $4,500 2006-2007 $4,000 $5,000 2008 $5,000 $6,000 Even if a taxpayer is an active participant in an employer sponsored retirement plan, the full $3,000 is still available through 2005 if the taxpayer's AGI is not greater than $40,000 ($60,000 for taxpayers filing joint returns) for tax years beginning in 2004. A partial deduction is allowed for married couples with income not greater than $65,000 and less than $75,000, and for single individuals with AGI greater than $45,000 and less than $55,000. These income phase-out limits are annually increased until they reach $80,000-$100,000 in 2007 for joint filers and $50,000-$60,000 in 2005 for single filers. No deductions are available for contributions to IRAs by taxpayers whose AGI exceeds the maximum income limit established for each year and who are active participants in an employer sponsored retirement plan. Taxpayers who are not allowed deductions on IRA contributions still can make non-deductible IRA contributions of as much as the annual contribution limit and defer taxes on interest or other earnings from the IRAs. Under the law, a married individual is not considered an active participant in an employer sponsored retirement plan merely because the individual's spouse is an active participant if the couple's combined AGI is 37 greater than $150,000. The maximum deductible IRA contribution for a married individual who is not an active participant, but whose spouse is, is phased out for combined AGI greater than $150,000 and less than $160,000. CONDUIT (ROLLOVER) IRAS Certain individuals who have received or are about to receive eligible rollover distributions from an employer-sponsored retirement plan or another IRA may rollover the distribution tax-free to a Conduit IRA. The rollover of the eligible distribution must be completed by the 60th day after receipt of the distribution. A distribution qualifies as an "eligible rollover distribution" if it is made from a qualified retirement plan, a 403(b) plan or another IRA and does not constitute one of the following: (1) Substantially equal periodic payments over the employee's life or life expectancy or the joint lives or life expectancies of the employee and his/her designated beneficiary; (2) Substantially equal installment payments for a period certain of 10 or more years; (3) A distribution, all of which represents a required minimum distribution after attaining age 70 1/2; (4) A distribution due to a Qualified Domestic Relations Order to an alternate payee who is not the spouse (or former spouse) of the employee; and (5) A distribution of after-tax contributions which is not includable in income. ROTH IRAS For taxable years beginning after December 31, 1997, non-deductible contributions of up to $3,000 each year can be made to a Roth IRA. As a result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act"), the $3,000 annual limit will not be reduced by any contributions to a deductible or nondeductible IRA for the same year. The limits after 2002 are the same as for a regular IRA. The maximum contribution that can be made to a Roth IRA is phased out for single filers with AGI greater than $95,000 and less than $110,000, and for couples filing jointly with AGI greater than $150,000 and less than $160,000. Qualified distributions from a Roth IRA are exempt from federal taxes. Qualified distributions are distributions (1) made after the five-taxable year period beginning with the first taxable year for which a contribution was made to a Roth IRA and (2) that are (a) made on or after the date on which the individual attains age 59 1/2, (b) made to a beneficiary on or after the death of the individual, (c) attributable to the individual being disabled, or (d) for a qualified special purpose (e.g., first time homebuyer expenses). Distributions that are not qualified distributions would always be tax-free if the taxpayer is withdrawing contributions, not accumulated earnings. Taxpayers with AGI of $100,000 or less are eligible to convert an existing IRA (deductible, Non-deductible and conduit) to a Roth IRA. Earnings and contributions from a deductible IRA are subject to a tax upon conversion; however, no 10% excise tax for early withdrawal would apply. COVERDELL EDUCATION SAVINGS ACCOUNTS For taxable years beginning after December 31, 1997, a Coverdell Education Savings Account has been created exclusively for the purpose of paying qualified higher education expenses. Beginning in 2002, the annual contribution that can be made for each designated beneficiary has been increased to $2,000 and qualifying expenses will no longer be limited to those related to higher education. Elementary (including kindergarten) and secondary public, private or religious school tuition expenses will now qualify. The new law specifically permits as elementary and secondary school expenses academic tutoring, certain computer technology; and expenses for uniforms, transportation, and extended day programs. 38 The $2,000 annual limit is in addition to the annual contribution limit applicable to IRAs and Roth IRAs. Eligible contributions must be in cash and made prior to the date the beneficiary reaches age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no requirement that the contributor be related to the beneficiary, and there is no limit on the number of beneficiaries for whom one contributor can establish a Coverdell Education Savings Account. In addition, multiple Coverdell Education Savings Accounts can be created for the same beneficiary, however, the contribution limit of all contributions for a single beneficiary cannot exceed the annual limit. The modified AGI limit increase for couples filing jointly to $190,000 for a full contribution through $220,000. Individuals with modified AGI above the phase-out range are not allowed to make contributions to a Coverdell Education Savings Account established on behalf of any individual. Distributions from a Coverdell Education Savings Account are excludable from gross income to the extent that the distribution does not exceed qualified higher education expenses incurred by the beneficiary during the year the distribution is made regardless of whether the beneficiary is enrolled at an eligible educational institution on a full-time, half-time, or less than half-time basis. Any balance remaining in a Coverdell Education Savings Account at the time a beneficiary becomes 30 years old must be distributed, and the earnings portion of such a distribution will be includable in gross income of the beneficiary and generally subject to an additional 10% tax if the distribution is not for qualified higher education expenses. Tax-free transfers and rollovers of account balances from one Coverdell Education Savings Account benefiting one beneficiary to another Coverdell Education Savings Account benefiting a different beneficiary (as well as redesignations of the named beneficiary) are permitted, provided that the new beneficiary is a member of the family of the old beneficiary and that the transfer or rollover is made before the time the old beneficiary reaches age 30 and the new beneficiary reaches age 18. GROUP IRAS OR GROUP ROTH IRAS An Employer or association of employer may establish a Group IRA for its employees or members who want to purchase shares of the Fund. Investments generally must be held in the IRA until age 59 1/2 in order to avoid premature distribution penalties, but distributions must commence no later than April 1 of the calendar year following the year in which the participant reaches age 70 1/2. Distributions from the account (except for the pro-rata portion of any nondeductible contributions) are fully taxable as ordinary income in the year received. Excess contributions removed after the tax filing deadline, plus extensions, for the year in which the excess contributions were made are subject to a 6% excise tax on the amount of excess. Premature distributions (distributions made before age 59 1/2, except for death, disability and certain other limited circumstances) will be subject to a 10% additional tax on the amount prematurely distributed, in addition to the regular income tax resulting from the distribution. Effective January 1, 1997, the 10% premature distribution penalty will not apply to distributions from an IRA that are used to pay medical expenses in excess of 7.5% of adjusted gross income or to pay health insurance premiums by an individual who has received unemployment compensation for 12 consecutive weeks. In addition, effective January 1, 1998, the law allows for premature distribution without a 10% additional tax if (i) the amounts are used within 120 days of the distribution to pay qualified higher education expenses (including graduate level courses) of the taxpayer, the taxpayer's spouse or any child or grandchild of the taxpayer or the taxpayer's spouse, or (ii) used to pay acquisition costs of a principal residence for the purchase of a first-time home by the taxpayer, taxpayer's spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A qualified first-time homebuyer is someone who has had no ownership interest in a residence during the past two years. The aggregate amount of distribution for first-time home purchases cannot exceed a lifetime cap of $10,000. 39 Individuals are entitled to revoke the account, for any reason and without penalty, by mailing written notice of revocation to Delaware Management Trust Company within seven days after the receipt of the IRA Disclosure Statement or within seven days after the establishment of the IRA, except, if the IRA is established more than seven days after receipt of the IRA Disclosure Statement, the account may not be revoked. SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA") A SEP/IRA may be established by an employer who wishes to sponsor a tax-sheltered retirement program by making contributions on behalf of all eligible employees. Each of the Classes is available for investment by a SEP/IRA. SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP") Although new SAR/SEP plans may not be established after December 31, 1996, existing plans may continue to be maintained by employers having 25 or fewer employees. An employer may elect to make additional contributions to such existing plans. PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN Section 401(k) of the Code permits employers to establish qualified plans based on salary deferral contributions. Effective January 1, 1997, non-governmental tax-exempt organizations may establish 401(k) plans. Plan documents are available to enable employers to establish a plan. An employer may also elect to make profit sharing contributions and/or matching contributions with investments in only Class A Shares, Class C Shares and Class R Shares or certain other funds in the Delaware Investments family. Purchases under the Plan may be combined for purposes of computing the reduced front-end sales charge applicable to Class A Shares as set forth in the table the Prospectus for the Fund Classes. DEFERRED COMPENSATION PLAN FOR PUBLIC SCHOOLS AND NON-PROFIT ORGANIZATIONS ("403(b)(7)") Section 403(b)(7) of the Code permits public school systems and certain non-profit organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements for their employees. A custodial account agreement is available for those employers who wish to purchase shares of any of the Classes in conjunction with such an arrangement. Purchases under the Plan may be combined for purposes of computing the reduced front-end sales charge applicable to Class A Shares as set forth in the table the Prospectus for the Fund Classes. DEFERRED COMPENSATION PLAN FOR STATE AND LOCAL GOVERNMENT EMPLOYEES ("457") Section 457 of the Code permits state and local governments, their agencies and certain other entities to establish a deferred compensation plan for their employees who wish to participate. This enables employees to defer a portion of their salaries and any federal (and possibly state) taxes thereon. Such plans may invest in shares of the Fund. Although investors may use their own plan, there is available a Delaware Investments 457 Deferred Compensation Plan. Interested investors should contact the Distributor or their investment dealers to obtain further information. Purchases under the Plan may be combined for purposes of computing the reduced front-end sales charge applicable to Class A Shares as set forth in the table in the Prospectus for the Fund Classes. SIMPLE IRA A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan but is easier to administer than a typical 401(k) Plan. It requires employers to make contributions on behalf of their employees and also has a salary deferral feature that permits employees to defer a portion of their salary into the plan on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or fewer employees. SIMPLE 401(k) A SIMPLE 401(k) is like a regular 401(k) except that it is available only to plan sponsors with 100 or fewer employees and, in exchange for mandatory plan sponsor contributions, discrimination testing is no longer required. Class B Shares are not available for purchase by such plans. 40 DETERMINING OFFERING PRICE AND NET ASSET VALUE Orders for purchases of Class A Shares are effected at the offering price next calculated by the Fund after receipt of the order by the Fund, its agent, designee, or certain other authorized persons. See Distribution and Service under Investment Management Agreement in this Part B. Orders for purchases of Class B Shares, Class C Shares, Class R Shares and Institutional Class Shares are effected at the net asset value per share next calculated by the Fund in which shares are being purchased after receipt of the order by the Fund, its agent, designee, or other authorized persons. Selling dealers are responsible for transmitting orders promptly. The offering price for Class A Shares consists of the net asset value per share plus any applicable front-end sales charges. Offering price and net asset value are computed as of the close of regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern Time) on days when the Exchange is open. The New York Stock Exchange is scheduled to be open Monday through Friday throughout the year except for the days when the following holidays are observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the Fund will generally be closed, pricing calculations will not be made and purchase and redemption orders will not be processed. An example showing how to calculate the net asset value per share and, in the case of Class A Shares, the offering price per share, is included in the Fund's financial statements, which are incorporated by reference into this Part B. The Fund's net asset value per share is computed by adding the value of all securities and other assets in the portfolio of the Fund, deducting any liabilities and dividing by the number of shares outstanding. Expenses and income are accrued daily. U.S. government and other debt securities are generally valued at the mean between the last reported bid and asked prices. Options are valued at the last reported sales price or, if no sales are reported, at the mean between the last reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are valued at amortized cost. For all other securities and assets, including non-Exchange-traded options, we use methods approved by the Board of Trustees that are designed to price securities at their fair market value. Each Class of the Fund will bear, pro-rata, all of the common expenses of the Fund. The net asset values of all outstanding shares of each Class of the Fund will be computed on a pro-rata basis for each outstanding share based on the proportionate participation in the Fund represented by the value of shares of that Class. All income earned and expenses incurred by the Fund will be borne on a pro-rata basis by each outstanding share of a Class, based on each Class' percentage in the Fund represented by the value of shares of such Classes, except that the Institutional Class will not incur any of the expenses under the Limited-Term Fund's 12b-1 Plans and the Class A, Class B, Class C and Class R Shares alone will bear the 12b-1 Plan expenses payable under their respective Plans. Due to the specific distribution expenses and other costs that would be allocable to each Class, the dividends paid to each Class of the Fund may vary. However, the net asset value per share of each Class is expected to be equivalent. REDEMPTION AND EXCHANGE YOU CAN REDEEM OR EXCHANGE YOUR SHARES IN A NUMBER OF DIFFERENT WAYS. Exchanges are subject to the requirements of the Fund and all exchanges of shares constitute taxable events. Further, in order for an exchange to be processed, shares of the fund being acquired must be registered in the state where the acquiring shareholder resides. An exchange constitutes, for tax purposes, the sale of one fund and the purchase of another. The sale may involve a capital gain or loss to the shareholder for federal income tax purposes. You may want to consult your financial advisor or investment dealer to discuss which funds in Delaware Investments will best meet your changing objectives, and the consequences of any exchange transaction. You may also call the Delaware Investments directly for fund information. 41 Your shares will be redeemed or exchanged at a price based on the net asset value next determined after the Fund receives your request in good order, subject, in the case of a redemption, to any applicable CDSC or Limited CDSC. For example, redemption or exchange requests received in good order after the time the offering price and net asset value of shares are determined will be processed on the next business day. A shareholder submitting a redemption request may indicate that he or she wishes to receive redemption proceeds of a specific dollar amount. In the case of such a request, the Fund will redeem the number of shares necessary to deduct the applicable CDSC in the case of Class B Shares and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and tender to the shareholder the requested amount, assuming the shareholder holds enough shares in his or her account for the redemption to be processed in this manner. Otherwise, the amount tendered to the shareholder upon redemption will be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption proceeds will be distributed promptly, as described below, but not later than seven days after receipt of a redemption request. The Fund may modify, terminate or suspend the exchange privilege upon 60 days' notice to shareholders. Except as noted below, for a redemption request to be in "good order," you must provide your account number, account registration, and the total number of shares or dollar amount of the transaction. For exchange requests, you must also provide the name of the fund in which you want to invest the proceeds. Exchange instructions and redemption requests must be signed by the record owner(s) exactly as the shares are registered. You may request a redemption or an exchange by calling the Shareholder Service Center at 800 523-1918. The Fund may suspend, terminate, or amend the terms of the exchange privilege upon 60 days' written notice to shareholders. Orders for the repurchase of Fund shares which are submitted to the Distributor prior to the close of its business day will be executed at the net asset value per share computed that day (subject to the applicable CDSC or Limited CDSC), if the repurchase order was received by the broker/dealer from the shareholder prior to the time the offering price and net asset value are determined on such day. The selling dealer has the responsibility of transmitting orders to the Distributor promptly. Such repurchase is then settled as an ordinary transaction with the broker/dealer (who may make a charge to the shareholder for this service) delivering the shares repurchased. Payment for shares redeemed will ordinarily be mailed the next business day, but in no case later than seven days, after receipt of a redemption request in good order by the Fund, its agent or certain other authorized persons (see Distribution and Service under Investment Management Agreement) in this Part B; provided, however, that each commitment to mail or wire redemption proceeds by a certain time, as described below, is modified by the qualifications described in the next paragraph. The Fund will process written and telephone redemption requests to the extent that the purchase orders for the shares being redeemed have already settled. The Fund will honor redemption requests as to shares for which a check was tendered as payment, but the Fund will not mail or wire the proceeds until it is reasonably satisfied that the purchase check has cleared, which may take up to 15 days from the purchase date. You can avoid this potential delay if you purchase shares by wiring Federal Funds. The Fund reserves the right to reject a written or telephone redemption request or delay payment of redemption proceeds if there has been a recent change to the shareholder's address of record. If a shareholder has been credited with a purchase by a check which is subsequently returned unpaid for insufficient funds or for any other reason, the Fund involved will automatically redeem from the shareholder's account the shares purchased by the check plus any dividends earned thereon. Shareholders may be responsible for any losses to the Fund or to the Distributor. In case of a suspension of the determination of the net asset value because the New York Stock Exchange is closed for other than weekends or holidays, or trading thereon is restricted or an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practical, or it is not reasonably practical for the Fund fairly to value its assets, or in the event that the SEC has provided for such suspension for the protection of shareholders, the Fund may postpone payment or suspend the right of redemption or repurchase. In such case, the 42 shareholder may withdraw the request for redemption or leave it standing as a request for redemption at the net asset value next determined after the suspension has been terminated. Payment for shares redeemed or repurchased may be made either in cash or kind, or partly in cash and partly in kind. Any portfolio securities paid or distributed in kind would be valued as described in Determining Offering Price and Net Asset Value in this Part B. Subsequent sale by an investor receiving a distribution in kind could result in the payment of brokerage commissions. However, Limited-Term Funds has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day period for any one shareholder. The value of the Fund's investments is subject to changing market prices. Thus, a shareholder reselling shares to the Fund may sustain either a gain or loss, depending upon the price paid and the price received for such shares. Certain redemptions of Class A Shares purchased at net asset value may result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value below. Redemptions of Class B Shares made within three years of purchase are subject to a CDSC of 2.00% during the first year of purchase; 1.00% during the second and third years of purchase and 0% thereafter. Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12 months following purchase. See Contingent Deferred Sales Charge -- Class B Shares and Class C Shares under Purchasing Shares for the Fund Classes. Except for the applicable CDSC or Limited CDSC and, with respect to the expedited payment by wire which there may be a bank wiring cost, there is no fee charged for redemptions or repurchases, but such fees could be charged at any time in the future. Holders of Class B Shares or Class C Shares that exchange their shares ("Original Shares") for shares of other funds available from Delaware Investments (in each case, "New Shares") in a permitted exchanged, will not be subject to a CDSC that might otherwise be due upon redemption of the Original Shares. However, such shareholders will continue to be subject to the CDSC and, in the case of Class B Shares, the automatic conversion schedule of the Original Shares as described in this Part B and any CDSC assessed upon redemption will be charged by the fund from which the Original Shares were exchanged. For purposes of computing the CDSC that may be payable upon a disposition of the New Shares, the period of time that an investor held the Original Shares is added to the period of time that an investor held the New Shares. The Fund also reserves the right to refuse the purchase side of an exchange request by any person, or group if, in the Manager's judgment, the Fund would be unable to invest effectively in accordance with its investment objectives and policies, or would otherwise potentially be adversely affected. A shareholder's purchase exchanges may be restricted or refused if the Fund receives or anticipates simultaneous orders affecting significant portions of the Fund's assets. The Fund discourages purchases by market timers and purchase orders (including the purchase side of exchange orders) by shareholders identified as market timers may be rejected. The Fund will consider anyone who follows a pattern of market timing in any fund in the Delaware Investments Family of Funds to be a market timer. Market timing of a fund occurs when investors make consecutive rapid short-term "roundtrips", or in other words, purchases into a fund followed quickly by redemptions out of that fund. A short-term roundtrip is any redemption of fund shares within 20 business days of a purchase of that fund's shares. If you make a second such short-term roundtrip in that fund, you may be considered a market timer. The purchase and sale of fund shares through the use of the exchange privilege are also included in determining whether market timing has occurred. The Fund also reserves the right to consider other trading patterns as market timing. Your ability to use the Fund's exchange privilege may be limited if you are identified as a market timer. If you are identified as a market timer, we will execute the redemption side of your exchange order but may refuse the purchase side of your exchange order. 43 SMALL ACCOUNTS Before the Fund involuntarily redeems shares from an account that, under the circumstances listed in the Prospectus, has remained below the minimum amounts required by the Fund's Prospectus and sends the proceeds to the shareholder, the shareholder will be notified in writing that the value of the shares in the account is less than the minimum required and will be allowed 60 days from the date of notice to make an additional investment to meet the required minimum. Any redemption in an inactive account established with a minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC will apply to the redemptions described in this paragraph. * * * The Fund has made available certain redemption privileges, as described below. The Fund reserves the right to suspend or terminate these expedited payment procedures upon 60 days' written notice to shareholders. CHECKWRITING FEATURE Shareholders of the Class A Shares and the Institutional Class holding shares for which certificates have not been issued may request on the investment application that they be provided with special forms of checks which may be issued to redeem their shares by drawing on the Delaware Group Limited-Term Government Funds, Inc.-Limited-Term Government Fund account with First Union Bank. Normally, it takes two weeks from the date the shareholder's initial purchase check clears to receive the check book. The use of any form of check other than the Fund's check will not be permitted unless approved by the Fund. The Checkwriting Feature is not available with respect to the Class B Shares, Class C Shares or for retirement plans. (1) Redemption checks must be made payable in an amount of $500 or more. (2) Checks must be signed by the shareholder(s) of record or, in the case of an organization, by the authorized person(s). If registration is in more than one name, unless otherwise indicated on the investment application or your checkwriting authorization form, these checks must be signed by all owners before the Fund will honor them. Through this procedure the shareholder will continue to be entitled to distributions paid on these shares up to the time the check is presented for payment. (3) If a shareholder who recently purchased shares by check seeks to redeem all or a portion of those shares through the Checkwriting Feature, the Fund will not honor the redemption request unless it is reasonably satisfied of the collection of the investment check. A hold period against a recent purchase may be up to but not in excess of 15 days, depending upon the origin of the investment check. (4) If the amount of the check is greater than the value of the shares held in the shareholder's account, the check will be returned and the shareholder's bank may charge a fee. (5) Checks may not be used to close accounts. The Fund reserves the right to revoke the Checkwriting Feature of shareholders who overdraw their accounts or if, in the opinion of management, such revocation is otherwise in the Fund's best interest. Shareholders will be subject to bank's rules and regulations governing similar accounts. This service may be terminated or suspended at any time by the Fund's bank, the Fund or the Transfer Agent. As the Fund must redeem shares at their net asset value next determined (subject, in the case of Class A Shares, to any Limited CDSC), it will not be able to redeem all shares held in a shareholder's account by means of a check presented directly to the bank. The Fund and the Transfer Agent will not be responsible for the inadvertent processing of post-dated checks or checks more than six months old. Stop-Payment Requests--Investors may request a stop payment on checks by providing the Fund with a written authorization to do so. Oral requests will be accepted provided that the Fund promptly receives a written authorization. Such requests will remain in effect for six months unless renewed or canceled. The 44 Fund will use its best reasonable efforts to effect stop-payment instructions, but does not promise or guarantee that such instructions will be effective. Return of Checks--Checks used in redeeming shares from a shareholder's account will be accumulated and returned semiannually. Shareholders needing a copy of a redemption check before the regular mailing should contact Delaware Service Company, Inc. at 800 523-1918. WRITTEN REDEMPTION You can write to the Fund at 2005 Market Street, Philadelphia, PA 19103-7094 to redeem some or all of your shares. The request must be signed by all owners of the account or your investment dealer of record. For redemptions of more than $100,000, or when the proceeds are not sent to the shareholder(s) at the address of record, the Fund require a signature by all owners of the account and a signature guarantee for each owner. A signature guarantee can be obtained from a commercial bank, a trust company or a member of a Securities Transfer Association Medallion Program ("STAMP"). The Fund reserves the right to reject a signature guarantee supplied by an eligible institution based on its creditworthiness. The Fund may require further documentation from corporations, executors, retirement plans, administrators, trustees or guardians. Payment is normally mailed the next business day after receipt of your redemption request. If your Class A Shares or Institutional Class Shares are in certificate form, the certificate(s) must accompany your request and also be in good order. Certificates are issued for Class A Shares and Institutional Class Shares only if a shareholder submits a specific request. Certificates are not issued for Class B Shares, Class C Shares or Class R Shares. WRITTEN EXCHANGE You may also write to the Fund (at 2005 Market Street, Philadelphia, PA 19103-7094) to request an exchange of any or all of your shares into another mutual fund in Delaware Investments, subject to the same conditions and limitations as other exchanges noted above and in the Prospectuses. TELEPHONE REDEMPTION AND EXCHANGE To get the added convenience of the telephone redemption and exchange methods, you must have the Transfer Agent hold your shares (without charge) for you. If you choose to have your Class A Shares or Institutional Class Shares in certificate form, you may redeem or exchange only by written request and you must return your certificates. The Telephone Redemption - Check to Your Address of Record service and the Telephone Exchange service, both of which are described below, are automatically provided unless you notify the Fund in writing that you do not wish to have such services available with respect to your account. The Fund reserves the right to modify, terminate or suspend these procedures upon 60 days' written notice to shareholders. It may be difficult to reach the Fund by telephone during periods when market or economic conditions lead to an unusually large volume of telephone requests. Neither the Fund nor its Transfer Agent is responsible for any shareholder loss incurred in acting upon written or telephone instructions for redemption or exchange of Fund shares which are reasonably believed to be genuine. With respect to such telephone transactions, the Fund will follow reasonable procedures to confirm that instructions communicated by telephone are genuine (including verification of a form of personal identification) as, if it does not, the Fund or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent transactions. Telephone instructions received by the Fund Classes are generally tape recorded, and a written confirmation will be provided for all purchase, exchange and redemption transactions initiated by telephone. By exchanging shares by telephone, you are acknowledging prior receipt of a prospectus for the fund into which your shares are being exchanged. 45 TELEPHONE REDEMPTION -- CHECK TO YOUR ADDRESS OF RECORD THE TELEPHONE REDEMPTION FEATURE IS A QUICK AND EASY METHOD TO REDEEM SHARES. You or your investment dealer of record can have redemption proceeds of $100,000 or less mailed to you at your address of record. Checks will be payable to the shareholder(s) of record. Payment is normally mailed the next business day after receipt of the redemption request. This service is only available to individual, joint and individual fiduciary-type accounts. TELEPHONE REDEMPTION -- PROCEEDS TO YOUR BANK Redemption proceeds of $1,000 or more can be transferred to your predesignated bank account by wire or by check. You should authorize this service when you open your account. If you change your predesignated bank account, you must complete an Authorization Form and have your signature guaranteed. For your protection, your authorization must be on file. If you request a wire, your funds will normally be sent the next business day. If the proceeds are wired to the shareholder's account at a bank which is not a member of the Federal Reserve System, there could be a delay in the crediting of the funds to the shareholder's bank account. A bank wire fee may be deducted from Fund Class redemption proceeds. If you ask for a check, it will normally be mailed the next business day after receipt of your redemption request to your predesignated bank account. There are no separate fees for this redemption method, but the mail time may delay getting funds into your bank account. Simply call the Shareholder Service Center prior to the time the offering price and net asset value are determined, as noted above. TELEPHONE EXCHANGE The Telephone Exchange feature is a convenient and efficient way to adjust your investment holdings as your liquidity requirements and investment objectives change. You or your investment dealer of record can exchange your shares into other funds in Delaware Investments under the same registration, subject to the same conditions and limitations as other exchanges noted above. As with the written exchange service, telephone exchanges are subject to the requirements of the Fund, as described above. Telephone exchanges may be subject to limitations as to amounts or frequency. The telephone exchange privilege is intended as a convenience to shareholders and is not intended to be a vehicle to speculate on short-term swings in the securities market through frequent transactions in and out of the funds in the Delaware Investments family. Telephone exchanges may be subject to limitations as to amounts or frequency. The Transfer Agent and the Fund reserve the right to record exchange instructions received by telephone and to reject exchange requests at any time in the future. MONEYLINE(SM) ON DEMAND You or your investment dealer may request redemptions of Fund shares by phone using MoneyLine(SM) On Demand. When you authorize the Fund to accept such requests from you or your investment dealer, funds will be deposited to (for share redemptions) your predesignated bank account. Your request will be processed the same day if you call prior to 4 p.m., Eastern Time. There is a $25 minimum and $50,000 maximum limit for MoneyLine(SM) On Demand transactions. See MoneyLine(SM) On Demand under Investment Plans and in this Part B. SYSTEMATIC WITHDRAWAL PLANS Shareholders of Class A Shares, Class B Shares, Class C Shares and Class R Shares who own or purchase $5,000 or more of shares at the offering price, or net asset value, as applicable, for which certificates have not been issued may establish a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly withdrawals of $75 or more, although the Fund does not recommend any specific amount of withdrawal. This is particularly useful to shareholders living on fixed incomes, since it can provide them with a stable supplemental amount. This $5,000 minimum does not apply for the Fund's prototype retirement plans. Shares purchased with the initial investment and through reinvestment of cash dividends and realized securities profits distributions will be credited to the shareholder's account and sufficient full and fractional shares will be redeemed at the net asset value calculated on the third business day preceding the mailing date. 46 Checks are dated either the 1st or the 15th of the month, as selected by the shareholder (unless such date falls on a holiday or a weekend), and are normally mailed within two business days. Both ordinary income dividends and realized securities profits distributions will be automatically reinvested in additional shares of the Class at net asset value. This plan is not recommended for all investors and should be started only after careful consideration of its operation and effect upon the investor's savings and investment program. To the extent that withdrawal payments from the plan exceed any dividends and/or realized securities profits distributions paid on shares held under the plan, the withdrawal payments will represent a return of capital, and the share balance may in time be depleted, particularly in a declining market. Shareholders should not purchase additional shares while participating in a Systematic Withdrawal Plan. The sale of shares for withdrawal payments constitutes a taxable event and a shareholder may incur a capital gain or loss for federal income tax purposes. This gain or loss may be long-term or short-term depending on the holding period for the specific shares liquidated. Premature withdrawals from retirement plans may have adverse tax consequences. Withdrawals under this plan made concurrently with the purchases of additional shares may be disadvantageous to the shareholder. Purchases of Class A Shares through a periodic investment program in the Fund managed by the Manager must be terminated before a Systematic Withdrawal Plan with respect to such shares can take effect, except if the shareholder is a participant in one of our retirement plans or is investing in Delaware Investments funds which do not carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net asset value and a dealer's commission has been paid on that purchase. The applicable Limited CDSC for Class A Shares and CDSC for Class B and C Shares redeemed via a Systematic Withdrawal Plan will be waived if the annual amount withdrawn in each year is less than 12% of the account balance on the date that the Plan is established. If the annual amount withdrawn in any year exceeds 12% of the account balance on the date that the Systematic Withdrawal Plan is established, all redemptions under the Plan will be subjected to the applicable CDSC, including an assessment for previously redeemed amounts under the Plan. Whether a waiver of the CDSC is available or not, the first shares to be redeemed for each Systematic Withdrawal Plan payment will be those not subject to a CDSC because they have either satisfied the required holding period or were acquired through the reinvestment of distributions. See Waivers of Contingent Deferred Sales Charges, below. An investor wishing to start a Systematic Withdrawal Plan must complete an authorization form. If the recipient of Systematic Withdrawal Plan payments is other than the registered shareholder, the shareholder's signature on this authorization must be guaranteed. Each signature guarantee must be supplied by an eligible guarantor institution. The Fund reserves the right to reject a signature guarantee supplied by an eligible institution based on its creditworthiness. This plan may be terminated by the shareholder or the Transfer Agent at any time by giving written notice. Systematic Withdrawal Plan payments are normally made by check. In the alternative, you may elect to have your payments transferred from your Fund account to your predesignated bank account through the MoneyLine(SM) Direct Deposit Service. Your funds will normally be credited to your bank account up to four business days after the payment date. There are no separate fees for this redemption method. It may take up to four business days for the transactions to be completed. You can initiate this service by completing an Account Services form. If your name and address are not identical to the name and address on your Fund account, you must have your signature guaranteed. The Fund does not charge a fee for any this service; however, your bank may charge a fee. This service is not available for retirement plans. The Systematic Withdrawal Plan is not available to the Institutional Class. Shareholders should consult with their financial advisors to determine whether a Systematic Withdrawal Plan would be suitable for them. 47 CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN REDEMPTIONS OF CLASS A SHARES PURCHASED AT NET ASSET VALUE For purchases of $1,000,000, a Limited CDSC of 1% will be imposed on certain redemptions of Class A Shares (or shares into which such Class A Shares are exchanged) if shares are redeemed during the first year after the purchase, if such purchases were made at net asset value and triggered the payment by the Distributor of the dealer's commission described above. The Limited CDSC will be paid to the Distributor and will be assessed on an amount equal to the lesser of : (1) the net asset value at the time of purchase of the Class A Shares being redeemed or (2) the net asset value of such Class A Shares at the time of redemption. For purposes of this formula, the "net asset value at the time of purchase" will be the net asset value at purchase of the Class A Shares even if those shares are later exchanged for shares of another Delaware Investments fund and, in the event of an exchange of Class A Shares, the "net asset value of such shares at the time of redemption" will be the net asset value of the shares acquired in the exchange. Redemptions of such Class A Shares held for more than one year will not be subjected to the Limited CDSC and an exchange of such Class A Shares into another Delaware Investments fund will not trigger the imposition of the Limited CDSC at the time of such exchange. The period a shareholder owns shares into which Class A Shares are exchanged will count towards satisfying the one-year holding period. The Limited CDSC is assessed if such one year period is not satisfied irrespective of whether the redemption triggering its payment is of Class A Shares of the Fund or Class A Shares acquired in the exchange. In determining whether a Limited CDSC is payable, it will be assumed that shares not subject to the Limited CDSC are the first redeemed followed by other shares held for the longest period of time. The Limited CDSC will not be imposed upon shares representing reinvested dividends or capital gains distributions, or upon amounts representing share appreciation. WAIVERS OF CONTINGENT DEFERRED SALES CHARGES WAIVER OF LIMITED CONTINGENT DEFERRED SALES CHARGE - CLASS A SHARES The Limited CDSC for Class A Shares on which a dealer's commission has been paid will be waived in the following instances: (i) redemptions that result from the Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; (ii) distributions to participants from a retirement plan qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), or due to death of a participant in such a plan; (iii) redemptions pursuant to the direction of a participant or beneficiary of a retirement plan qualified under section 401(a) or 401(k) of the Code with respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t) of the Internal Revenue Code; (v) returns of excess contributions to an IRA; (vi) distributions by other employee benefit plans to pay benefits; (vii) distributions described in (ii), (iv), and (vi) above pursuant to a systematic withdrawal plan; (viii) distributions form an account if the redemption results from a death of a registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed; (ix) redemptions by the classes of shareholders who are permitted to purchase shares at net asset value, regardless of the size of the purchase (see Buying Class A Shares at Net Asset Value under Purchasing Shares); and (x) redemptions by certain group defined contribution retirement plans that purchase shares through a retirement plan alliance program which requires that shares will be available at net asset value, provided that, RFS either is the sponsor of the alliance program or has a product participation agreement with the sponsor of the alliance program that specifies that the Limited CDSC will be waived in this Part B. 48 WAIVER OF CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES The CDSC is waived on certain redemptions of Class B Shares in connection with the following redemptions: (i) redemptions that result from the Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA, SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability or attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t) of the Internal Revenue Code; and (iv) distributions from an account if the redemption results from the death of a registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total and permanent disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed. The CDSC on Class C Shares is waived in connection with the following redemptions: (i) redemptions that result from the Fund's right to liquidate a shareholder's account if the aggregate net asset value of the shares held in the account is less than the then-effective minimum account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k) Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457 Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan, Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70 1/2, and IRA distributions qualifying under Section 72(t) of the Internal Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k) Defined Contribution Plan upon attainment of normal retirement age under the plan or upon separation from service; (vi) periodic distributions from an IRA or SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an account if the redemption results from the death of a registered owner, or a registered joint owner, of the account (in the case of accounts established under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon the death of all beneficial owners) or a total and permanent disability (as defined in Section 72 of the Code) of all registered owners occurring after the purchase of the shares being redeemed. The CDSC on Class C Shares also is waived for any group retirement plan (excluding defined benefit pension plans) (i) that purchases shares through a retirement plan alliance program, provided Retirement Financial Services, Inc. either is the sponsor of the alliance program or has a product participation agreement with the sponsor of the alliance program, and (ii) for which Retirement Financial Services, Inc. provides fully-bundled retirement plan services and maintains participant records on its proprietary recordkeeping system. * * * In addition, the CDSC will be waived on Class A Shares, Class B Shares and Class C Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual amount withdrawn under the Plan does not exceed 12% of the value of the account on the date that the Systematic Withdrawal Plan was established or modified. INCOME DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS It is the present policy of Limited-Term Funds to declare dividends from net investment income of the Fund on a daily basis. Dividends are declared at the time the offering price and net asset value are determined (see Determining Offering Price and Net Asset Value) each day the Fund is open and are paid monthly. Checks are normally mailed within three business days of that date. Any check in payment of dividends or other distributions which cannot be delivered by the United States Post Office or which remains uncashed for a period of more than one year may be reinvested in the shareholder's account at the then-current net asset value and the dividend option may be changed from cash to reinvest. The Fund may deduct from a shareholder's account the costs of the Fund's effort 49 to locate a shareholder if a shareholder's mail is returned by the United States Post Office or the Fund is otherwise unable to locate the shareholder or verify the shareholder's mailing address. These costs may include a percentage of the account when a search company charges a percentage fee in exchange for their location services. Net investment income earned on days when the Fund is not open will be declared as a dividend on the next business day. Purchases of Fund shares by wire begin earning dividends when converted into Federal Funds and available for investment, normally the next business day after receipt. Purchases by check earn dividends upon conversion to Federal Funds, normally one business day after receipt. Each class of the Fund will share proportionately in the investment income and expenses of the Fund, except that the Class A Shares, Class B Shares, Class C Shares and the Class R Shares alone will incur distribution fees under their respective 12b-1 Plans. Dividends and realized securities profits distributions are automatically reinvested in additional shares of the Fund at the net asset value in effect on the payable date, and credited to the shareholder's account, unless an election to receive distributions in cash has been made by the shareholder. Dividend payments of $1.00 or less will be automatically reinvested, notwithstanding a shareholder's election to receive dividends in cash. If such a shareholder's dividends increase to greater than $1.00, the shareholder would have to file a new election in order to begin receiving dividends in cash again. Limited-Term Funds anticipates distributing to its shareholders substantially all of the Fund's net investment income. Any net short-term capital gains after deducting any net long-term capital losses (including carryforwards) would be distributed quarterly but, in the discretion of Limited-Term Funds' Board of Trustees, might be distributed less frequently. Distributions of net long-term gains, if any, realized on sales of investments will be distributed annually during the quarter following the close of the fiscal year. A Fund will inform its shareholders of the amount of their income dividends and capital gain distributions, and will advise them of their tax status for federal income tax purposes shortly after the close of each calendar year. If you have not owned your Fund shares for a full year, a Fund may designate and distribute to you, as ordinary income or capital gains, a percentage of income that may not be equal to the actual amount of each type of income earned during the period of your investment in a Fund. Distributions declared in December but paid in January are taxable to you as if paid in December. Redemptions and exchanges of Fund shares are taxable transactions for federal and state income tax purposes. If you redeem your Fund shares, or exchange them for shares of a different Delaware Investments fund, the IRS requires you to report any gain or loss on your redemption or exchange. If you hold your shares as a capital asset, any gain or loss that you realize is a capital gain or loss and is long-term or short-term, generally depending on how long you have owned your shares. Any loss incurred on the redemption or exchange of shares held for six months or treated as a long-term capital loss to the extent of any long-term capital gains distributed to you by the Fund on those shares. All or a portion of any loss that you realize on the redemption of your Fund shares is disallowed to the extent that you buy other shares in the Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss disallowed under these rules will be added to your tax basis in the new shares you buy. If you redeem some or all of yours shares in a Fund, and then reinvest the redemption proceeds in a Fund or in another Delaware Investments fund within 90 days of buying the original shares, the sales charge that would otherwise apply to your reinvestment may be reduced or eliminated. In reporting any gain or loss in your redemption, all or a portion of the sales charge that you paid on your original shares in a Fund is excluded from your tax basis in the shares sold and added to your tax basis for the new shares. A Fund may invest in complex securities that may be subject to numerous special and complex tax rules. The rules could affect whether gain or loss recognized by a Fund is treated as ordinary or capital, or as interest or dividend income. These rules could also accelerate the recognition of income to a Fund (possibly causing the Fund 50 to sell securities to raise the cash for necessary distributions) and/or defer the Fund's ability to recognize a loss, and, in limited cases, subject the Fund to U.S. federal income tax on income from certain foreign securities. These rules could therefore affect the amount, timing or character of the income distributed to you by a Fund. JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF 2003 (JGTRRA) On May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The new law reduces the tax rate on dividends and capital gains to 15% (5% for taxpayers with income in the lower brackets; 0% for those taxpayers in 2008). REDUCTION OF TAX RATE ON DIVIDENDS Qualifying dividends received by the funds after December 31, 2002, will be taxed at a rate of 15% (5% for taxpayers with income in the lower brackets; 0% for these taxpayers in 2008). Prior law will apply for tax years beginning after December 31, 2008. Dividends paid on foreign corporation stocks that are readily tradable on U.S. securities markets are eligible for the lower rates. The amount of ordinary dividends qualifying for the lower tax rates that may be paid by a RIC for any tax year may not exceed the amount of the aggregate qualifying dividends received by the RIC, unless that aggregate is at least 95% of the RIC gross income (as specially computed), in which case the entire dividend qualifies. Obviously, money market and bond mutual fund distributions will generally not qualify. The lower tax rates are not available for dividends to the extent that the taxpayer is obligated to make related payments with respect to positions in substantially similar or related property (e.g., payments in lieu of dividends under a short sale). The capital gain rates also do not apply to (1) dividends received from an organization that was exempt from tax under Section 501 or was a tax-exempt farmers' cooperative in either the tax year of the distribution or the preceding tax year; (2) dividends received from a mutual savings bank that received a deduction under Section 591; or (3) deductible dividends paid on employer securities (i.e., under Section 404(k)). Owners whose shares are lent in short sales would not qualify for the lower rate. The lower tax rates would not apply under the law as enacted to "payments in lieu of dividends," which are received by someone whose stock is loaned to a short-seller. Brokerages have commonly lent stock out of margin accounts to short sellers, but may need to accommodate investors who do not want to receive unfavorable dividend treatment because their stock was lent out. Depending on the details of regulations that may be issued later this year, brokerages may decide to limit any such loans after 2003 to securities that are held in accounts owned by tax-indifferent parties, such as pension funds. The legislative history indicates that the Service is to be liberal in waiving penalties for failure to report substitute payments properly for payors who are making good-faith efforts to comply, but cannot reasonably do so given the time needed to update their systems. REDUCTION OF TAX RATE ON CAPITAL GAINS Under JGTRRA, the top individual rate on adjusted net capital gain, which was generally 20% (10% for taxpayers in the 10% and 15% brackets), is reduced to 15% (5% for taxpayers with income in the lower brackets). These lower rates apply to both the regular tax and the alternative minimum tax. The lower rates apply to assets held more than one year. For taxpayers with income in the lower brackets, the 5% rate is reduced to 0% for 2008. The tax rate on short-term capital gains is unchanged, and they will continue to be taxed at the ordinary income rate. The capital gains changes apply to sales and exchanges (and installment payments received) on or after May 6, 2003, but not with respect to tax years beginning after December 31, 2008. The special tax rates for gains on assets held for more than five years (8% for taxpayers with income in the 10% and 15% brackets; 18% for other taxpayers with respect to assets purchased after 2000) have been repealed. 51 BACK-UP WITHHOLDING CHANGES Prior to the passage of JGTRRA the backup withholding rate for shareholders that did not provide taxpayer identification numbers was 30%. This rate has been reduced to 28%, retroactive to January 1, 2003. See also Other Tax Requirements under Accounting and Tax Issues in this Part B. INVESTMENT MANAGEMENT AGREEMENT The Manager, located at 2005 Market Street, Philadelphia, PA 19103-7094, furnishes investment management services to the Fund, subject to the supervision and direction of Limited-Term Funds' Board of Trustees. The Manager and its predecessors have been managing the funds in the Delaware Investments family since 1938. On December 31, 2004, the Manager and its affiliates within Delaware Investments were managing in the aggregate in excess of $100 billion in assets in various institutional or separately managed, investment company, and insurance accounts. The Investment Management Agreement for the Fund is dated December 15, 1999 and was approved by shareholders on that date. The Agreement has an initial term of two years. The Agreement may be renewed each year only so long as such renewal and continuance are specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund, and only if the terms and the renewal thereof have been approved by the vote of a majority of the trustees of Limited-Term Funds who are not parties thereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement is terminable without penalty on 60 days' notice by the trustees of Limited-Term Funds or by the Manager. The Agreement will terminate automatically in the event of its assignment. The Investment Management Agreement provides that the Fund shall pay the Manager a management fee payable monthly and computed on the net asset value of the Fund as of each day at the following annual rate: MANAGEMENT FEE SCHEDULE (as per percentage of average daily net assets) 0.50% on the first $500 million 0.475% on the next $500 million 0.45% on the next $1.5 billion 0.425% on assets in excess of $2.5 billion [On December 31, 2004, the Fund's total net assets were $_________. Investment management fees paid (after fee waivers) by the Fund for the fiscal years ended December 31, 2004, 2003 and 2002 amounted to $_________, $_______ and $_______, respectively.] Under the general supervision of the Board of Trustees, the Manager manages the Fund's portfolio in accordance with the Fund's stated investment objective and policy and makes and implements all investment decisions on behalf of the Fund. The Manager pays the salaries of all trustees, officers and employees of Limited-Term Funds who are affiliated with the Manager. The Fund pays all of its other expenses, including its proportionate share of rent and certain other administrative expenses. The Fund has formally delegated to its investment adviser, Delaware Management Company (the "Adviser"), the ability to make all proxy voting decisions in relation to portfolio securities held by the Fund. If and when proxies need to be voted on behalf of the Fund, the Adviser will vote such proxies pursuant to its Proxy Voting Policies and Procedures (the "Procedures"). The Adviser has established a Proxy Voting Committee (the "Committee") which is responsible for overseeing the Adviser's proxy voting process for the Fund. One of the main responsibilities of the Committee is to review and approve the Procedures to ensure that the Procedures are designed 52 to allow the Adviser to vote proxies in a manner consistent with the goal of voting in the best interests of the Fund. In order to facilitate the actual process of voting proxies, the Adviser has contracted with Institutional Shareholder Services ("ISS") to analyze proxy statements on behalf of the Fund and other Adviser clients and vote proxies generally in accordance with the Procedures. The Committee is responsible for overseeing ISS's proxy voting activities. If a proxy has been voted for the Fund, ISS will create a record of the vote. 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. The Procedures contain a general guideline that recommendations of company management on an issue (particularly routine issues) should be given a fair amount of weight in determining how proxy issues should be voted. However, the Adviser will normally vote against management's position when it runs counter to its specific Proxy Voting Guidelines (the "Guidelines"), and the Adviser will also vote against management's recommendation when it believes that such position is not in the best interests of the Fund. As stated above, the Procedures also list specific Guidelines on how to vote proxies on behalf of the Fund. Some examples of the Guidelines are as follows: (i) generally vote for shareholder proposals asking that a majority or more of directors be independent; (ii) generally vote against proposals to require a supermajority shareholder vote; (iii) generally vote for debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved; (iv) votes on mergers and acquisitions should be considered on a case-by-case basis, determining whether the transaction enhances shareholder value; (v) generally vote against proposals to create a new class of common stock with superior voting rights; (vi) generally vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable; (vii) generally vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms; (viii) votes with respect to management compensation plans are determined on a case-by-case basis; (ix) generally vote for reports on the level of greenhouse gas emissions from the company's operations and products; and (x) generally vote for proposals asking for a report on the feasibility of labeling products containing genetically modified ingredients. Because the Fund has delegated proxy voting to the Adviser, the Fund is not expected to encounter any conflict of interest issues regarding proxy voting and therefore does not have procedures regarding this matter. However, the Adviser does have a section in its Procedures that addresses the possibility of conflicts of interest. Most proxies which the Adviser receives on behalf of the Fund are voted by ISS in accordance with the Procedures. Because almost all Fund proxies are voted by ISS pursuant to the pre-determined Procedures, it normally will not be necessary for the Adviser to make an actual determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for the Adviser during the proxy voting process. In the very limited instances where the Adviser is considering voting a proxy contrary to ISS's recommendation, the Committee will first assess the issue to see if there is any possible conflict of interest involving the Adviser or affiliated persons of the Adviser. If a member of the Committee has actual knowledge of a conflict of interest, the Committee will normally use another independent third party to do additional research on the particular proxy issue in order to make a recommendation to the Committee on how to vote the proxy in the best interests of the Fund. The Committee will then review the proxy voting materials and recommendation provided by ISS and the independent third party to determine how to vote the issue in a manner which the Committee believes is consistent with the Procedures and in the best interests of the Fund. DISTRIBUTION AND SERVICE The Distributor, Delaware Distributors, L.P., located at 2005 Market Street, Philadelphia, PA 19103-7094, serves as the national distributor of the Fund's shares under a Distribution Agreement dated April 19, 2001. The Distributor is an affiliate of the Manager and bears all of the costs of promotion and distribution, except for payments by the Fund on behalf of Class A Shares, Class B Shares, Class C Shares and Class R Shares under their respective 12b-1 Plan. The Distributor is an indirect, wholly-owned subsidiary of Delaware Management Holdings, Inc. 53 Lincoln Financial Distributors, Inc. ("LFD"), an affiliate of the Manager, serves as the Funds' financial intermediary wholesaler pursuant to a Second Amended and Restated Financial Intermediary Distribution Agreement with the Distributor dated August 21, 2003. LFD is primarily responsible for promoting the sale of the Fund shares through broker/dealers, financial advisors and other financial intermediaries (collectively, "Financial Intermediaries"). The address of LFD is 2001 Market Street, Philadelphia, PA 19103-7055. The rate of compensation, which is calculated and paid monthly, to LFD for the sales of shares of the retail funds of Delaware Investments Family of Funds (excluding the shares of Delaware VIP Trust series, money market funds and house accounts and shares redeemed within 30 days of purchase) is a non-recurring fee equal to the amount shown below:
Basis Points on Sales --------------------- Retail Mutual Funds (Class A, B and C Shares) 0.50% Merrill Lynch Connect Program 0.25% Registered Investment Advisors and H.D. Vest Institutional Classes 0.45% Citigroup Global Capital Markets, Inc. (formerly Salomon Smith Barney) and Delaware International Value Equity Fund Class I Shares 0%
In addition to the non-recurring fee set forth above, the Distributor pays LFD a fee at the annual rate set forth below of the average daily net assets of Fund shares of the Delaware Investments retail funds outstanding and beneficially owned by shareholders through Financial Intermediaries, including those Fund shares sold before the date of this Agreement.
Basis Points on Sales --------------------- Retail Mutual Funds (including shares of money market funds and house accounts and shares redeemed within 30 days of purchase) 0.04% Merrill Lynch Connect Program 0% Registered Investment Advisors and H.D. Vest Institutional Classes 0.04% Citigroup Global Capital Markets, Inc. (formerly Salomon Smith Barney) and Delaware International Value Equity Fund Class I Shares 0.04%
Beginning March 1, 2003, the Distributor has contracted to waive 0.15% of the 0.30% 12b-1 Plan expenses otherwise payable by Limited-Term Funds Class A Shares. The fees associated with LFD's services to the Fund are borne exclusively by the Distributor and not by the Fund. The Transfer Agent, Delaware Service Company, Inc., another affiliate of the Manager located at 2005 Market Street, Philadelphia, PA 19103-7094, serves as the Fund's shareholder servicing, dividend disbursing and transfer agent pursuant to a Shareholders Services Agreement dated as of April 19, 2001. The Transfer Agent also provides accounting services to the Fund pursuant to the terms of a separate Fund Accounting Agreement. The Transfer Agent is also an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. The Fund has authorized one or more brokers to accept on its behalf purchase and redemption orders in addition to the Transfer Agent. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the behalf of the Fund. For purposes of pricing, the Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. Investors may be charged a fee when effecting transactions through a broker or agent. 54 OFFICERS AND TRUSTEES The business and affairs of Limited-Term Funds are managed under the direction of its Board of Trustees. Certain officers and trustees of Limited-Term Funds hold identical positions in each of the other funds in the Delaware Investments family. [On March 31, 2005, Limited-Term Funds' officers and trustees owned less than 1% of the outstanding shares of the Class A, Class B, Class C and Class R shares of the Fund and ___% of the outstanding shares of the Institutional Class of the Fund.] As of March 31, 2005, management believes the following shareholders held of record 5% or more of the outstanding shares of a Class. Management does not have knowledge of beneficial owners.
CLASS NAME AND ADDRESS OF ACCOUNT SHARE AMOUNT PERCENTAGE - ----- --------------------------- ------------ ---------- Delaware Limited-Term Government Fund MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS A Class ATTENTION: FUND ADMINISTRATION 4800 DEER LAKE DR. E #2 JACKSONVILLE, FL 32246-6484 Delaware Limited-Term Government Fund MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS B Class ATTENTION: FUND ADMINISTRATION 4800 DEER LAKE DRIVE EAST, 2ND FL. JACKSONVILLE, FL 32246-6484 Delaware Limited-Term Government Fund MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS C Class ATTENTION: FUND ADMINISTRATION 4800 DEER LAKE DRIVE EAST, 2ND FL JACKSONVILLE, FL 32246-6484 Delaware Limited-Term Government Fund MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS R Class ATTENTION: FUND ADMINISTRATION 4800 DEER LAKE DRIVE EAST, 2ND FL JACKSONVILLE, FL 32246-6484 MCB Trust Services Cust. FBO Van Zyverden, Inc. 700 17th Street, Suite 300 Denver, CO 80202-3531 Delaware Limited-Term Government Fund RS 401K PLAN Institutional Class IRON WORKERS LOCAL #420 ATTN: RETIREMENT PLANS 1645 FAIRVIEW STREET READING, PA 19606 LINCOLN FINANCIAL GROUP FOUNDATION INC. 1300 S. CLINTON STREET FORT WAYNE, IN 46802-3506 RE DMC EMPLOYEE PROFIT SHARING PLAN 5470002648-2 DELAWARE MANAGEMENT CO EMPLOYEE PROFIT SHARING TRUST C/O RICK SEIDEL 1818 MARKET STREET PHILADELPHIA, PA 19103-3638
55
CLASS NAME AND ADDRESS OF ACCOUNT SHARE AMOUNT PERCENTAGE - ----- --------------------------- ------------ ---------- RS DMTC 401(K) PLAN ALOHA AIR ATTN: CANDACE TAWARA 371 AOKEA PLACE HONOLULU INTERNATIONAL AIRPORT HONOLULU, HI 96820 Delaware Limited-Term Government Fund BOST & CO. Institutional Class FBO TUITION A/C INVESTMENT PROGRAM C/O MUTUAL FUND OPERATION P.O. BOX 3198 PITTSBURGH, PA 15230-3198 BOST & CO. FBO TUITION A/C INVESTMENT PROGRAM C/O MUTUAL FUND OPERATION P.O. BOX 3198 PITTSBURGH, PA 15230-3198
DMH Corp., Delaware Investments U.S., Inc., Delaware General Management, Inc. Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc., Delaware Management Trust Company, Delaware Management Business Trust, Delaware Investment Advisers (a series of Delaware Management Business Trust), Delaware Management Company (a series of Delaware Management Business Trust), Delaware Lincoln Investment Advisers (a series of Delaware Management Business Trust), Delaware Capital Management (a series of Delaware Management Business Trust), Delaware Lincoln Cash Management (a series of Delaware Management Business Trust), Delaware Distributors, L.P., Retirement Financial Services, Inc. and LNC Administrative Services, Inc. are direct or indirect, wholly owned subsidiaries of Delaware Management Holdings, Inc. ("DMH"). DMH is an indirect, wholly owned subsidiary, and is subject to the ultimate control, of Lincoln National Corporation. Lincoln National Corporation, with headquarters in Philadelphia, Pennsylvania, is a diversified organization with operations in many aspects of the financial services industry, including insurance and investment management. Delaware Investments is the marketing name for DMH and its subsidiaries. 56 Certain Trustees and officers of Limited-Term Funds hold identical positions in each of the other funds in the Delaware Investments family. Trustees and principal officers of Limited-Term Funds are noted below along with their ages and their business experience for the past five years. Trustees and principal officers of the Limited-Term Funds are noted below along with their ages and their business experience for the past five years.
NUMBER OF PORTFOLIOS IN POSITION(s) FUND COMPLEX HELD WITH THE OVERSEEN BY OTHER DIRECTORSHIPS NAME, ADDRESS AND LIMITED-TERM LENGTH OF TIME PRINCIPAL OCCUPATION(s) TRUSTEE OR HELD BY TRUSTEE OR BIRTHDATE FUNDS SERVED DURING PAST 5 YEARS OFFICER OFFICER - --------------------------- --------------- ----------------- ------------------------ -------------- -------------------- INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 75 None 2005 Market Street President, Executive Officer Mr. Driscoll has served Philadelphia, PA 19103 Chief Executive in various executive Officer and 1 Year - Trustee capacities at different March 10, 1963 Trustee(4) times at Delaware Investments(1) Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) INDEPENDENT TRUSTEES WALTER P. BABICH Trustee 17 Years Board Chairman - Citadel 92 None 2005 Market Street Construction Corporation Philadelphia, PA 19103 (1989 - Present) October 1, 1927 JOHN H. DURHAM Trustee 26 Years(3) Private Investor 92 Trustee and Audit 2005 Market Street Committee Member - Philadelphia, PA 19103 Abington Memorial Hospital August 7, 1937 President/Director - 22 WR Corporation JOHN A. FRY Trustee(4) 4 Years President - Franklin & 75 Director - Community 2005 Market Street Marshall College Health Systems Philadelphia, PA 19103 (June 2002 - Present) May 28, 1960 Executive Vice President - University of Pennsylvania (April 1995 - June 2002) ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director 92 None 2005 Market Street - Anthony Knerr & Philadelphia, PA 19103 Associates (Strategic Consulting) December 7, 1938 (1990 - Present) ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 92 Director and Audit 2005 Market Street Officer - National Committee Chairperson Philadelphia, PA 19103 Gallery of Art - Andy Warhol (1994 - 1999) Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc.
57
NUMBER OF PORTFOLIOS IN POSITION(s) FUND COMPLEX HELD WITH THE OVERSEEN BY OTHER DIRECTORSHIPS NAME, ADDRESS AND LIMITED-TERM LENGTH OF TIME PRINCIPAL OCCUPATION(s) TRUSTEE OR HELD BY TRUSTEE OR BIRTHDATE FUNDS SERVED DURING PAST 5 YEARS OFFICER OFFICER - --------------------------- --------------- ----------------- ------------------------ -------------- -------------------- INDEPENDENT TRUSTEES (continued) THOMAS F. MADISON Trustee 11 Years President/Chief Executive 92 Director - 2005 Market Street Officer - MLM Partners, Banner Health Philadelphia, PA 19103 Inc. (Small Business Investing and Consulting) Director and Audit February 25, 1936 (January 1993 - Present) Committee Member - CenterPoint Energy Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries Inc. JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None 2005 Market Street Acquisitions - Philadelphia, PA 19103 3M Corporation (January 2003 - Present) July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. OFFICERS MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 92 None(5) 2005 Market Street President and Officer since various executive Philadelphia, PA 19103 Chief February 17, 2005 capacities at different Financial times at Delaware August 18, 1962 Officer Investments RICHELLE S. MAESTRO Senior Vice Chief Legal Ms. Maestro has served in 92 None(5) 2005 Market Street President, Officer since various executive Philadelphia, PA 19103 Chief Legal March 17, 2003 capacities at different Officer and times at Delaware November 26, 1957 Secretary Investments JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served 92 None(5) 2005 Market Street President and February 17, 2005 in various executive Philadelphia, PA 19103 Treasurer capacities at different times at Delaware June 16, 1957 Investments
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Limited-Term Fund'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 Limited-Term 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. (5) Mr. Bishof, Ms. Maestro and Mr. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter and transfer agent as the registrant. 58 Following is additional information regarding investment professionals affiliated with the Limited-Term Funds.
NAME, ADDRESS AND POSITION(s) HELD WITH PRINCIPAL OCCUPATION(s) DURING PAST BIRTHDATE LIMITED-TERM FUNDS LENGTH OF TIME SERVED 5 YEARS - --------------------------- ---------------------------- --------------------- ------------------------------------- STEPHEN R. CIANCI Senior Vice President/Senior 12 Years During the past five years, 2005 Market Street Portfolio Manager Mr. Cianci has served in various Philadelphia, PA 19103-7094 capacities at different times at Delaware Investments. May 12, 1969 PAUL GRILLO Vice President/Senior 11 Years During the past five years, 2005 Market Street Portfolio Manager Mr. Grillo has served in various Philadelphia, PA 19103-7094 capacities at different times at Delaware Investments. May 16, 1959
The following table shows each Trustee's ownership of shares of the Limited-Term Funds and of all Delaware Investments funds as of December 31, 2004.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT DOLLAR RANGE OF EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE IN FAMILY NAME IN THE LIMITED-TERM FUNDS OF INVESTMENT COMPANIES - ---------------------------- --------------------------------- ---------------------------------------- Jude T. Driscoll Walter A. Babich John H. Durham John A. Fry Anthony D. Knerr Ann R. Leven Thomas F. Madison Janet L. Yeomans
59 The following is a compensation table listing for each Trustee entitled to receive compensation, the aggregate compensation received from Limited-Term Funds during its fiscal year and the total compensation received from all investment companies in the Delaware Investments family for which he or she serves as a Trustee during Limited-Term Funds' fiscal year and an estimate of annual benefits to be received upon retirement under the Delaware Group Retirement Plan for Trustees/Directors as of December 31, 2004. Only the independent Trustees of the Limited-Term Funds receive compensation from Limited-Term Funds.
AGGREGATE TOTAL COMPENSATION FROM COMPENSATION FROM PENSION OR RETIREMENT ESTIMATED ANNUAL THE INVESTMENT THE LIMITED-TERM BENEFITS ACCRUED AS BENEFITS UPON COMPANIES IN DELAWARE NAME FUNDS PART OF FUND EXPENSES RETIREMENT(1) INVESTMENTS(2) - ------------------------ ----------------- --------------------- ---------------- ------------------------ Walter P. Babich $ 000 none $ 70,000 $ 000 John H. Durham $ 000 none $ 70,000 $ 000 John A. Fry $ 000 none $ 70,000 $ 000(3) Anthony D. Knerr $ 000 none $ 70,000 $ 000 Ann R. Leven $ 000 none $ 70,000 $ 000 Thomas F. Madison $ 000 none $ 70,000 $ 000 Janet L. Yeomans $ 000 none $ 70,000 $ 000
(1) Under the terms of the Delaware Investments Retirement Plan for Trustees/Directors, each disinterested Trustee/Director who, at the time of his or her retirement from the Board, has attained the age of 70 and served on the Board for at least five continuous years, is entitled to receive payments from each investment company in the Delaware Investments family for which he or she serves as Trustee/Director for a period equal to the lesser of the number of years that such person served as a Trustee/Director or the remainder of such person's life. The amount of such payments will be equal, on an annual basis, to the amount of the annual retainer that is paid to trustees/directors of each investment company at the time of such person's retirement. If an eligible Trustee/Director retired as of December 31, 2004, he or she would be entitled to annual payments totaling the amounts noted above, in the aggregate, from all of the investment companies in the Delaware Investments family for which he or she serves as a trustee or director, based on the number of investment companies in the Delaware Investments family as of that date. (2) Each independent Trustee/Director currently receives a total annual retainer fee of $70,000 for serving as a Trustee/Director for all 32 investment companies in Delaware Investments, plus $5,000 for each Board Meeting attended. The following compensation is in the aggregate from all investment companies in the complex. Members of the audit committee receive additional compensation of $2,500 for each meeting. Members of the nominating committee receive additional compensation of $1,700 for each meeting. In addition, the chairpersons of the audit and nominating committees each receive an annual retainer of $10,000 and $1,500, respectively. The Coordinating Trustee/Director of the Delaware Investments funds receives an additional retainer of $25,000. (3) In addition to this compensation, for the 12-month period ended on December 31, 2004, Mr. Fry received [$_____] in professional fees from Voyageur Funds for services provided to the Fund's Board. 60 The Board of Trustees has the following committees: Audit Committee: This committee monitors accounting and financial reporting policies and practices, and internal controls for the Delaware Investments funds. It also oversees the quality and objectivity of the Delaware Investments funds' financial statements and the independent audit thereof, and acts as a liaison between the Delaware Investments funds' independent registered public accounting firm and the full Board of Trustees. The Audit Committee of the Fund consists of the following three independent Trustees/Directors appointed by the Board: Ann R. Leven, Chairperson; Thomas F. Madison; and Jan L. Yeomans. The Audit Committee held [6] meetings during the Fund's last fiscal year. Nominating Committee: This committee recommends Board members, fills vacancies and considers the qualifications of Board members. The committee also monitors the performance of counsel for independent trustees. The Nominating Committee will consider selections for Board of Directors nominations from shareholders. The Nominating Committee of the Fund currently consists of the following three Trustees/Directors appointed by the Board: Anthony D. Knerr, Chairperson; John H. Durham and John A. Fry, all of whom are independent. The Nominating Committee held [12] meetings during the Fund's last fiscal year. GENERAL INFORMATION Limited-Term Funds, was organized as a Pennsylvania business trust in 1981, reorganized as a Maryland corporation in 1990 and further reorganized as a Delaware business trust on December 15, 1999. It is an open-end management investment company. The Fund's portfolio of assets is diversified as defined by the 1940 Act. The Manager is the investment manager of the Fund. The Manager also provides investment management services to certain of the other funds in the Delaware Investments family. An affiliate of the Manager manages private investment accounts. While investment decisions of the Fund are made independently from those of the other funds and accounts, investment decisions for such other funds and accounts may be made at the same time as investment decisions of the Fund. The Board of Trustees is responsible for overseeing the performance of the Funds' investment advisor and determining whether to approve and/or renew the Funds' investment management agreements. When the Board considers whether to renew an investment management agreement, it considers various factors that include: The nature, extent and quality of the services provided by the investment advisor. The investment performance of the Fund's assets managed by the investment advisor. The fair market value of the services provided by the investment advisor. Comparative analysis of expense ratios of, and advisory fees paid by, similar funds. The extent to which economies of scale would be realized as the fund grows. Other benefits accruing to the investment advisor or its affiliates from its relationship with the fund. The investment advisor's management of the operating expenses of the fund, such as transaction costs, including how fund transactions for the fund are conducted and brokers are chosen. In reviewing the investment management agreements for the Fund, the Board of Trustees considered the Fund's performance relative to its peers and benchmark, the investment process and controls used in managing the Fund, the Fund's fees and expenses relative to its peers, the experience and qualifications of personnel responsible for managing the Fund and quality of other services provided to the Fund in addition to investment advice. 61 At its annual contract review meeting (the "Annual Meeting"), the Board of Trustees was presented with information concerning each Delaware Investments service provider to the Fund, including the Manager, the Distributor and the transfer agent, shareholder servicing agent and fund accountant. The Board reviewed materials provided by Delaware Investments concerning the level of service provided to the Fund and both the costs to the Fund and the profit to Delaware Investments. Throughout the prior year, the Board also received regular reports detailing performance, the current investment strategies for the Fund and Fund expenses. In addition, at the Annual Meeting the Board separately received and reviewed independent historical and comparative reports provided by Lipper, Inc. ("Lipper") that analyzed the Fund's performance over a ten-year period, as well as actual and contractual management and total expenses. The reports also provided comparative information for performance and expenses against the Fund's peer mutual funds. In addition to information pertaining to the Fund, the Board also received similar information concerning all of the other investment companies in the Delaware Investments Family of Funds. In reviewing the investment management agreements for the Fund, the Board of Trustees considered the Fund's performance relative to its performance goals, peers and benchmark, the investment process and controls used in managing the Fund, the Fund's fees and expenses relative to its peers, the experience and qualifications of personnel responsible for managing the Fund and quality of other services provided to the Fund in addition to investment advice. The Board met in executive session to consider the investment management agreements. The independent Trustees also met separately with Lipper. The Board believed that management had effectively communicated with the Board and had been very responsive to the issues raised by the Board during the previous year. The Board was pleased with the current staffing within the Fund's investment advisor during the past year, the emphasis on research, and the compensation system that had been implemented for investment advisory personnel. In particular, the Board noted that management had maintained and, in some instances, increased financial and personnel resources committed to fund management. The Board considered the overall benefits provided by Delaware Investments' strong corporate management and compliance oversight to all funds in the complex. In considering the investment performance of the Fund and of comparable mutual funds advised by Delaware, the Board looked at the Fund's performance relative to its peers and benchmark. The performance numbers excerpted from the materials reviewed by the Board below represent annualized total returns and are calculated using the Fund's daily net asset value. Performance numbers assume reinvestment of income distributions and capital gains on the ex-dividend date. The Fund's performance over the past one, three and five year periods ended February 29, 2004 and quartile ranking of each of the Funds compared by Lipper to their respective peer group is as follows. The Fund's performance is ranked within its Lipper Investment Classification/Objective. A fund with the highest performance is ranked first, and a fund with the lowest performance is ranked last. The performance quartile illustrates the quartile position of the Fund within its Lipper Investment Classification/Objective. For purposes of total return, the quartiles are defined as the first quartile is the highest or best 25%; the second quartile is the next 25%; the third quartile is the next 25%; and the fourth quartile is the lowest or worst 25%.
1 YEAR 3 YEARS 5 YEARS ------------ ------------ ------------ Delaware Limited-Term Government Fund ____% ____% _____% ___ quartile ___ quartile ___ quartile
In considering the costs of the services to be provided and profits to be realized by Delaware, the Board considered the service fees charged to the Fund and the fair market value of the services provided by Delaware. The Board's objective is to limit the total expense ratio of the Fund to an acceptable range as compared to the median of a peer group of comparable mutual funds. The Board took into consideration management's agreement with that objective and the means of implementing that objective, which could include certain types of remedial actions as well as potential future voluntary or contractual expense caps. 62 In considering the level of the Fund's expenses, the Board reviewed the Fund's current average for its peers. The Board looked at the advisory fees of the Fund compared to its peer groups and at overall levels of expenses for the Fund compared to its respective peer group. The Fund's quartile rankings (as of the Fund's last fiscal year) for contractual management fees, actual management fees and total expenses were as follows. The fund's expenses are ranked within the Expense Group or Expense Universe. A fund with the lowest expense is ranked first, and a fund with the highest expense is ranked last. The expense quartile illustrates the position of the Fund within the Expense Group or Expense Universe. For purposes of expenses, the quartiles are defined as: the first quartile in the lowest or best 25%; the second quartile is the next 25%; the third quartile is the next 25%; and the fourth quartile is the highest or worst 25%.
CONTRACTUAL ACTUAL MANAGEMENT MANAGEMENT FEES FEES TOTAL EXPENSES --------------- ----------------- -------------- Delaware Limited-Term Government Fund ___ quartile ___ quartile ____ quartile
The Board found the Fund's fees to be appropriate after considering these factors and generally in line with fees charged to comparable funds in the industry. The Distributor acts as national distributor for the Fund and for the other mutual funds in the Delaware Investments family. The Distributor received Limited CDSC payments with respect to Class A Shares of the Fund as follows: CDSC PAYMENTS ------------------------------------------------ LIMITED-TERM GOVERNMENT FUND FISCAL YEAR ENDED CLASS A SHARES ----------------- ---------------------------- 12/31/04 $ ___ 12/31/03 $ ___ 12/31/02 $ ___ The Distributor received CDSC payments with respect to Class B Shares and Class C Shares as follows:
CDSC PAYMENTS ------------------------------------------------------------------------------- FISCAL YEAR ENDED LIMITED-TERM GOVERNMENT FUND LIMITED-TERM GOVERNMENT FUND CLASS B SHARES CLASS C SHARES ----------------- ---------------------------- ---------------------------- 12/31/04 $ ___ $ ___ 12/31/03 $ ___ $ ___ 12/31/02 $ ___ $ ___
The Transfer Agent, an affiliate of the Manager, acts as shareholder servicing, dividend disbursing and transfer agent for the Fund and for the other mutual funds in the Delaware Investments Family of Funds. The Transfer Agent is paid a fee by the Fund for providing these services consisting of an annual per account charge for (i) each open and closed account on the their records and each account held on a sub-accounting system maintained by firms that hold accounts on an omnibus basis ("Shareholder Accounts"); and (ii) each account on a retirement processing system ("Retirement Accounts"). These charges are as follows: Shareholder Accounts $21.25 Per Annum Retirement Accounts $30.00 Per Annum These charges are assessed monthly on a pro rata basis and determined by using the number of Shareholder and Retirement Accounts maintained as of the last calendar day of each month. Compensation is fixed each year and approved by the Board of Trustees, including a majority of the disinterested trustees. 63 The Transfer Agent also provides accounting services to the Fund. Those services include performing all functions related to calculating the Fund's net asset value and providing all financial reporting services, regulatory compliance testing and other related accounting services. For its services, the Transfer Agent is paid a fee based on total assets of all funds in the Delaware Investments Family of Funds for which it provides such accounting services. Such fee is equal to 0.025% multiplied by the total amount of assets in the complex for which the Transfer Agent furnishes accounting services, where such aggregate complex assets are $10 billion or less, and 0.020% of assets if such aggregate complex assets exceed $10 billion. The fees are charged to the Fund and the other mutual funds in the Delaware Investments Family of Funds, on an aggregate pro rata basis. The asset-based fee payable to the Transfer Agent is subject to a minimum fee calculation based on the type and number of classes per Fund. CAPITALIZATION Limited-Term Funds has a present unlimited authorized number of shares of beneficial interest with no par value allocated to each Class. Identifiable expenses to the Fund will be paid by the Fund. General expenses of the Fund will be allocated on a pro-rata basis according to asset size. Where matters must be submitted to a vote of shareholders, the holders of a majority of shares of the Fund affected must vote affirmatively for that class to be affected. Each Class of the Fund represents a proportionate interest in the assets of the Fund and each has the same voting and other rights and preferences as the other classes except that shares of the Institutional Class may not vote on matters affecting the Fund's Classes' Plans under Rule 12b-1. Similarly, as a general matter, shareholders of Class A Shares, Class B Shares, Class C Shares and Class R Shares may vote only on matters affecting the 12b-1 Plan that relates to the class of shares that they hold. However, Class B Shares may vote on any proposal to increase materially the fees to be paid by the Fund under the Plan relating to Class A Shares. General expenses of the Fund will be allocated on a pro-rata basis to the classes according to asset size, except that expenses of the Rule 12b-1 Plans of Class A, Class B Shares, Class C Shares, and Class R Shares will be allocated solely to those classes. Until May 31, 1992, the Fund offered shares of two retail classes of shares, Investors Series II class (now Class A Shares) and the Investors Series I class. Shares of Investors Series I class were offered with a sales charge, but without the imposition of a Rule 12b-1 fee. Effective June 1, 1992, following shareholder approval of a plan of recapitalization on May 15, 1992, shareholders of the Investors Series I class had their shares converted into shares of the Investors Series II class and became subject to the latter class' Rule 12b-1 charges. Effective at the same time, following approval by shareholders, the name Investors Series was changed to Treasury Reserves Intermediate Series and the name Investors Series II class was changed to Treasury Reserves Intermediate Fund class. Treasury Reserves Intermediate Fund (Institutional) class was first offered on June 1, 1992 and beginning May 2, 1994 it became known as Treasury Reserves Intermediate Fund Institutional Class. On May 2, 1994, the Treasury Reserves Intermediate Fund class became known as the Treasury Reserves Intermediate Fund A Class. Effective as of close of business on August 28, 1995, the name Delaware Group Treasury Reserves, Inc. was changed to Delaware Group Limited-Term Government Funds, Inc. and the name Treasury Reserves Intermediate Series was changed to Limited-Term Government Fund. At the same time, the names of Treasury Reserves Intermediate Fund A Class, Treasury Reserves Intermediate Fund B Class and Treasury Reserves Intermediate Fund Institutional Class were changed to Limited-Term Government Fund A Class, Limited-Term Government Fund B Class, and Limited-Term Government Fund Institutional Class, respectively. Effective as of August 16, 1999, the name of Limited-Term Government Fund changed to Delaware Limited-Term Government Fund. Corresponding changes were also made to the names of each of the Fund's Classes. Effective as of December 15, 1999, the name of Delaware Group Limited-Term Government Funds, Inc. changed to Delaware Group Limited-Term Government Funds. Class R Shares of the Fund were initially offered on June 2, 2003. All shares have equal voting rights, no preemptive rights, are fully transferable and, when issued, are fully paid. All shares of the Fund participate equally in dividends, and upon liquidation would share equally. 64 NONCUMULATIVE VOTING Limited-Term Funds' shares have noncumulative voting rights which means that the holders of more than 50% of the shares of Limited-Term Funds voting for the election of trustees can elect all the trustees if they choose to do so, and, in such event, the holders of the remaining shares will not be able to elect any trustees. This Part B does not include all of the information contained in the Registration Statement which is on file with the SEC. [FINANCIAL STATEMENTS Ernst & Young LLP serves as the independent registered public accounting firm for Delaware Group Limited-Term Government Funds and, in its capacity as such, audits the annual financial statements contained in the Fund's Annual Report. The Fund's Statement of Net Assets, Statement of Operations, Statement of Changes in Net Assets, Financial Highlights and Notes to Financial Statements, as well as the report of Ernst & Young LLP, independent registered public accounting firm, for the year ended December 31, 2004 are included in its Annual Report to shareholders. The financial statements, the notes relating thereto, financial highlights and the report of Ernst & Young LLP, described above are incorporated by reference from the Annual Report into this Part B.] 65 APPENDIX A - RATINGS BONDS Excerpts from Moody's Investors Service, Inc. ("Moody's") description of its bond ratings: Aaa--judged to be the best quality. They carry the smallest degree of investment risk; Aa--judged to be of high quality by all standards; A--possess favorable attributes and are considered "upper medium" grade obligations; Baa--considered as medium grade obligations. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time; Ba--judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class; B--generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small; Caa--are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest; Ca--represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings; C--the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Excerpts from Standard & Poor's ("S&P") description of its bond ratings: AAA--highest grade obligations. They possess the ultimate degree of protection as to principal and interest; AA--also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in a small degree; A--strong ability to pay interest and repay principal although more susceptible to changes in circumstances; BBB--regarded as having an adequate capacity to pay interest and repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions; C--reserved for income bonds on which no interest is being paid; D--in default, and payment of interest and/or repayment of principal is in arrears. 66 PART C Other Information Item 22. Exhibits (a) Agreement and Declaration of Trust (1) Agreement and Declaration of Trust (December 17, 1998) is incorporated into this filing by reference to Post-Effective Amendment No. 48 filed April 28, 1999. (2) Certificate of Trust (December 17, 1998) is incorporated into this filing by reference to Post-Effective Amendment No. 48 filed April 28, 1999. (b) By-Laws. Amended and Restated By-Laws (August 19, 2004) attached as Exhibit. (c) Copies of All Instruments Defining the Rights of Holders. (1) Agreement Declaration of Trust. Articles III, V and VI of Agreement and Declaration of Trust which is incorporated into this filing by reference to Post-Effective Amendment No. 48 filed April 28, 1999. (2) By-Laws. Article II of Amended and Restated By-Laws attached as Exhibit (b). (d) Investment Management Agreement. Executed Investment Management Agreement (December 15, 1999) between Delaware Management Company (a series of Delaware Management Business Trust) and the Registrant is incorporated into this filing by reference to Post-Effective Amendment No. 52 filed April 30, 2001. (e) (1) Distribution Agreements. (i) Executed Distribution Agreement (May 15, 2003) incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (ii) Executed Second Amended and Restated Financial Intermediary Distribution Agreement (August 21, 2003) incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (2) Dealer's Agreement. Dealer's Agreement is incorporated into this filing by reference to PEA No. 52 filed April 30, 2001. (3) Vision Mutual Fund Gateway(R)Agreement. Vision Mutual Fund Gateway(R)Agreement (November 2000) is incorporated into this filing by reference to Post-Effective Amendment No. 54 filed February 27, 2003. (4) Registered Investment Advisers Agreement. Registered Investment Advisers Agreement (January 2001) is incorporated into this filing by reference to Post-Effective Amendment No. 54 filed February 27, 2003. (5) Bank/Trust Agreement. Bank/Trust Agreement (August 2004) attached as Exhibit. (f) Inapplicable. (g) Custodian Agreements. (1) Executed Global Custody Agreement (May 1, 1996) between The Chase Manhattan Bank and Registrant incorporated into this filing by reference to Post-Effective Amendment No. 48 filed April 28, 1999. (i) Executed Letter (August 24, 1998) adding Delaware Limited-Term Government Fund to the Global Custody Agreement incorporated into this filing by reference to PEA No. 52 filed April 30, 2001. (ii) Executed Amendment No. 1 to Schedule A of the Global Custody Agreement (July 17, 2003) incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (h) Other Material Contracts. (1) Executed Shareholders Services Agreement (April 19, 2001) between Delaware Service Company, Inc. and the Registrant on behalf of each Fund is incorporated into this filing by reference to Post-Effective Amendment No. 53 filed February 28, 2002. (i) Executed Schedule B (September 1, 2004) to the Shareholders Services Agreement attached as Exhibit. (ii) Executed Letter Amendment (August 23, 2003) to the Shareholder Services Agreement incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (2) Executed Delaware Group of Funds Fund Accounting Agreement (August 19, 1996) between Delaware Service Company, Inc. and the Registrant incorporated into this filing by reference to Post-Effective Amendment No. 45 filed March 2, 1998. (i) Executed Amendment No. 27 (October 1, 2003) to the Delaware Group Funds Fund Accounting Agreement is incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (ii) Executed Schedule B (May 16, 2002) to the Delaware Group of Funds Fund Accounting Agreement is incorporated into this filing by reference to Post-Effective Amendment No. 54 filed February 27, 2003. (i) Opinion of Counsel. Incorporated into this filing by reference to Post-Effective Amendment No. 49 filed December 14, 1999. (j) Consent and Report of Auditors. To be filed by amendment. (k-l) Inapplicable. (m) Plans under Rule 12b-1. (1) Plan under Rule 12b-1 for Class A (April 19, 2001) is incorporated into this filing by reference to Post-Effective Amendment No. 53 filed February 28, 2002. (2) Plan under Rule 12b-1 for Class B (April 19, 2001) is incorporated into this filing by reference to Post-Effective Amendment No. 53 filed February 28, 2002. (3) Plan under Rule 12b-1 for Class C (April 19, 2001) is incorporated into this filing by reference to Post-Effective Amendment No. 53 filed February 28, 2002. (4) Form of Plan under Rule 12b-1 for Class R (May 15, 2003) is incorporated into this filing by reference to Post-Effective Amendment No. 54 filed February 27, 2003. (n) Plan under Rule 18f-3. Amended and Restated Plan under Rule 18f-3 (May 2003) for Delaware Investments Family of Funds is incorporated into this filing by reference to Post-Effective Amendment No. 56 filed February 27, 2004. (o) Inapplicable. (p) Codes of Ethics. (1) Code of Ethics for Delaware Investments' Family of Funds (December 2004) attached as Exhibit. (2) Code of Ethics for Delaware Investments (December 2004) attached as Exhibit. (3) Code of Ethics for Lincoln Financial Distributors, Inc. (June 2004) attached as Exhibit. (q) Trustees' Power of Attorney. Attached as Exhibit. Item 23. Persons Controlled by or under Common Control with Registrant. None. Item 24. Indemnification. Article VI of the By-Laws which is incorporated into this filing by reference to Post-Effective Amendment No. 49 filed December 14, 1999. Item 25. Business and Other Connections of Investment Advisor. Delaware Management Company (the "Manager"), a series of Delaware Management Business Trust, serves as investment manager to the Registrant and also serves as investment manager or sub-advisor to certain of the other funds in the Delaware Investments family (Delaware Group Adviser Funds, Delaware Group Cash Reserve, Delaware Group Equity Funds I, Delaware Group Equity Funds II, Delaware Group Equity Funds III, Delaware Group Equity Funds IV, Delaware Group Equity Funds V, Delaware Group Foundation Funds, Delaware Group Global & International Funds, Delaware Group Government Fund, Delaware Group Income Funds, Delaware Group State Tax-Free Income Trust, Delaware Group Tax-Free Fund, Delaware Group Tax-Free Money Fund, Delaware Pooled Trust, Delaware VIP Trust, Voyageur Insured Funds, Voyageur Intermediate Tax-Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III, Voyageur Tax-Free Funds, Delaware Investments Dividend and Income Fund, Inc., Delaware Investments Global Dividend and Income Fund, Inc., Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Colorado Insured Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund, Delaware Investments Minnesota Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc. and Delaware Investments Minnesota Municipal Income Fund III, Inc.) as well as to certain non-affiliated registered investment companies. In addition, certain officers of the Manager also serve as trustees of the other Delaware Investments funds, and certain officers are also officers of these other funds. A company indirectly owned by the Manager's parent company acts as principal underwriter to the mutual funds in the Delaware Investments family (see Item 26 below) and another such company acts as the shareholder services, dividend disbursing, accounting servicing and transfer agent for all of the mutual funds in the Delaware Investments family. The following persons serving as directors or officers of the Manager have held the following positions during the past two years. Unless noted, the principal business address of the Manager is 2005 Market Street, Philadelphia, PA 19103-7094
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Jude T. Driscoll President/Chief Executive Officer of Delaware Management Company, Delaware Investment Advisers and Delaware Capital Management (each a series of Delaware Management Business Trust) Chairman/President/Chief Executive Officer of each fund in the Delaware Investments Family of Funds President/Chief Executive Officer and Director/Trustee of Delaware Management Holdings, Inc., DMH Corp, Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc., Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc. and LNC Administrative Services Corporation President of Delaware Lincoln Cash Management (a series of Delaware Management Business Trust) Director of HYPPCO Finance Company Ltd. John C. E. Campbell Executive Vice President/Global Marketing & Client Services of Delaware Management Company (a series of Delaware Management Business Trust) Executive Vice President/Global Marketing Sales, Client Services & Product Development and President/Global Institutional Services of Delaware Investment Advisers (a series of Delaware Management Business Trust) Patrick P. Coyne Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each series of Delaware Management Business Trust), Delaware Management Holdings, Inc., Delaware Management Business Trust and Lincoln National Investment Companies, Inc. Executive Vice President/Managing Director/Chief Investment Officer - Equity of each fund in the Delaware Investments Family of Funds President and Director of Lincoln National Convertible Securities Fund, Inc. and Lincoln National Income Fund, Inc.
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Joseph H. Hastings Executive Vice President/Interim Chief Financial Officer/Treasurer/Controller of Delaware Management Company, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Management Business Trust, Lincoln National Investment Companies, Inc. and LNC Administrative Services Corporation Executive Vice President/Chief Financial Officer/Treasurer and Director of Delaware Management Trust Company Executive Vice President/Chief Financial Officer of Retirement Financial Services, Inc. Executive Vice President of each fund in the Delaware Investments Family of Funds Executive Vice President/Interim Chief Financial Officer/Controller of Delaware Investment Advisers (a series of Delaware Management Business Trust) Executive Vice President of Delaware Distributors, Inc. and Delaware Distributors, L.P. Richelle S. Maestro Executive Vice President/General Counsel/Secretary of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management and Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Executive Vice President/General Counsel/Secretary and Director/Trustee of Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc., Lincoln National Investment Companies, Inc. and LNC Administrative Services Corporation Senior Vice President/General Counsel/Secretary and Director/Trustee of Delaware Management Business Trust and Delaware Distributors, L.P. Senior Vice President/General Counsel/Secretary of Delaware Management Trust Company Vice President/General Counsel of Lincoln National Convertible Securities Fund, Inc. and Lincoln National Income Fund, Inc. General Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA. See Yeng Quek Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income of Delaware Management Company, Delaware Investment Advisers and Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income and Director/Trustee of Delaware Management Holdings, Inc., Delaware Management Business Trust and Lincoln National Investment Companies, Inc. Director/Trustee of DHM Corp., Delaware Investments U.S., Inc., Delaware Management Company, Inc., Delaware Service Company, Inc. and HYPPCO Finance Company Ltd.
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Gerald S. Frey Managing Director/Chief Investment Officer - Growth Investing of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., Delaware Management Business Trust, Lincoln National Investments Companies, Inc. and each fund in the Delaware Investments Family of Funds Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company (a series of Delaware Management Business Trust), Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc. and Delaware Distributors, L.P Senior Vice President/Operations and Director of Delaware Management Trust Company Robert L. Arnold Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers and Delaware Capital Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Marshall T. Bassett Senior Vice President/Portfolio Manager of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Senior Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds Christopher S. Beck Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Michael P. Bishof Senior Vice President/Investment Accounting of Delaware Management Company, Delaware Capital Management (each a series of Delaware Management Business Trust), Delaware Service Company, Inc. and Delaware Distributors, L.P. Senior Vice President/Treasurer/Investment Accounting of Delaware Investment Advisers (a series of Delaware Management Business Trust) Senior Vice President/Chief Financial Officer of each fund in the Delaware Investments Family of Funds Chief Financial Officer of Lincoln National Convertible Securities Fund, Inc. and Lincoln National Income Fund, Inc. Brian L. Murray, Jr.(1) Senior Vice President/Compliance Director of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust Chief Compliance Officer of each fund in the Delaware Investments Family of Funds Senior Vice President/Compliance Director/Assistant Secretary of Delaware Management Trust Company Vice President/Associate General Counsel/Assistant Secretary of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each a series of Delaware Management Business Trust), Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc., Delaware Management Business Trust, Delaware Distributors, L.P., and each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Ryan K. Brist Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) Executive Vice President/Managing Director/Chief Investment Officer - Fixed Income of each fund in the Delaware Investments Family of Funds Executive Vice President/Managing Director/Co-Head - Fixed Income of Delaware Management Company, Delaware Investment Advisers and Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Vice President of Lincoln National Income Fund, Inc. Timothy G. Connors Senior Vice President/Chief Investment Officer - Value Investing of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., Delaware Management Business Trust, Lincoln National Investment Companies, Inc. and each fund in the Delaware Investments Family of Funds Nancy M. Crouse Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investment Family of Funds George E. Deming Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Director of Delaware International Advisers Ltd. Robert J. DiBraccio Senior Vice President/Head of Equity Trading of Delaware Management Company, Delaware Investment Advisers and Delaware Capital Management (each a series of Delaware Management Business Trust) John B. Fields Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Trustee of Delaware Management Business Trust Jonathan Hatcher(2) Senior Vice President/Senior Fixed Income Analyst III of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) Senior Vice President/Senior Research Analyst of each fund in the Delaware Investments Family of Funds Vice President/Senior High Yield Analyst of Delaware Investment Advisers (a series of Delaware Management Business Trust) Carolyn McIntyre(3) Senior Vice President/Human Resources of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware General Management, Inc., Delaware Management Business Trust and Lincoln National Investment Companies, Inc. Susan L. Natalini Senior Vice President/Global Marketing & Client Services of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) D. Tysen Nutt(4) Senior Vice President/Head of Large Cap Value of each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Francis X. Morris Director - Fundamental Research/Senior Portfolio Manager of Delaware Management Company (a series of Delaware Management Business Trust) Senior Vice President/Senior Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Vice President/Senior Portfolio Manager of Delaware General Management, Inc. Vice President/Senior Equity Analyst of Delaware Capital Management (a series of Delaware Management Business Trust) John J. O'Connor Senior Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust) and Delaware Service Company, Inc. Senior Vice President/Investment Accounting/Assistant Treasurer of Delaware Investment Advisers (a series of Delaware Management Business Trust) Senior Vice President/Treasurer of each fund in the Delaware Investments Family of Funds Philip R. Perkins(5) Senior Vice President/Senior Portfolio Manager of Delaware Management Company and Delaware Investment Adviser (each a series of Delaware Management Business Trust) Timothy L. Rabe Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Paul M. Ross Senior Vice President/Global Marketing & Client Services of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) James L. Shields Senior Vice President/Chief Information Officer of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each a series of Delaware Management Business Trust), Delaware Service Company, Inc., Retirement Financial Services, Inc. and Delaware Distributors, L.P. David Starer(6) Senior Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Ward W. Tatge Senior Vice President/Director of Fixed Income Research of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Gary T. Abrams Vice President/Equity Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Christopher S. Adams Vice President/Portfolio Manager/Senior Equity Analyst of Delaware Management Company (a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Vice President/Senior Equity Analyst I of Delaware Investment Advisers (a series of Delaware Management Business Trust) Fred C. Aldridge, Jr. Vice President/Special Counsel to Directors/Trustees of each fund in the Delaware Investments Family of Funds Renee E. Anderson Vice President/Portfolio Manager/Senior Equity Analyst II of Delaware Management Company (a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Damon J. Andres Vice President/Senior Fixed Income Portfolio Manager I of Delaware Management Company (a series of Delaware Management Business Trust) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds Vice President/Portfolio Manager of Delaware Investment Advisers (a series of Delaware Management Business Trust) Vice President of Lincoln National Convertible Securities Fund, Inc. Joseph R. Baxter Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) Senior Vice President/Head of Municipal Bond Investments of each fund in the Delaware Investments Family of Funds Richard E. Biester Vice President/Equity Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vincent A. Brancaccio Vice President/Senior Equity Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Michael P. Buckley Vice President/Portfolio Manager/Director of Municipal Research of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vice President/Portfolio Manager/Senior Municipal Bond Analyst of each fund in the Delaware Investments Family of Funds MaryEllen M. Carrozza Vice President/Client Services of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust), Delaware General Management, Inc. and each fund in the Delaware Investments Family of Funds Steven G. Catricks Vice President/Equity Analyst II of each fund in the Delaware Investments Family of Funds Stephen R. Cianci Senior Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Vice President/Portfolio Manager of Delaware Capital Management (a series of Delaware Management Business Trust) Robert F. Collins(7) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds David F. Connor Vice President/Deputy General Counsel/Assistant Secretary of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware Management Trust Company, Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc., LNC Administrative Services Corporation and each fund in the Delaware Investments Family of Funds Secretary of Lincoln National Convertible Securities Fund, Inc. and Lincoln National Income Fund, Inc. Scott E. Decatur(8) Vice President/Senior Equity Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investment Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Joseph F. DeMichele Vice President/High Grade Trading of Delaware Management Company (a series of Delaware Management Business Trust) Vice President/Senior High Grade Trading of Delaware Investment Advisers (a series of Delaware Management Business Trust) Joel A. Ettinger Vice President/Taxation of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc., LNC Administrative Services Corporation and each fund in the Delaware Investments Family of Funds Phoebe W. Figland Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware Investments Family of Funds Joseph Fiorilla Vice President/Trading Operations of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Charles E. Fish Vice President/Senior Equity Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Clifford M. Fisher(9) Vice President/Senior Bond Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Denise A. Franchetti Vice President/Portfolio Manager/Municipal Bond Credit Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Brian Funk Vice President/Senior High Yield Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds James A. Furgele Vice President/Investment Accounting of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware Investments Family of Funds Brent C. Garrells Vice President/ High Yield Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Daniel V. Geatens Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware Investments Family of Funds Stuart M. George Vice President/Equity Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Barry Gladstein Vice President/Portfolio Analyst of Delaware Management Company and Delaware Investment Advisers (a series of Delaware Management Business Trust) Vice President/Equity Analyst of Delaware Capital Management (a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Paul Grillo Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Vice President/Portfolio Manager of Delaware Capital Management (a series of Delaware Management Business Trust) Brian T. Hannon Vice President/Equity Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Michael E. Hughes Vice President/Senior Equity Analyst I of each fund in the Delaware Investments Family of Funds Jeffrey W. Hynoski Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Jordan L. Irving(10) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds Cynthia Isom Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Kenneth R. Jackson Vice President/Equity Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Roseanne L. Kropp Vice President/Senior Equity Analyst II - High Yield of each fund in the Delaware Investments Family of Funds Nikhil G. Lalvani Vice President/Senior Equity Analyst I of each fund in the Delaware Investments Family of Funds Steven T. Lampe Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Kevin S. Lee Vice President/Assistant Controller of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware Management Trust Company, Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc., LNC Administrative Services Corporation and LNC Administrative Services Corporation Anthony A. Lombardi(11) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds Andrew M. McCullagh, Jr. Vice President/Senior Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Michael S. Morris Vice President/Portfolio Manager of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vice President/Senior Equity Analyst of each fund in the Delaware Investments Family of Funds John R. Murray Vice President/Senior Equity Analyst of Delaware Management Company (a series of Delaware Management Business Trust) Patrick J. O'Brien Vice President/Equity Analyst of each fund in the Delaware Investments Family of Funds David P. O'Connor Vice President/Associate General Counsel/Assistant Secretary of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Service Company, Inc., Delaware Distributors, Inc. Retirement Financial Services, Inc., Delaware Management Business Trust, Delaware Distributors, L.P., Lincoln National Investment Companies, Inc., LNC Administrative Services Corporation and each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Philip O. Obazee(12) Vice President/Derivatives Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Donald G. Padilla Vice President/Equity Analyst II of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vice President/Equity Analyst II of each fund in the Delaware Investments Family of Funds Richard Salus Vice President/Deputy Controller of Delaware Management Company, Delaware Investment Advisers, Delaware Capital Management, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DMH Corp., Delaware Investments U.S., Inc., Delaware General Management, Inc., Delaware Management Company, Inc., Lincoln National Investment Companies, Inc., LNC Administrative Services Corporation and LNC Administrative Services Corporation Vice President/Assistant Controller of Delaware Service Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc., Delaware Management Trust Company, Delaware Management Business Trust and Delaware Distributors, L.P. Kevin C. Schildt Vice President/Senior Municipal Credit Analyst of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Vice President/Senior Research Analyst of each fund in the Delaware Investments Family of Funds Richard D. Seidel Vice President/Assistant Controller/Manager - Payroll of Delaware Management Company, Delaware Investment Advisers, Delaware Lincoln Cash Management (each a series of Delaware Management Business Trust), Delaware Investments, U.S., Delaware General Management, Inc., Delaware Management Company, Inc., Delaware Distributors, Inc., Retirement Financial Services, Inc., Delaware Management Business Trust, Lincoln Investment Companies, Inc. and LNC Administrative Services Corporation Vice President/Assistant Treasurer of Delaware Capital Management (a series of Delaware Management Business Trust), Delaware Management Holdings, Inc., DHM Corp., Delaware Service Company, Inc. and Delaware Distributors, L.P. Thomas Socha Vice President/Senior Fixed Income Analyst of each fund in the Delaware Investments Family of Funds Brenda L. Sprigman Vice President/Business Manager - Fixed Income of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) Matthew J. Stephens Vice President/Senior High Grade Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds David E. Sulpizi Vice President/Senior Fixed Income Analyst of each fund in the Delaware Investments Family of Funds Michael T. Taggart Vice President/Facilities & Administrative Services of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust), Delaware Service Company, Inc., Delaware Distributors, Inc. and Delaware Distributors, L.P. Matthew Todorow(13) Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Robert A. Vogel, Jr.(14) Vice President/Senior Portfolio Manager of each fund in the Delaware Investments Family of Funds Lori P. Wachs Vice President/Portfolio Manager of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds
NAME AND PRINCIPAL BUSINESS POSITIONS & OFFICES WITH DELAWARE MANAGEMENT COMPANY AND ITS AFFILIATES AND OTHER ADDRESS* POSITIONS & OFFICES HELD - --------------------------- --------------------------------------------------------------------------------- Laura A. Wagner Vice President/Investment Accounting of Delaware Management Company (a series of Delaware Management Business Trust), Delaware Service Company, Inc. and each fund in the Delaware Investments Family of Funds Chris Welker Vice President/Senior High Grade Trader of Delaware Management Company and Delaware Investment Advisers (each a series of Delaware Management Business Trust) James J. Wright Vice President/Senior Equity Analyst of Delaware Management Company, Delaware Investment Advisers (each a series of Delaware Management Business Trust) and each fund in the Delaware Investments Family of Funds Erik E. Zipf Vice President/Equity Analyst II of each fund in the Delaware Investments Family of Funds
- ------------- (1) ASSOCIATE CORPORATE COUNSEL, Franklin Templeton Investments, 1998-2002. (2) SENIOR RESEARCH ANALYST, Strong Capital Management, 2000-2002. (3) HEAD OF HUMAN RESOURCES, Lincoln Life, 2001-2003. (4) MANAGING DIRECTOR/U.S. ACTIVE LARGE-CAP VALUE TEAM, Merrill Lynch, 1994-2004. (5) MANAGING DIRECTOR/GLOBAL MARKETS, Deutsche Bank, 1998-2003. (6) SENIOR QUANTITATIVE ANALYST, Jacobs Levy Equity Management, 1996-2001. (7) CO-MANAGER, PNC Advisors, 2000-2004. (8) QUANTITATIVE INVESTMENT PROFESSIONAL, Grantham, Mayo, VanOtterloo & Co., 1997-2002. (9) VICE PRESIDENT/MUNICIPAL BOND, Advest, Inc., 1999-2002. (10) VICE PRESIDENT/U.S. ACTIVE LARGE-CAP VALUE TEAM, Merrill Lynch, 1998-2004. (11) DIRECTOR/U.S. ACTIVE LARGE-CAP VALUE TEAM, Merrill Lynch, 1998-2004. (12) VICE PRESIDENT/QUANTITATIVE RESEARCH GROUP, First Union Capital Markets Corporation, 1998-2001. (13) EXECUTIVE DIRECTOR/PORTFOLIO MANAGER, Morgan Stanley Investment Management, 1994-2003. (14) DIRECTOR/U.S. ACTIVE LARGE-CAP VALUE TEAM, Merrill Lynch, 1992-2004. Item 26. Principal Underwriters. (a)(1) Delaware Distributors, L.P. serves as principal underwriter for all the mutual funds in the Delaware Investments Family of Funds. (b)(1) Information with respect to each officer or partner of the principal underwriter and the Registrant is provided below. Unless noted, the principal business address of Delaware Distributors, L.P. is 2005 Market Street, Philadelphia, PA 19103-7094.
NAME & PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH UNDERWRITER POSITIONS & OFFICES WITH REGISTRANT - ---------------------------------- ------------------------------------- ----------------------------------- Delaware Distributors, Inc. General Partner None Delaware Capital Management Limited Partner None Delaware Investment Advisers Limited Partner None Kevin J. Lucey President/Chief Executive Officer None Joseph H. Hastings Executive Vice President Executive Vice President Richelle S. Maestro Executive Vice President/General Executive Vice President/General Counsel/ Secretary Counsel/ Secretary (Chief Legal Officer) Philip N. Russo Executive Vice President/Chief None Financial Officer Diane M. Anderson Senior Vice President/Retirement None Operations Douglas L. Anderson Senior Vice President/Operations None Michael P. Bishof Senior Vice President/Investment Senior Vice President/Chief Financial Accounting Officer Thomas M. McConnell Senior Vice President/Senior 529 Plans None Product Manager Carolyn McIntyre Senior Vice President/Human None Resources
NAME & PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH UNDERWRITER POSITIONS & OFFICES WITH REGISTRANT - ---------------------------------- ------------------------------------- ----------------------------------- Daniel J. Perullo Senior Vice President/Eastern Director, None Institutional Sales Robert E. Powers Senior Vice President/Senior Domestic None Sales Manager James L. Shields Senior Vice President/Chief Information None Officer Trevor M. Blum Vice President/Senior Consulting None Relationship Manager Elisa C. Colkitt Vice President/Broker Dealer Operations None & Service Support David F. Connor Vice President/Deputy General Vice President/Deputy General Counsel/Assistant Secretary Counsel/Assistant Secretary Joel A. Ettinger Vice President/Taxation Vice President/Taxation Susan T. Friestedt Vice President/Retirement Services None Edward M. Grant Vice President/Defined Contribution None Sales Manager Jeffrey M. Kellogg Vice President/Senior Product None Manager/Communications Manager Kevin S. Lee Vice President/Assistant Controller None Brian L. Murray, Jr. Senior Vice President/Chief Senior Vice President/Chief Compliance Officer Compliance Officer David P. O'Connor Vice President/Associate General Vice President/Associate General Counsel/Assistant Secretary Counsel/Assistant Secretary Richard Salus Vice President/Deputy Controller None Richard D. Seidel Vice President/Assistant Treasurer None Theresa L. Sabol Vice President/Defined Contribution None Sales Manager Michael T. Taggart Vice President/Facilities & None Administrative Services
(a)(2) Lincoln Financial Distributors, Inc. ("LFD") serves as financial intermediary wholesaler for all the mutual funds in the Delaware Investments Family of Funds. (b)(2) Information with respect to each officer or partner of LFD and the Registrant is provided below. Unless noted, the principal business address of LFD is 2001 Market Street, Philadelphia, PA 19103-7055.
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS & OFFICES WITH LFD POSITIONS & OFFICES WITH REGISTRANT - ----------------------------------- ------------------------------------- ----------------------------------- Westley V. Thompson President/Chief Executive Officer and None Director David M. Kittredge Senior Vice President/Chief Operating None Officer and Director Margaret Skinner Senior Vice President None Frederick J. Crawford(1) Vice President/Treasurer None Patrick Caufield(2) Vice President/Chief Compliance Officer None Keith J. Ryan(3) Financial Officer None Cynthia A. Rose(3) Secretary None
- ---------- (1) 1500 Market Street, Philadelphia, PA 19103. (2) 350 Church Street, Hartford, CT 06103 (3) 1300 Clinton Street, Fort Wayne, IN 46802 (c) Not Applicable. Item 27. Location of Accounts and Records. All accounts and records are maintained in Philadelphia at 2005 Market Street, Philadelphia, PA 19103-7094. Item 28. Management Services. None. Item 29. Undertakings. Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this 24th day of February, 2005. DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS By: Jude T. Driscoll ---------------------------------- Jude T. Driscoll Chairman Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - ---------------------------- --------------------------------------------- ----------------- Jude T. Driscoll Chairman/Chief Executive Officer (Principal February 24, 2005 - ---------------------------- Executive Officer) and Trustee Jude T. Driscoll Walter P. Babich * Trustee February 24, 2005 - ---------------------------- Walter P. Babich John H. Durham * Trustee February 24, 2005 - ---------------------------- John H. Durham John A. Fry * Trustee February 24, 2005 - ---------------------------- John A. Fry Anthony D, Knerr * Trustee February 24, 2005 - ---------------------------- Anthony D. Knerr Ann R. Leven * Trustee February 24, 2005 - ---------------------------- Ann R. Leven Thomas F. Madison * Trustee February 24, 2005 - ---------------------------- Thomas F. Madison Janet L. Yeomans * Trustee February 24, 2005 - ---------------------------- Janet L. Yeomans Michael P. Bishof * Senior Vice President/Chief Financial Officer February 24, 2005 - ---------------------------- (Principal Accounting Officer) Michael P. Bishof
* By: Jude T. Driscoll ---------------------------------- Jude T. Driscoll as Attorney-in-Fact for each of the persons indicated SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Exhibits to Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 INDEX TO EXHIBITS
Exhibit No. Exhibit - --------------- ----------------------------------------------------------------------------- EX-99 (b) Amended and Restated By-Laws (August 19, 2004) EX-99 (e)(5) Bank/Trust Agreement (August 2004) EX-99 (h)(1)(i) Executed Schedule B (September 1, 2004) to the Shareholder Services Agreement EX-99 (p)(1) Code of Ethics for Delaware Investments' Family of Funds (December 2004) EX-99 (p)(2) Code of Ethics for Delaware Investments (December 2004) EX-99 (p)(3) Code of Ethics for Lincoln Financial Distributors, Inc. (June 2004) EX-99 (q) Trustees' Power of Attorney (February 17, 2005)
EX-99 2 ex99-b.txt EX99-B.TXT Exhibit-99.(b) Approved as of December 17, 1998 Amended and Restated as of August 19, 2004 AMENDED AND RESTATED BY-LAWS OF DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS A Delaware Statutory Trust ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal executive office of DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS (the "Trust") shall be One Commerce Square, Philadelphia, Pennsylvania, 19103. The board of trustees (the "Board of Trustees") may, from time to time, change the location of the principal executive office of the Trust to any place within or outside the State of Delaware. Section 2. OTHER OFFICES. The Board of Trustees may at any time establish branch or subordinate offices at any place or places where the Trust intends to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of Delaware designated by the Board of Trustees. In the absence of any such designation by the Board of Trustees, shareholders' meetings shall be held at the principal executive office of the Trust. For purposes of these Amended and Restated By-Laws (the "By-Laws"), the term "shareholder" shall mean a record owner of shares of the Trust. Section 2. CALL OF MEETING. A meeting of the shareholders may be called at any time by the Board of Trustees, the Chairperson (as defined under Section 3 of Article III herein) or by the President (as defined under Section 1 of Article V herein). If the Trust is required under the Investment Company Act of 1940, as amended (the "1940 Act"), to hold a shareholders' meeting to elect trustees, the meeting shall be deemed an "annual meeting" for that year for purposes of the 1940 Act. Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of shareholders shall be sent or otherwise given, in accordance with Section 4 of this Article, not less than seven (7) nor more than one-hundred twenty (120) days before the date of the meeting. The notice shall specify (i) the place, date and hour of the meeting, and (ii) the general nature of the business to be transacted. The notice of any meeting at which trustees are to be elected also shall include the name of any nominee or nominees whom at the time of the notice are intended to be presented for election. Except with respect to adjournments as provided herein, no business shall be transacted at such meeting other than that specified in the notice. Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail, courier or telegraphic, facsimile, electronic mail or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the Trust or its transfer agent or given by the shareholder to the Trust for the purpose of notice. If no such address appears on the Trust's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail, courier, or telegraphic, facsimile, electronic mail or other written communication to the Trust's principal executive office. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail, with a courier or sent by telegram, facsimile, electronic mail or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the Trust is returned to the Trust marked to indicate that the notice to the shareholder cannot be delivered at that address, all future notices or reports shall be deemed to have been duly given without further mailing, or substantial equivalent thereof, if such notices shall be available to the shareholder on written demand of the shareholder at the principal executive office of the Trust for a period of one year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary or any transfer agent of the Trust giving the notice and shall be filed and maintained in the records of the Trust. Such affidavit shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Section 5. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time (and at any time during the course of the meeting) by a majority of the votes cast by those shareholders present in person or by proxy, or by the chairperson of the meeting. Any adjournment may be with respect to one or more proposals, but not necessarily all proposals, to be voted or acted upon at such meeting and any adjournment will not delay or otherwise affect the effectiveness and validity of a vote or other action taken at a shareholders' meeting prior to adjournment. When any shareholders' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting at which the adjournment is taken, unless a new record date of the adjourned meeting is fixed or unless the adjournment is for more than one hundred eighty (180) days from the record date set for the original meeting, in which case the Board of Trustees shall set a new record date. If notice of any such adjourned meeting is required pursuant to the preceding sentence, it shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 3 and 4 of this Article. At any adjourned meeting, the Trust may transact any business that might have been transacted at the original meeting. Section 6. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of the Declaration of Trust, as in effect at such time. The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for trustees must be by ballot if demanded by any shareholder before the voting has begun. Abstentions and broker non-votes will be included for purposes of determining whether a quorum is present at a shareholders' meeting. Abstentions and broker non-votes will be treated as votes present at a shareholders' meeting, but will not be treated as votes cast. Abstentions and broker non-votes, therefore, will have no effect on proposals which require a plurality or majority of votes cast for approval, but will have the same effect as a vote "against" on proposals requiring a majority of outstanding voting securities for approval. Unless otherwise determined by the Board of Trustees at the time it approves an action to be submitted to the shareholders for approval, shareholder approval of an action shall remain in effect until such time as the approved action is implemented or the shareholders vote to the contrary. Notwithstanding the foregoing, an agreement of merger or consolidation may be terminated or amended notwithstanding prior approval if so authorized by such agreement of merger or consolidation pursuant to Section 3815 of the Delaware Statutory Trust Act ("DSTA"). 2 Section 7. WRITTEN ACTION. Any action that might be taken at a meeting of the shareholders may be taken without a meeting in accordance with the provisions of the Trust's Agreement and Declaration of Trust, as may be amended from time to time. Section 8. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The transactions of a meeting of shareholders, however called and noticed and wherever held, shall be valid as though transacted at a meeting duly held after regular call and notice if a quorum be present either in person or by proxy. Attendance by a person at a meeting shall also constitute a waiver of notice with respect to that person of that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that such attendance is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the beginning of the meeting. Whenever notice of a meeting is required to be given to a shareholder under the Declaration of Trust or these By-Laws, a written waiver thereof, executed before or after the meeting by such shareholder or his or her attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. Section 9. PROXIES. Every shareholder entitled to vote for trustees or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the shareholder and filed with the secretary of the Trust. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, electronic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the shareholder executing it by a written notice delivered to the Trust prior to the exercise of the proxy or by the shareholder's execution of a subsequent proxy or attendance and vote in person at the meeting; or (ii) written notice of the death or incapacity of the shareholder is received by the Trust before the proxy's vote is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of the General Corporation Law of the State of Delaware. With respect to any shareholders' meeting, the Trust may accept proxies by electronic transmission (as defined in the DSTA) or telephonic, computerized, telecommunications or any other reasonable alternative to the execution of a written instrument authorizing the proxy to act, provided the shareholder's authorization is received within eleven (11) months before the meeting. A proxy with respect to shares held in the name of two or more Persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest with the challenger. Section 10. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Trustees or the appropriate officers of the Trust may appoint any person other than nominees for office to act as inspector of election at the meeting or its adjournment. If no inspector of election is so appointed, the chairperson of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector of election at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act, the chairperson of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint a person to fill the vacancy. 3 The inspector shall: (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III TRUSTEES Section 1. POWERS. Subject to the applicable provisions of the Declaration of Trust and these By-Laws relating to action requiring shareholder approval, the business and affairs of the Trust shall be managed and all powers shall be exercised by or under the direction of the Board of Trustees. Section 2. NUMBER OF TRUSTEES. The number of trustees constituting the Board of Trustees shall be determined as set forth in the Declaration of Trust. Section 3. CHAIRPERSON. The Board of Trustees may elect a chairperson for the purpose of presiding at meetings of the Board of Trustees (the "Chairperson"). The Chairperson shall exercise and perform such other powers and duties as may be from time to time assigned to the Chairperson by the Board of Trustees or prescribed by the By-Laws. The Chairperson may delegate his or her powers and duties to the trustees or officers of the Trust that he or she deems appropriate, provided that such delegation is consistent with applicable legal and regulatory requirements. Section 4. VACANCIES. Vacancies in the Board of Trustees may be filled by a majority of the remaining trustees, though less than a quorum, or by a sole remaining trustee, unless the Board of Trustees calls a meeting of shareholders for the purpose of filling such vacancies. Notwithstanding the above, whenever and for so long as the Trust is a participant in or otherwise has in effect a plan under which the Trust may be deemed to bear expenses of distributing its shares as that practice is described in Rule 12b-1 under the 1940 Act, then the selection and nomination of the trustees who are not "interested persons" of the Trust, as that term is defined in the 1940 Act (the "Independent Trustees") shall be, and is, committed to the discretion of the Independent Trustees. In the event that all trustee offices become vacant, an authorized officer of Delaware Management Company, a series of Delaware Management Business Trust, or any successor entity thereto or affiliate thereof serving as investment adviser to the Trust ("DMC"), on behalf DMC, shall serve as the sole remaining trustee effective upon the vacancy in the office of the last trustee. In such case, such officer of DMC, as the sole remaining trustee, shall, as soon as practicable, fill all of the vacancies on the Board of Trustees; provided, however, that, upon filling such vacancies, the percentage of trustees who are 4 Independent Trustees of the Trust shall be no less than that required by the 1940 Act. Thereupon, such officer of DMC shall resign as trustee and a meeting of the shareholders shall be called, as required by the 1940 Act, for the election of trustees. Whenever a vacancy in the Board of Trustees shall occur (by reason of death, resignation, removal, an increase in the authorized number of trustees or other cause), until such vacancy is filled as provided herein or the number of authorized trustees constituting the Board of Trustees is decreased pursuant to Article IV, Section 1 of the Declaration of Trust, the trustee(s) then in office, regardless of the number and even if less than a quorum, shall have all the powers granted to the Board of Trustees and shall discharge all the duties imposed upon the Board of Trustees by the Declaration of Trust and these By-Laws as though such number constitutes the entire Board of Trustees. Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the Board of Trustees may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the Board of Trustees. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Trust. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all trustees participating in the meeting can hear one another, and all such trustees shall be deemed to be present in person at the meeting. Section 6. REGULAR MEETINGS. Regular meetings of the Board of Trustees shall be held without call at such time as shall from time to time be fixed by the Board of Trustees. Such regular meetings may be held without notice. Section 7. SPECIAL MEETINGS. Special meetings of the Board of Trustees for any purpose or purposes may be called at any time by the Chairperson, the President (as defined under Section 1 of Article V herein), any vice president, the secretary or any two (2) trustees. Notice of the time and place of special meetings shall be delivered personally or by telephone to each trustee or sent by first-class mail, courier or telegram, charges prepaid, or by facsimile or electronic mail, addressed to each trustee at that trustee's address as it is shown on the records of the Trust. In case the notice is mailed, it shall be deposited in the United States mail at least seven (7) days before the time of the holding of the meeting. In case the notice is delivered personally, by telephone, by courier, to the telegraph company, or by express mail, facsimile, electronic mail or similar service, it shall be delivered at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the trustee or to a person at the office of the trustee who the person giving the notice has reason to believe will promptly communicate it to the trustee. The notice need not specify the purpose of the meeting or, if the meeting is to be held at the principal executive office of the Trust, the place of the meeting. Section 8. QUORUM. A majority of the authorized number of trustees shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article. Every act or decision done or made by a majority of the trustees present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Trustees, subject to the provisions of the Declaration of Trust. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of trustees if any action taken is approved by at least a majority of the required quorum for that meeting. Section 9. WAIVER OF NOTICE. Notice of any meeting need not be given to any trustee who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting, or an 5 approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the records of the Trust or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any trustee who attends the meeting without protesting before or at its commencement about the lack of notice to that trustee. Section 10. ACTION BY WRITTEN CONSENT IN LIEU OF MEETINGS. Except as required by law, including the 1940 Act and the rules and regulations thereunder, on any matter required or permitted to be voted on by the Board of Trustees or a committee of the Board of Trustees, the Board of Trustees or committee thereof may take such action without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the Trustees having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Trustees entitled to vote thereon were present and voted. Section 11. ADJOURNMENT. A majority of the trustees present, whether or not constituting a quorum, may adjourn any matter at any meeting to another time and place. Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than seven (7) days, in which case notice of the time and place shall be given before the time of the adjourned meeting to the trustees who were present at the time of the adjournment. Section 13. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Trustees. This Section 13 shall not be construed to preclude any trustee from serving the Trust in any other capacity as an officer, agent, employee, or otherwise and receiving compensation for those services. Section 14. TRUSTEE EMERITUS. Upon retirement of a trustee, the Board of Trustees may elect him or her to the position of Trustee Emeritus. A Trustee Emeritus shall serve for one year and may be reelected by the Board of Trustees from year to year thereafter. Any person serving as a Trustee Emeritus shall not vote at meetings of trustees and shall not be held responsible for actions of the Board of Trustees but shall receive fees paid to trustees for serving as such. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may, by resolution adopted by a majority of the authorized number of trustees, designate one or more committees, each consisting of two (2) or more trustees, to serve at the pleasure of the Board of Trustees. The Board of Trustees may designate one or more trustees as alternate members of any committee who may replace any absent member at any meeting of the committee. Any committee to the extent provided in the resolution of the Board of Trustees, shall have the authority of the Board of Trustees, except with respect to: (a) the approval of any action which under the Declaration of Trust or applicable law also requires shareholders' approval or requires approval by a majority of the entire Board of Trustees or certain members of said Board of Trustees; (b) the filling of vacancies on the Board of Trustees or in any committee; (c) the fixing of compensation of the trustees for serving on the Board of Trustees or on any committee; 6 (d) the amendment or repeal of the Declaration of Trust or of the By-Laws or the adoption of new By-Laws; (e) the amendment or repeal of any resolution of the Board of Trustees which by its express terms is not so amendable or repealable; or (f) the appointment of any other committees of the Board of Trustees or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of any committee shall be governed by and held and taken in accordance with the provisions of Article III of these By-Laws, with such changes in the context thereof as are necessary to substitute the committee and its members for the Board of Trustees and its members, except that the time of regular meetings of any committee may be determined either by resolution of the Board of Trustees or by resolution of the committee. Special meetings of any committee may also be called by resolution of the Board of Trustees, and notice of special meetings of any committee shall also be given to all alternate members who shall have the right to attend all meetings of the committee. The Board of Trustees may adopt rules for the government of any committee not inconsistent with the provisions of these By-Laws. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the Trust shall be a president and chief executive officer (the "President"), a secretary, and a treasurer. The Trust may also have, at the discretion of the Board of Trustees, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person, except the offices of President and vice president. Section 2. ELECTION OF OFFICERS. The officers of the Trust designated in Section 1 of this Article shall be chosen by the Board of Trustees, and each shall serve at the pleasure of the Board of Trustees, subject to the rights, if any, of an officer under any contract of employment. Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may empower the Chairperson and/or the President to appoint such other officers as the business of the Trust may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these By-Laws or as the Board of Trustees may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Trustees at any regular or special meeting of the Board of Trustees, or by an officer upon whom such power of removal may be conferred by the Board of Trustees. Any officer may resign at any time by giving written notice to the Trust. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Trust under any contract to which the officer is a party. 7 Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in these By-Laws for regular appointment to that office. Section 6. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Trustees to the Chairperson, the President shall be the chief executive officer of the Trust and shall, subject to the control of the Board of Trustees, have general supervision, direction and control of the business and the officers of the Trust. The President shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Trustees or these By-Laws. Section 7. VICE PRESIDENTS. In the absence or disability of the President, vice presidents, in the order as determined by the Board of Trustees, shall succeed to all of the duties of the President and when so acting shall have all powers of and be subject to all the restrictions upon the President until the President's return, or until such disability shall be removed or until a new President shall have been elected. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Trustees, the Chairperson, the President or these By-Laws. Section 8. SECRETARY. The secretary shall keep or cause to be kept at the principal executive office of the Trust, or such other place as the Board of Trustees may direct, a book of minutes of all meetings and actions of trustees, committees of trustees and shareholders, which shall record the time and place of such meetings, designation of whether such a meeting is regular or special, the names of those present at trustees' meetings or committee meetings, and a summary of the proceedings. The secretary shall cause to be kept at the principal executive office of the Trust, or at the office of the Trust's transfer agent or registrar, a share register or a duplicate share register showing the names of all shareholders and their addresses, the number, series and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give or cause to be given notice of all meetings of the shareholders and of the Board of Trustees required by these By-Laws or by applicable law to be given and shall have such other powers and perform such other duties as may be prescribed by the Board of Trustees or by these By-Laws. Section 9. TREASURER. The treasurer shall keep and maintain or cause to be kept and maintained adequate and correct books and records of accounts of the properties and business transactions of the Trust, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any trustee. The treasurer shall deposit all monies and other valuables in the name and to the credit of the Trust with such depositories as may be designated by the Board of Trustees. He or she shall disburse the funds of the Trust as may be ordered by the Board of Trustees, shall render to the President and trustees, whenever they request it, an account of all of his or her transactions as treasurer and of the financial condition of the Trust and shall have other powers and perform such other duties as may be prescribed by the Board of Trustees or these By-Laws. 8 ARTICLE VI INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this Article, "agent" means any person who is or was a trustee, officer, employee or other agent of this Trust or is or was serving at the request of the Trust as a trustee, director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or was a trustee, director, officer, employee or agent of a foreign or domestic corporation which was a predecessor of another enterprise at the request of such predecessor entity; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes without limitation attorneys' fees and any expenses of establishing a right to indemnification under this Article. Section 2. ACTIONS OTHER THAN BY TRUST. The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Trust) by reason of the fact that such person is or was an agent of the Trust, against expenses, judgments, penalties, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner that such person reasonably believed to be in the best interests of the Trust and in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person was unlawful. For purposes of this Section 2 and Section 3 below, (a) the termination of any proceeding by judgment, order, or settlement shall not of itself create a presumption that the person did not act in good faith or in a manner which the person reasonably believed to be in the best interests of the Trust or that the person had reasonable cause to believe that the person's conduct was unlawful, and (b) the termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the person did not act in good faith, or in a manner which the person reasonably believed to be in the best interests of the Trust or that the person had reasonable cause to believe that the person's conduct was unlawful. Section 3. ACTIONS BY TRUST. The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Trust to procure a judgment in its favor by reason of the fact that the person is or was an agent of the Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of the Trust. Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the agent's office with the Trust. No indemnification shall be made under Sections 2 or 3 of this Article: (a) In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable in the performance of that person's duty to the Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the circumstances of the case, that person was not liable by reason of the disabling conduct set forth in the preceding paragraph and is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; or (b) In respect of any claim, issue, or matter as to which that person shall have been adjudged to be 9 liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity; or (c) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval, or of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval, unless the required approval set forth in Section 6 of this Article is obtained. Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of the Trust has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article or in defense of any claim, issue or matter therein, before the court or other body before whom the proceeding was brought, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party trustees, also determines that based upon a review of the facts, the agent was not liable by reason of the disabling conduct referred to in Section 4 of this Article. Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this Article, any indemnification under this Article shall be made by the Trust only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article and is not prohibited from indemnification because of the disabling conduct set forth in Section 4 of this Article, by: (a) A majority vote of a quorum consisting of Independent Trustees who are not parties to the proceeding; or (b) A written opinion by an independent legal counsel. Section 7. ADVANCEMENT OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by the Trust before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article, provided the agent provides a security for his undertaking, or a majority of a quorum of the disinterested, non-party trustees, or an independent legal counsel in a written opinion, determine that based on a review of readily available facts, there is reason to believe that said agent ultimately will be found entitled to indemnification. Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to which persons other than trustees and officers of the Trust or any subsidiary thereof may be entitled by contract or otherwise. Section 9. LIMITATIONS. No indemnification or advance shall be made under this Article in any circumstances where it would be inconsistent with: (a) A provision of the Declaration of Trust, a resolution of the shareholders, or an agreement which prohibits or otherwise limits indemnification which was in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid; or (b) Any condition expressly imposed by a court in approving a settlement. Section 10. INSURANCE. Upon and in the event of a determination by the Board of Trustees to 10 purchase such insurance, the Trust shall be entitled to purchase and maintain insurance on behalf of any agent of the Trust against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such. Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of the Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article. ARTICLE VII RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The Trust shall keep at its principal executive office or at the office of its transfer agent or registrar a record of its shareholders, providing the names and addresses of all shareholders and the number, series and classes of shares held by each shareholder. Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep at its principal executive office the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the Board of Trustees and any committee or committees of the Board of Trustees shall be kept at such place or places designated by the Board of Trustees or in the absence of such designation, at the principal executive office of the Trust. The minutes and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney. Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the Trust. This inspection by a trustee may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. ARTICLE VIII DIVIDENDS Section 1. DECLARATION OF DIVIDENDS. Dividends upon the shares of beneficial interest of the Trust may, subject to the provisions of the Declaration of Trust, if any, be declared by the Board of Trustees at any regular or special meeting, pursuant to applicable law. Dividends may be paid in cash, in property, or in shares of the Trust. Section 2. RESERVES. Before payment of any dividend there may be set aside out of any funds of the Trust available for dividends such sum or sums as the Board of Trustees may, from time to time, in its absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for 11 repairing or maintaining any property of the Trust, or for such other purpose as the Board of Trustees shall deem to be in the best interests of the Trust, and the Board of Trustees may abolish any such reserve in the manner in which it was created. ARTICLE IX GENERAL MATTERS Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the Trust shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board of Trustees. Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees, except as otherwise provided in these By-Laws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Trust and this authority may be general or confined to specific instances; and unless so authorized or ratified by the Board of Trustees or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Trust by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for shares of beneficial interest in any series of the Trust may be issued to a shareholder upon his or her request when such shares are fully paid. All certificates shall be signed in the name of the Trust by the Chairperson, the President or vice president and by the treasurer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the series and class of shares owned by the shareholders. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Trust with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Notwithstanding the foregoing, the Trust may adopt and use a system of issuance, recordation and transfer of its shares by electronic or other means. Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the Trust and cancelled at the same time. In case any share certificate or certificate for any other security is lost, stolen or destroyed, the appropriate officers of the Trust may authorize the issuance of a replacement certificate on such terms and conditions as the Board of Trustees or such appropriate officers may require, including a provision for indemnification of the Trust secured by a bond or other adequate security sufficient to protect the Trust against any claim that may be made against it, including any expense or liability on account of the alleged loss, theft, or destruction of the certificate or the issuance of the replacement certificate. Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The Chairperson, the President or any vice president or any other person authorized by resolution of the Board of Trustees or by any of the foregoing designated officers, is authorized to vote or represent on behalf of the Trust any and all shares of any corporation, partnership, trust, or other entity, foreign or domestic, standing in the name of the Trust. The authority granted may be exercised in person or by a proxy duly executed by such designated person. Section 6. TRANSFER OF SHARES. Shares of the Trust shall be transferable only on the record books of the Trust by the Person in whose name such Shares are registered, or by his or her duly authorized 12 attorney or representative. In all cases of transfer by an attorney-in-fact, the original power of attorney, or an official copy thereof duly certified, shall be deposited and remain with the Trust, its transfer agent or other duly authorized agent. In case of transfers by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Trust, its transfer agent or other duly authorized agent. No transfer shall be made unless and until the certificate issued to the transferor, if any, shall be delivered to the Trust, its transfer agent or other duly authorized agent, properly endorsed. Section 7. HOLDERS OF RECORD. The Trust shall be entitled to treat the holder of record of any share or shares as the owner thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not the Trust shall have express or other notice thereof. Section 8. FISCAL YEAR. The fiscal year of the Trust and each series thereof shall be fixed by resolution of the Board of Trustees and, subject to applicable law or regulation, may be re-fixed or changed from time to time by resolution of the Board of Trustees. The fiscal year of the Trust shall be the taxable year of each series of the Trust. ARTICLE X AMENDMENTS Section 1. AMENDMENT. These By-laws may be restated and/or amended at any time, without the approval of the shareholders, by an instrument in writing signed by, or a resolution of, a majority of the then Board of Trustees. 13 EX-99 3 ex99-e5.txt EX99-E5.TXT Exhibit-99.(e)(5) [LOGO OF DELAWARE INVESTMENTS] DELAWARE INVESTMENTS FAMILY OF FUNDS BANK/TRUST AGREEMENT We are the national distributor for all of the shares of all of the Classes (now existing or hereafter added) of all of the Funds in the Delaware Group of Investment Companies which retain us, Delaware Distributors, L.P., to act as exclusive national distributor. The term "Fund" as used in this Agreement refers to each Fund in the Delaware Investments Family of Funds that retains us to promote and sell its shares, and any Fund that may hereafter be added to the Delaware Group to retain us as national distributor. The term "Class" as used in this Agreement refers to a class of shares of a Fund as described in the Fund's prospectus. You, a Bank/Trust ("you") have indicated that you wish to act as agent for your customer(s) wishing to purchase, sell and redeem Fund shares ("Customer(s)") and/or desire to provide certain services to your Customers relating to their ownership of Fund shares, all in accordance with the terms of this Agreement. AGENT FOR CUSTOMERS: In placing orders for the purchase and sale of Fund shares, you will be acting solely as agent for your Customers and will not have any authority to act as agent for us, any of the Funds or any of our affiliates or representatives. Each transaction in Fund shares will be initiated solely upon the order of a customer and shall be for the account of a customer. You also agree that you will not refrain from placing orders with us that you have received from your Customers for your own gain. Neither you nor any of your employees or agents are authorized to make any representations concerning the Funds or Fund shares except those contained in the then current "Prospectus" and in written information issued by the Fund or by us as a supplement to the Prospectus. In purchasing Fund shares your Customers may rely only on such authorized information. OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by a Fund or its agent, Delaware Service Company, Inc., will be at the public offering price applicable to each order as set forth in the Fund's Prospectus. The manner of computing the net asset value of shares, the public offering price and the effective time of orders received from you are described in the Prospectus for each Fund. We reserve the right at any time, without notice, to suspend the sale of Fund shares. PURCHASE PLANS: The purchase price on all orders placed by you and any concessions or other fees otherwise due to you under this Agreement will be subject to the then current terms and provisions of any applicable special plans and accounts (e.g., volume purchases, letters of intent, rights of accumulation, combined purchases privilege, exchange and reinvestment privileges and retirement plan accounts) as set forth from time to time in the Prospectus. We must be notified when an order is placed if it qualifies for a reduced sales charge under any of these plans. We reserve the right, at any time, without prior notice, to modify, suspend or eliminate any such plans or accounts by amendment, supplement or revision to the Prospectus for the Fund. SALES, ORDERS, AND CONFIRMATIONS: All orders must be made subject to confirmation and orders are subject to acceptance or rejection by the Fund in its sole discretion. Your orders must be wired, telephoned or written to the Fund or its agent. You agree to place orders on behalf of your Customers for the number of shares in bona fide orders from your Customers, and at the price at which such shares are sold. We will not accept any conditional orders. You agree that any purchase or redemption orders that you send to the Fund to be priced at that day's net asset value will have been received before the close of the New York Stock Exchange's regular trading hours (ordinarily 4:00 P.M. Eastern Standard Time) on such day. It is agreed and understood that, whether shares are registered in the purchaser's name, in your name or in the name of your nominee, your customer will have full beneficial ownership of the Fund shares. FUND SERV PROCESSING: Firm's orders will be placed via electronic transmission (Fund Serv). Fund Serv permits the transmission of shareholder trade and registration data between you and the Funds. Trade, registration and corrections on orders provided to the Funds' agent through Fund Serv shall be accurate, complete and in the format prescribed by the NSCC. If for some reason there is failure of electronic transmission, please contact the Fund to determine how such trades will be processed. AGENCY FEES: On each order accepted by us for a Fund with a sales charge, we understand that you will charge your customer an agency commission or agency transaction fee ("agency fee") as set forth in the schedule of sales concessions and agency fees set forth in that Fund's Prospectus, as it may be amended from time to time. This fee shall be subject to the provisions of all terms set forth in the Prospectus for volume purchases and special plans and accounts (e.g. retirement plans, letter of intent, etc.). You will not receive from us a dealer's concession or similar allowance out of the sales charge. The agency fee will not exceed the maximum limits on sales charges specified in Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD") regardless of whether you are a member of the NASD or not. You will not accept or withhold any fee otherwise allowed under the terms of this Agreement, for any shares purchased under this Agreement, if prohibited by the Employee Retirement Income Security Act or trust or similar laws to which you are subject, in the case of purchases or redemptions of Fund shares involving retirement plans, trusts or similar accounts. You may elect to make payments for Fund shares in either of two ways: (a) you may send us the public offering price for the Fund shares purchased less the amount of the agency fee due you, or (b) you or your customer may send us the entire public offering price for the Fund shares and we will, on a periodic basis, remit to you the agency fee due. You will specify in writing the method of payment you elect (See NOTICES AND COMMUNICATIONS Section below). If any shares sold to your customer under the terms of this Agreement are repurchased by the Fund or by us, or are tendered to a Fund for redemption or repurchase, within seven (7) business days after the date of the confirmation of the original purchase order, you will promptly refund to us the full agency fee paid or allowed to you on such shares. This Section shall not apply to the extent that you or your customer is qualified to buy, and is buying, shares at net asset value. AUGUST 2004 PAYMENT AND ISSUANCE OF CERTIFICATES: The shares purchased by you hereunder shall be paid for in full at the public offering price (less any agency fee retained by you as set forth above) by check payable to the Fund, Fed Fund wire or NSCC within three business days after our acceptance of your order. If not so paid, we reserve the right, without notice, to cancel the sale and to hold you responsible for any loss sustained by us or the Fund (including lost profit) as a result. Certificates representing Fund shares will not be issued unless a specific request is received from you or your customer. Certificates, if requested, will be issued in the names indicated by registration instructions accompanying payment. REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all ordinary circumstances, will redeem shares held by shareholders on demand. You agree that you will not make any representations to shareholders relating to redemption of their shares other than the statements contained in the Prospectus and the underlying organizational documents of the Fund to which it refers, and that you will quote as the redemption price only the price determined by the Fund. You shall not repurchase any shares from your Customers at a price other than that next quoted by the Fund for redemption. You may charge a reasonable fee for services in connection with the repurchase by you from your Customers of shares. IF YOU WANT TO RECEIVE 12b-1 PLAN FEES, please check the box below: IF YOU DO NOT WANT TO RECEIVE 12b-1 PLAN FEES, Please disregard the following paragraph. 12b-1 PLAN: With respect to any Fund that offers shares for which a Plan has been adopted under Rule 12b-1 (individually a "12b-1 Plan") of the Investment Company Act of 1940 (the "1940 Act"), you will be entitled to receive 12b-1 Plan fees for providing shareholder and administrative services to your Customers who own Fund shares as set forth under the 12b-1 Plan(s) applicable to the Class or Classes of Fund shares purchased by your Customers and, under certain circumstances, for assisting in the promotion of the Fund's shares. Such shareholder and administrative services may include: answering inquiries regarding the Fund; assisting in changing dividend options, account designations and addresses; performing sub-accounting; establishing and maintaining shareholder accounts and records; processing purchase and redemption transactions; providing periodic statements and/or updates showing a customer's account balance and integrating such statements with those for transactions and balances in the customer's other accounts serviced by you; and arranging for bank wires. You will transmit promptly to Customers all communications sent to you for transmittal to Customers by or on behalf of us, and the Fund or such Fund's investment advisor, custodian or transfer or dividend disbursing agent. You will promptly answer all written complaints received by you relating to Fund accounts or promptly forward such complaints to us and assist us in answering such complaints. For such services we will pay you a fee, as established by us from time to time, based on a portion of the net asset value of the accounts of your Customers in the various Classes of the Fund. We are permitted to make this payment under the terms of the 12b-1 Plans adopted by certain of the Funds, as such Plans may be in effect from time to time. The 12b-1 Plans in effect on the date of this Agreement are described in the Funds' Prospectuses. Each Fund reserves the right to terminate or suspend its 12b-1 Plan at any time as specified in the Plan and we reserve the right, at any time, without notice, to modify, suspend or terminate payments hereunder in connection with such 12b-1 Plan. You will furnish the Fund and us with such information as may be reasonably requested by the Fund or its directors or trustees or by us with respect to such fees paid to you pursuant to this Agreement. SALE OF NO-LOAD - NON 12b-1 PLAN FUNDS: In connection with any orders placed by you on behalf of your Customers for shares of Funds that do not charge a sales load and/or do not have a 12b-1 Plan, we understand that you may charge your Customers a limited service or transaction fee, in accordance with current interpretations and rulings of the Staff of the Commission. Such fees may not exceed the maximum limits on sales charges specified in Rule 2830 of the NASD Conduct Rules. LEGAL COMPLIANCE: This Agreement and any transaction with, or payment to, you pursuant to the terms hereof is conditioned on your representation to us that, as of the date of this Agreement you are, and at all times during its effectiveness you will be, a bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934 (or other financial institution) and not otherwise required to register as a broker or dealer under such Act. You agree to notify us promptly in writing if this representation ceases to be true. You also agree that, regardless of whether you are a member of the NASD, you will comply with the rules of the NASD, including, in particular, Sections 2310, IM 2310-2, and 2830 of the NASD Conduct Rules, and that you will maintain adequate records with respect to your Customers and their transactions, and that such transactions will be without recourse against you by your Customers. We recognize that, in addition to applicable provisions of state and federal securities laws, you may be subject to the provisions of the Glass-Steagall Act and other laws governing, among other things, the conduct of activities by federal and state chartered and supervised financial institutions and their affiliated organizations. As such, you may be restricted in the activities that you may undertake and for which you may be paid, and, therefore, we recognize that you will not perform activities that are inconsistent with your statutory and regulatory obligations. Because you will be the only one having a direct relationship with the customer, you will be responsible in that relationship for insuring compliance with all laws and regulations, including those of all applicable federal and state regulatory authorities and bodies having jurisdiction over you or your Customers to the extent applicable to securities purchases hereunder. You agree to cooperate with any efforts initiated by the Funds and/or their agents to identify and prevent abusive trading practices as described in the Funds' prospectuses, including, but not limited to, activities such as "market-timing", short-term trading, excessive trading, and late trading ("Abusive Trading Practices"). You shall cooperate with any requests made by the Funds and/or their agents towards this end, including providing the Funds and/or their agents with information about the trading history of any particular AUGUST 2004 shareholder that you maintain on your recordkeeping systems. You further agree to make any changes necessary to comply with any laws or regulations regarding Abusive Trading Practices applicable to any party to this Agreement and/or the Funds that relate to the performance of services under this Agreement. BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to your right to sell Fund shares in any state or jurisdiction. From time to time we shall furnish you with information identifying the states under the securities laws in which it is believed a Fund's shares may be sold. You will not transact orders for Fund shares in states or jurisdictions in which we indicate Fund shares may not be sold. You agree to offer and sell Fund shares outside the United States only in compliance with all applicable laws, rules and regulations of any foreign government having jurisdiction over such transactions in addition to any applicable laws, rules and regulations of the United States. LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales literature and other information made publicly available by the Fund, in reasonable quantities upon your request. We shall file Fund sales literature and promotional material with the NASD and SEC as required. You agree to deliver a copy of the current Prospectus to your Customers in accordance with the provisions of the Securities Act of 1933. You may not publish or use any sales literature or promotional materials with respect to the Funds without our prior review and written approval. CUSTOMERS: The names of your Customers will remain your sole property and will not be used by us except for servicing or informational mailings and other correspondence in the normal course of business. NOTICES AND COMMUNICATIONS: All communications from you should be addressed to us at 2005 Market Street, 4th Floor, Philadelphia, PA 19103. Any notice from us to you shall be deemed to have been duly given if mailed or telegraphed to you at the address set forth below. Each of us may change the address to which notices shall be sent by notice to the other in accordance with the terms hereof. Bank/Trust Address for Notices and Communications: __________________________________________________ __________________________________________________ __________________________________________________ TERMINATION: This Agreement may be terminated by either party at any time by written notice to that effect and will terminate without notice upon the appointment of a trustee for you under any act of insolvency by you. Notwithstanding the termination of this Agreement, you shall remain liable for any amounts otherwise owing to us or the Fund and your portion of any transfer tax or other liability which may be asserted or assessed against the Fund, or us, or upon any one or more of our dealers, based upon the claim that you and such dealers or any one of them constitute a partnership, an unincorporated business or other separate entity. AMENDMENT: This Agreement may be amended or revised at any time by us upon notice to you and, unless you promptly notify us in writing to the contrary, you will be deemed to have accepted such modifications. GENERAL: Your acceptance hereof will constitute an obligation on your part to observe all the terms and conditions hereof. In the event you breach any of the terms and conditions of this Agreement, you will indemnify us, the Funds and our affiliates for any damages, losses, costs and expenses (including reasonable attorneys' fees) arising out of or relating to such breach, and we may offset such damages, losses, costs and expenses against any amounts due to you hereunder. Nothing contained herein shall constitute you, us and any dealers as forming an association or partnership. All references in this Agreement to the "Prospectus" of a Fund refer to the then current version of the Prospectus and includes the Statement of Additional Information incorporated by reference therein and any supplements thereto. This Agreement supersedes and replaces any prior agreement between us and you with respect to your purchase and sale of Fund shares and is to be construed in accordance with the laws of the State of Delaware. Please confirm your acceptance of this Agreement by executing one copy of the Agreement and returning it to us. Keep the enclosed duplicate copy for your records. Your execution of this Agreement signifies your acknowledgment that any orders for Fund shares placed by you, on behalf of your Customer(s), during the effectiveness of this Agreement, are subject to all the applicable terms and conditions set forth in this Agreement, and confirms your agreement to pay for the shares, as agent for your Customer(s), at the price and upon the terms and conditions stated in this Agreement. In addition, you acknowledge receipt of Prospectuses relating to the Fund shares and confirms that, in executing this Agreement, you have relied on such Prospectuses and not on any other statement whatsoever, written or oral. DELAWARE DISTRIBUTORS, L.P. _________________________(BANK/TRUST) By: By: -------------------------------- ------------------------------ Name: Name: -------------------------------- ------------------------------ Title: Title: -------------------------------- ------------------------------ Date: EX-99 4 ex99-h1i.txt EX99-H1I.TXT Exhibit-99.(h)(1)(i) SCHEDULE B SHAREHOLDERS SERVICES AGREEMENT COMPENSATION SCHEDULE EFFECTIVE SEPTEMBER 1, 2004 DELAWARE INVESTMENTS FAMILY OF FUNDS 1. Delaware Service Company, Inc. ("DSC") will determine and report to the Fund, at least annually, the compensation for services to be provided to the Fund for DSC's forthcoming fiscal year or period. 2. In determining such compensation, DSC will fix and report a fee to be charged per account for services provided. DSC will bill, and the Fund will pay, such compensation monthly. 3. Except as otherwise provided in paragraphs 4 and 5, the charge consists of an annual per account charge of $21.25 per annum for: each open and closed account on DSC's records and each account held on a sub-accounting system maintained by firms that hold accounts on an omnibus basis. These charges are as follows: These charges will be assessed monthly on a pro rata basis and will be determined using the number of Shareholder and Retirement Accounts maintained as of the last calendar day of each month. Subtransfer agency fees (or similar fees) related to accounts on a retirement processing system will be passed on to the Fund at cost, without markup. 4. DSC's compensation for providing services to the Series of Delaware VIP Trust (the "VIP Trust") will be 0.01% of average daily net assets per Series annually. DSC will bill, and the VIP Trust will pay, such compensation monthly. 5. DSC's compensation for providing services to the Portfolios of Delaware Pooled Trust (the "Trust") (other than The Real Estate Investment Trust Portfolio) will be 0.01% of average daily net assets per Portfolio annually. DSC will bill, and the Trust will pay, such compensation monthly. Notwithstanding anything in this paragraph to the contrary, DSC's compensation for The Real Estate Investment Trust Portfolio will be as set forth in paragraph 3 above. AGREED AND ACCEPTED: DELAWARE SERVICE COMPANY, INC. DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS for its series set forth in Schedule A to this Agreement By: Douglas L. Anderson By: Jude T. Driscoll -------------------------------------- --------------------------------- Name: Douglas L. Anderson Name: Jude T. Driscoll Title: Senior Vice President/Operations Title: Chairman/President/ Chief Executive Officer EX-99 5 ex99-p1.txt EX99-P1.TXT Exhibit-99.(p)(1) CODE OF ETHICS DELAWARE INVESTMENTS' FAMILY OF FUNDS CREDO IT IS THE DUTY OF ALL DELAWARE INVESTMENT EMPLOYEES, OFFICERS AND DIRECTORS TO CONDUCT THEMSELVES WITH INTEGRITY, AND AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS FIRST. IN THE INTEREST OF THIS CREDO, ALL PERSONAL SECURITIES TRANSACTIONS WILL BE CONDUCTED CONSISTENT WITH THE CODE OF ETHICS AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS THAT PERSONNEL SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS. Rule 17j-1 under the Investment Company Act of 1940 (the "Rule") makes it unlawful for certain persons, including any employee, officer or director of the Fund, the Fund's investment adviser/sub-adviser, and the Fund's principal underwriter, in connection with the purchase or sale by such person of a security held or to be acquired by the Fund: (1) To employ any device, scheme or artifice to defraud the Fund; (2) To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances in which they are made, not misleading; (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or (4) To engage in any manipulative practice with respect to the Fund. The Rule also requires that each Delaware Investments' Fund and its Adviser, sub-adviser, and principal underwriter adopt a written code of ethics containing provisions reasonably necessary to prevent certain persons from engaging in acts in violation of the above standard and shall use reasonable diligence and institute procedures reasonably necessary to prevent violations of the Code. This Code of Ethics is being adopted by the Delaware Investments' Family of Funds (collectively "Delaware") in compliance with the requirement of Rule 17j-1 and to effect the purpose of the Credo set forth above, and to comply with the recommendations of the Investment Company Institute's Advisory Group on Personal Investing. 1 DEFINITIONS: "ACCESS PERSON" means a supervised person who has access to nonpublic information regarding clients' securities transactions, is involved in making securities recommendations to clients, who has access to such recommendations that are nonpublic, or who has access to nonpublic information regarding the portfolio holdings of a Fund or any director, trustee, general partner or Advisory Person of a fund or of a fund's investment adviser, or any employee of a fund or of a fund's investment adviser who, in connection with his or her regular functions or duties, participates in the selection of a fund's portfolio securities or who has access to information regarding a fund's future purchases or sales of portfolio securities. Those persons deemed Access Persons will be notified of this designation. "ADVISORY PERSON" means any employee of the fund or investment adviser who, in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to the purchase or sales. "AFFILIATED PERSON" means any officer, director, partner, or employee of a Delaware Fund or any subsidiary of Delaware Management Holdings, Inc. and any other person so designated by the Compliance Department. "BENEFICIAL OWNERSHIP" shall be as defined in Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Generally speaking, a person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security, is a "beneficial owner" of the security. For example, a person is normally regarded as the beneficial owner of securities held by members of his or her immediate family sharing the same household. Additionally, ownership of derivative securities such as options, warrants or convertible securities which confer the right to acquire the underlying security at a fixed price constitutes beneficial ownership of the underlying security itself. "CONTROL" shall mean investment discretion in whole or in part of an account regardless of beneficial ownership, such as an account for which a person has power of attorney or authority to effect transactions. "DE MINIMIS PURCHASES OR SALES" shall mean purchases or sales by covered persons of up to 500 shares of stock in a company that is in the Standard and Poor's 500 Index provided that Delaware has not traded more than 10,000 shares of that same stock during the last two trading days and there are no open orders for that stock on the Trading Desk. "HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS" shall mean any instrument that has a maturity at issuance of less that 366 days and that is rated in one of the two highest rating categories by a Nationally Recognized Statistical Rating Organization. 2 "INTERESTED DIRECTOR" means a director of the investment company who is an interested person within the meaning of Section 2(a)(19) of the Act. A "DISINTERESTED DIRECTOR" is a director who is not an interested person under Section 2(a)(19) of the Act. "INVESTMENT PERSONNEL" means any employee, other than a Portfolio Manager who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions affecting an investment company. Investment Personnel also include the staff who support a Portfolio Manager including analysts, administrative assistants, etc. Investment Personnel by definition are Access Persons. "MANAGED ACCOUNTS" means an account that is professionally managed through a wrap program. Managed Accounts require pre-approval through the Compliance Department prior to starting up the account. The Compliance Department will consider the facts and circumstances of the account, including the functions and duties of the employees, when approving or denying such accounts. In addition, preclearance is exempt with Managed Accounts, however, all trades still require reporting and duplicate statements and confirmations are required to be sent to the Compliance Department. Preclearance is only exempt for trades initiated by the wrap manager. All trades initiated by the employee require preclearance. "PORTFOLIO MANAGER" means any person who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions effecting an investment company. Portfolio Managers by definition are access persons. "SECURITY" shall have the meaning as set forth in Section 2(a)(36) of the Investment Company Act of 1940, except that it shall not include securities issued or guaranteed by the government of the United States or by any of its federal agencies, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments including repurchase agreements, unit investment trusts, shares of open-end registered investment companies (excluding mutual funds which Delaware Investments is the adviser and sub-adviser, see Appendix A for a list of these Funds, excluding money market funds), and municipal fund securities (i.e. 529 Plans) (excluding the TAP 529 Plan). In addition, the purchase, sale or exercise of a derivative security shall constitute the purchase or sale of the underlying security. However, the purchase or sale of the debt instrument of an issuer which does not give the holder the right to purchase the issuer's stock at a fixed price, does not constitute a purchase or sale of the issuer's stock. SECURITY BEING "CONSIDERED FOR PURCHASE OR SALE" OR "BEING PURCHASED OR SOLD" means when a recommendation to purchase or sell the security has been made and communicated to the Trading Desk and with respect to the person making the recommendation, when such person seriously considers making, or when such person knows or should know that another person is seriously considering making, such a recommendation. SECURITY "HELD OR TO BE ACQUIRED" BY A FUND means (i) any covered security which, within the most recent fifteen days (a) is or has been held by the fund; or (b) is being, or has been, considered by the fund or its investment adviser for purchase by the fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a covered security. 3 PROHIBITED ACTIVITIES I. THE FOLLOWING RESTRICTIONS APPLY TO ALL AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS. (a) No Affiliated Person or Access Person shall engage in any act, practice or course of conduct, which would violate the provisions of Rule 17j-1 set forth above. (b) No Affiliated Person or Access Person shall purchase or sell, directly or indirectly, any security which to his/her knowledge is being actively considered for purchase or sale by Delaware; except that this prohibition shall not apply to: (A) purchases or sales that are nonvolitional on the part of either the Person or the Fund; (B) purchases which are part of an automatic dividend reinvestment plan; (C) purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; (D) other purchases and sales specifically approved by the President or Chief Executive Officer, with the advice of the General Counsel and/or the Compliance Director, and deemed appropriate because of unusual or unforeseen circumstances. A list of securities excepted will be maintained by the Compliance Department. (E) purchases or sales made by a wrap manager in an Affiliated Person's or Access Person's managed account provided that such purchases or sales do not reflect a pattern of conflict. (c) Except for trades that meet the definition of de minimis, no Affiliated Person or Access Person may execute a buy or sell order for an account in which he or she has beneficial ownership or control until the THIRD TRADING DAY following the execution of a Delaware buy or sell order in that same security. (d) No Affiliated Person or Access Person may purchase an initial purchase offering (IPO) without first receiving preclearance. (e) No Affiliated Person, Access Person Investment Personnel or Portfolio Managers may purchase any private placement without express PRIOR written consent by the Compliance Department. All private placement holdings are subject to disclosure to the Compliance Department. Any Affiliated Person, Access Person, Investment Personnel or Portfolio Manager that holds a private placement must receive permission from the Compliance or Legal Department prior to any participation by such person in a Fund's consideration of an investment in the same issuer. (f) Despite any fault or impropriety, any Affiliated Person or Access Person who executes a buy or sell for an account in which he/she has beneficial ownership or control either (i) before the third trading day following the execution of a Delaware order in the same security, or (ii) when there are pending orders for a Delaware transaction as reflected on the open order blotter, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the proscribed 4 trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. (g) Except for Managed Accounts meeting the provisions of Section I(b)(E) above, each Affiliated Person or Access Person's personal transactions must be precleared by using the Personal Transaction System. The information must be submitted prior to entering any orders for personal transactions. Preclearance is only valid for the day the request is submitted. If the order is not executed the same day, the preclearance request must be resubmitted. Regardless of preclearance, all transactions remain subject to the provisions of (d) above. (f) Disinterested Directors of the Fund or its investment adviser are not subject to part (c), (d), (e), (f) or (g) of this section unless the director knew or, in the ordinary course of fulfilling his or her official duties should have known, that during the 15 day period immediately before or after the director's transaction in a covered security, the Fund purchased or sold the covered security, or the Fund or its investment adviser considered purchasing or selling the covered security. (g) All Mutual Funds that are now subject to the Code of Ethics will be required to be held for a minimum of 60 days before selling the fund at a profit. Closing positions at a loss is not prohibited. II. IN ADDITION TO THE REQUIREMENTS NOTED IN SECTION I, THE FOLLOWING ADDITIONAL RESTRICTIONS APPLY TO ALL INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS. (a) All Investment Personnel and Portfolio Managers are prohibited from purchasing any initial public offering (IPO). (b) Short term trading resulting in a profit is prohibited. All opening positions must be held for a period of 60 days, in the aggregate, before they can be closed at a profit. Any short term trading profits are subject to the disgorgement procedures outlined above and at the maximum level of profit obtained. The closing of positions at a loss is not prohibited. (c) All Investment Personnel and Portfolio Managers are prohibited from receiving anything of more than a de minimis value from any person or entity that does business with or on behalf of any fund or client. Things of value may include, but not be limited to, travel expenses, special deals or incentives. (d) All Investment Personnel and Portfolio Managers require PRIOR written approval from the Legal or Compliance Department before they may serve on the board of directors of any public company. III. IN ADDITION TO THE REQUIREMENTS NOTED IN SECTIONS I AND II, THE FOLLOWING ADDITIONAL RESTRICTIONS APPLY TO ALL PORTFOLIO MANAGERS. 5 (a) No Portfolio Manager may execute a buy or sell order for an account for which he/she has beneficial ownership WITHIN SEVEN CALENDAR DAYS BEFORE OR AFTER an investment company or separate account that he/she manages trades in that security. (b) Despite any fault or impropriety, any Portfolio Manager who executes a personal transaction within seven calendar days before or after an investment company or separate account that he/she manages trades in that security, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the prescribed trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. REQUIRED REPORTS I. THE FOLLOWING REPORTS ARE REQUIRED TO BE MADE BY ALL AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL, PORTFOLIO MANAGERS AND INTERESTED DIRECTORS. (a) Disclose brokerage relationships at employment and at the time of opening any new account. (b) Direct their brokers to supply to the Compliance Department, on a timely basis, duplicate copies of all confirmations and statements for all securities accounts and Managed Accounts. (c) All Delaware Investments Mutual Funds and Optimum Funds accounts will be required to be held in-house. (d) Each quarter, no later than 20 days after the end of the calendar quarter, submit to the Compliance Department a personal transaction summary showing all transactions in securities in accounts which such person has or acquires any direct or indirect beneficial ownership. Each Director who is not an interested person shall submit the quarterly reports only for transactions where at the time of the transaction the director knew, or in the ordinary course of fulfilling his official duties as a director should have known, that during the fifteen day period immediately preceding the date of the transaction by the director, such security was purchased or sold by the Fund's or was being considered for purchase or sale by the Fund's. Every report will contain the following information: (i) the date of the transaction, the name and the number of shares and the principal amount of each security involved; (ii) the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (iii) the price at which the transaction was effected; (iv) the name of the broker, dealer or bank effecting the transaction. (e) All Affiliated Persons must annually certify that they have read and complied with this Code of Ethics and all disclosure and reporting requirements contained therein. II. IN ADDITION TO THE ABOVE REPORTING REQUIREMENTS, ALL ACCESS PERSONS, INVESTMENT PERSONNEL AND PORTFOLIO MANGERS MUST: 6 (a) Provide an initial holdings report no later than 30 days upon commencement of employment that discloses all personal securities holdings. (b) Provide an annual holdings report containing information regarding all personal securities holdings. This report must be current as of a date no more than 45 days before the report is submitted. III. DISINTERESTED DIRECTORS OF THE FUND OR THE FUND'S INVESTMENT ADVISER ARE NOT SUBJECT TO THE PROVISIONS NOTED IN THIS REQUIRED REPORTS SECTION. ADMINISTRATIVE PROCEDURES (a) The Compliance Department of Delaware will identify all Affiliated Persons, Access Persons, Investment Personnel and Portfolio Managers and will notify them of this classification and their obligations under this Code. The Compliance Department will also maintain procedures regarding the review of all notifications and reports required to be made pursuant to Rule 17j-1 under the Investment Company Adct of 1940, Rule 204A-1 under the Investment Advisers Act of 1940, or this Code and the Compliance Department will review all notifications and reports, such as portfolio holdings and securities transaction reports. (b) The Legal or Compliance Department shall report to the President or Chief Executive Officer any apparent violations of the prohibitions or reporting requirements contained in this Code of Ethics. Such Chief Executive Officer or President, or both, will review the reports made and determine whether or not the Code of Ethics has been violated and shall determine what sanctions, if any, should be imposed in addition to any that may already have been imposed. On a quarterly basis, a summary report of material violations of the Code and the sanctions imposed will be made to the Board of Directors or Committee of Directors created for that purpose. In reviewing this report, the Board will consider whether the appropriate sanctions were imposed. When the Legal Department finds that a transaction otherwise reportable above could not reasonably be found to have resulted in a fraud, deceit or manipulative practice in violation of Rule 17j-1(b), it may, in its discretion, lodge a written memorandum of such finding in lieu of reporting the transaction. (c) All material purchases and sales specifically approved by the President or Chief Executive Officer in accordance with Section (I)(b)(D) of Prohibited Activities, as described herein, shall be reported to the Board at its next regular meeting. (d) The Board of Directors, including a majority of independent directors, must approve the Fund's Code, as well as the Code of any adviser and principal underwriter. If an adviser or underwriter makes a material changes to its code, the Board must approve the material change within six months. The Board must base its approval of a code of ethics, or a material change to a code, upon a determination that the code contains provisions reasonable necessary to prevent "access persons" from violating the anti-fraud provisions of the Rule 17j-1. 7 (e) At least once a year, the Board must be provided a written report from each Rule 17j-1 organization that (1) describes issues that arose during the previous year under the code or procedures applicable to the Rule 17j-1 organization, including, but not limited to, information about material code or procedure violations and sanctions imposed in response to those material violations and (2) certifies to the Fund's board that the Rule 17j-1 organization has adopted procedures reasonably necessary to prevent its access persons from violating its Code of Ethics. 8 Appendix A - List of Mutual Funds subject to the Code of Ethics o All Delaware Investments Family of Funds o All Optimum Fund Trust o All Lincoln National VIP Funds o Diversified Investment Advisers - Small Cap Growth Fund o First Tennessee - First Funds Capital Appreciation o First Tennessee - First Horizon Capital Appreciation o Frank Russell Investment Company - Fixed Income I Fund o Frank Russell Investment Company - Fixed Income III Fund o Frank Russell Investment Company - Multistrategy Bond Fund o Frank Russell Trust Company - Russell Common Trust Core Bond Fund o Frank Russell Company Limited - Frank Russell Multi-Strategy Global Bond Fund o Frank Russell Company Limited - Frank Russell Investment Company plc - The U.S. Bond Fund o Mercantile Capital Opportunities Fund o MLIG Roszel/Delaware Small Cap Portfolio o MLIG Roszel/Delaware Trend Portfolio o SEI Institutional Investments Trust - Small Cap Fund o SEI Institutional Investments Trust - Small/Mid Cap Equity Fund o SEI Institutional Managed Trust - Small Cap Growth Fund o SEI Institutional Managed Trust - Tax Managed Small Cap Fund o UBS Pace Small/Medium Co Growth Equity Fund 9 EX-99 6 ex99-p2.txt EX99-P2.TXT Exhibit-99.(p)(2) DELAWARE INVESTMENTS CODE OF ETHICS CREDO IT IS THE DUTY OF ALL DELAWARE INVESTMENT EMPLOYEES, OFFICERS AND DIRECTORS TO CONDUCT THEMSELVES WITH INTEGRITY, AND AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS FIRST. IN THE INTEREST OF THIS CREDO, ALL PERSONAL SECURITIES TRANSACTIONS WILL BE CONDUCTED CONSISTENT WITH THE CODE OF ETHICS AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS THAT PERSONNEL SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS. Rule 17j-1 under the Investment Company Act of 1940 (the "Rule") makes it unlawful for certain persons, including any employee, officer or director, any investment adviser and any principal underwriter, in connection with the purchase or sale by such person of a security held or to be acquired by a Fund or account: (1) To employ any device, scheme or artifice to defraud; (2) To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances in which they are made, not misleading; (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit; or (4) To engage in any manipulative practice. The Rule also requires that each Delaware Investments' Adviser, sub-adviser, and principal underwriter adopt a written code of ethics containing provisions reasonably necessary to prevent certain persons from engaging in acts in violation of the above standard and shall use reasonable diligence and institute procedures reasonably necessary to prevent violations of the Code. This Code of Ethics is being adopted by the following Delaware Investment companies (collectively "Delaware") in compliance with the requirement of Rule 17j-1 and to effect the purpose of the Credo set forth above and to comply with the recommendations of the Investment Company Institute's Advisory Group on Personal Investing: 1 DELAWARE MANAGEMENT BUSINESS TRUST DELAWARE CAPITAL MANAGEMENT DELAWARE MANAGEMENT COMPANY DELAWARE INVESTMENT ADVISERS DELAWARE LINCOLN CASH MANAGEMENT DELAWARE DISTRIBUTORS, L.P. RETIREMENT FINANCIAL SERVICES, INC. DELAWARE SERVICE COMPANY, INC. DELAWARE MANAGEMENT TRUST COMPANY DEFINITIONS: "ACCESS PERSON" means a supervised person who has access to nonpublic information regarding clients' securities transactions, is involved in making securities recommendations to clients, who has access to such recommendations that are nonpublic, or who has access to nonpublic information regarding the portfolio holdings of affiliated mutual funds (see Appendix A) or any director, officer, general partner or Advisory Person of a fund or of a fund's investment adviser, or any employee of a fund or of a fund's investment adviser who, in connection with his or her regular functions or duties, participates in the selection of a fund's portfolio securities or who has access to information regarding a fund's future purchases or sales of portfolio securities. Those persons deemed Access Persons will be notified of this designation. "ADVISORY PERSON" means any employee of the fund or investment adviser who, in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to the purchase or sales. "AFFILIATED PERSON" means any officer, director, partner, or employee of a Delaware Fund or any subsidiary of Delaware Management Holdings, Inc. and any other person so designated by the Compliance Department. "BENEFICIAL OWNERSHIP" shall be as defined in Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Generally speaking, a person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in a security, is a "beneficial owner" of the security. For example, a person is normally regarded as the beneficial owner of securities held by members of his or her immediate family sharing the same household. Additionally, ownership of derivative securities such as options, warrants or convertible securities which confer the right to acquire the underlying security at a fixed price constitutes beneficial ownership of the underlying security itself. "CONTROL" shall mean investment discretion in whole or in part of an account regardless of beneficial ownership, such as an account for which a person has power of attorney or authority to effect transactions. 2 "DE MINIMIS PURCHASES OR SALES" shall mean purchases or sales by covered persons of up to 500 shares of stock in a company that is in the Standard and Poor's 500 Index provided that Delaware has not traded more than 10,000 shares of that same stock during the last two trading days and there are no open orders for that stock on the Trading Desk. "HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS" shall mean any instrument that has a maturity at issuance of less that 366 days and that is rated in one of the two highest rating categories by a Nationally Recognized Statistical Rating Organization. "INVESTMENT PERSONNEL" means any employee, other than a Portfolio Manager who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions affecting an investment company. Investment Personnel also include the staff who support a Portfolio Manager including analysts, administrative assistants, etc. Investment Personnel by definition are Access Persons. "MANAGED ACCOUNTS" means an account that is professionally managed through a wrap program. Managed Accounts require pre-approval through the Compliance Department prior to starting up the account. The Compliance Department will consider the facts and circumstances of the account, including the functions and duties of the employees, when approving or denying such accounts. In addition, preclearance is exempt with Managed Accounts, however, all trades still require reporting and duplicate statements and confirmations are required to be sent to the Compliance Department. Preclearance is only exempt for trades initiated by the wrap manager. All trades initiated by the employee require preclearance. "PORTFOLIO MANAGER" means any person who, in connection with his/her regular functions or duties, makes or participates in, the making of investment decisions effecting an investment company. Portfolio Managers by definition are access persons. "SECURITY" shall have the meaning as set forth in Section 2(a)(36) of the Investment Company Act of 1940, except that it shall not include securities issued or guaranteed by the government of the United States or by any of its federal agencies, bankers' acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments including repurchase agreements, unit investment trusts, shares of open-end registered investment companies (other than mutual funds for which Delaware Investments is the adviser and sub-adviser, see Appendix A for a list of these Funds, excluding money market funds), and municipal fund securities (i.e. 529 Plans) (other than the TAP 529 Plan). In addition, the purchase, sale or exercise of a derivative security shall constitute the purchase or sale of the underlying security. However, the purchase or sale of the debt instrument of an issuer which does not give the holder the right to purchase the issuer's stock at a fixed price, does not constitute a purchase or sale of the issuer's stock. SECURITY BEING "CONSIDERED FOR PURCHASE OR SALE" OR "BEING PURCHASED OR SOLD" means when a recommendation to purchase or sell the security has been made and communicated to the Trading Desk and with respect to the person making the recommendation, when such person seriously 3 considers making, or when such person knows or should know that another person is seriously considering making, such a recommendation. SECURITY "HELD OR TO BE ACQUIRED" BY AN ACCOUNT means (i) any covered security which, within the most recent fifteen days (a) is or has been held by the account; or (b) is being, or has been, considered by the account or its investment adviser for purchase by the account; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a covered security. PROHIBITED ACTIVITIES I. THE FOLLOWING RESTRICTIONS APPLY TO ALL AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS. (a) No Affiliated Person, Access Person, Investment Person or Portfolio Manager shall engage in any act, practice or course of conduct, which would violate the provisions of Rule 17j-1 set forth above. (b) No Affiliated Person, Access Person, Investment Person or Portfolio Manager shall purchase or sell, directly or indirectly, any security which to his/her knowledge is being actively considered for purchase or sale by Delaware; except that this prohibition shall not apply to: (A) purchases or sales that are nonvolitional on the part of either the Person or the Account; (B) purchases which are part of an automatic dividend reinvestment plan; (C) purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; (D) other purchases and sales specifically approved by the President or Chief Executive Officer, with the advice of the General Counsel and/or the Compliance Director, and deemed appropriate because of unusual or unforeseen circumstances. A list of securities excepted will be maintained by the Compliance Department. (E) purchases or sales made by a wrap manager in an Affiliated Person's or Access Person's managed account, provided that such purchases or sales do not reflect a pattern of conflict. (c) Except for trades that meet the definition of de minimis, no Affiliated Person, Access Person, Investment Person or Portfolio Manager may execute a buy or sell order for an account in which he or she has beneficial ownership or control until the THIRD TRADING DAY following the execution of a Delaware buy or sell order in that same security. (d) No Affiliated Person or Access Person may purchase an initial public offering (IPO) without first receiving preclearance. (e) No Affiliated Person, Access Person, Investment Person or Portfolio Managers may purchase any private placement without express PRIOR written consent by the Compliance Department. All private placement holdings are subject to disclosure to the Compliance Department. Any Affiliated Person, Access Person, Investment Person or Portfolio Manager that holds a private placement 4 must receive permission from the Compliance or Legal Departments prior to any participation by such person in Delaware's consideration of an investment in the same issuer. (f) Despite any fault or impropriety, any Affiliated Person, Access Person, Investment Person or Portfolio Manager who executes a buy or sell for an account in which he/she has beneficial ownership or control either (i) before the third trading day following the execution of a Delaware order in the same security, or (ii) when there are pending orders for a Delaware transaction as reflected on the open order blotter, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the proscribed trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. (g) Except for Managed Accounts meeting the provisions of Section I(b)(E) above, each Affiliated Person or Access Person's personal transactions must be precleared by using the Personal Transaction System. The information must be submitted prior to entering any orders for personal transactions. Preclearance is only valid for the day the request is submitted. If the order is not executed the same day, the preclearance request must be resubmitted. Regardless of preclearance, all transactions remain subject to the provisions of (f) above. (h) All Mutual Funds that are now subject to the Code of Ethics will be required to be held for a minimum of 60 days before selling the fund at a profit. Closing positions at a loss is not prohibited. II. IN ADDITION TO THE REQUIREMENTS NOTED IN SECTION I, THE FOLLOWING ADDITIONAL RESTRICTIONS APPLY TO ALL INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS. (a) All Investment Personnel and Portfolio Managers are prohibited from purchasing any initial public offering (IPO). (b) Short term trading resulting in a profit is prohibited. All opening positions must be held for a period of 60 days, in the aggregate, before they can be closed at a profit. Any short term trading profits are subject to the disgorgement procedures outlined above and at the maximum level of profit obtained. The closing of positions at a loss is not prohibited. (c) All Investment Personnel and Portfolio Managers are prohibited from receiving anything of more than a de minimis value from any person or entity that does business with or on behalf of any account or client. Things of value may include, but not be limited to, travel expenses, special deals or incentives. (d) All Investment Personnel and Portfolio Managers require PRIOR written approval from the Legal or Compliance Department before they may serve on the board of directors of any public company. 5 III. IN ADDITION TO THE REQUIREMENTS NOTED IN SECTIONS I AND II, THE FOLLOWING ADDITIONAL RESTRICTIONS APPLY TO ALL PORTFOLIO MANAGERS. (a) No Portfolio Manager may execute a buy or sell order for an account for which he/she has beneficial ownership WITHIN SEVEN CALENDAR DAYS BEFORE OR AFTER an investment company or separate account that he/she manages trades in that security. (b) Despite any fault or impropriety, any Portfolio Manager who executes a personal transaction within seven calendar days before or after an investment company or separate account that he/she manages trades in that security, shall forfeit any profits made (in the event of purchases) or loss avoided (in the event of sales), whether realized or unrealized, in the period from the date of the personal transaction to the end of the prescribed trading period. Payment of the amount forfeited shall be made by check or in cash to a charity of the person's choice and a copy of the check or receipt must be forwarded to the Compliance Department. REQUIRED REPORTS I. THE FOLLOWING REPORTS ARE REQUIRED TO BE MADE BY ALL AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL, PORTFOLIO MANAGERS. (a) Disclose brokerage relationships at employment and at the time of opening any new account. (b) Direct their brokers to supply to the Compliance Department, on a timely basis, duplicate copies of all confirmations and statements for all securities accounts and Managed Accounts. (c) All Delaware Investments Mutual Funds and Optimum Fund Trust accounts will be required to be held in-house. (d) Each quarter, no later than 20 days after the end of the calendar quarter, submit to the Compliance Department a personal transaction summary showing all transactions in securities in accounts which such person has or acquires any direct or indirect beneficial ownership. Each Director who is not an interested person shall submit the quarterly reports only for transactions where at the time of the transaction the director knew, or in the ordinary course of fulfilling his official duties as a director should have known, that during the fifteen day period immediately preceding the date of the transaction by the director, such security was purchased or sold by the Account's or was being considered for purchase or sale by the Account's. Every report will contain the following information: (i) the date of the transaction, the name and the number of shares and the principal amount of each security involved; (ii) the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (iii) the price at which the transaction was effected; (iv) the name of the broker, dealer or bank effecting the transaction. 6 (e) All Affiliated Persons must annually certify that they have read and complied with this Code of Ethics and all disclosure and reporting requirements contained therein. II. IN ADDITION TO THE ABOVE REPORTING REQUIREMENTS, ALL ACCESS PERSONS, INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS MUST: (a) Provide an initial holdings report no later than 30 days upon commencement of employment that discloses all personal securities holdings. (b) Provide an annual holdings report containing information regarding all personal securities holdings. This report must be current as of a date no more than 45 days before the report is submitted. ADMINISTRATIVE PROCEDURES (a) The Compliance Department of Delaware will identify all Affiliated Persons, Access Persons, Investment Personnel and Portfolio Managers and will notify them of this classification and their obligations under this Code. The Compliance Department will also maintain procedures regarding the review of all notifications and reports required to be made pursuant to Rule 17j-1 under the Investment Company Act of 1940, Rule 204A-1 under the Investment Advisers Act of 1940, or this Code and the Compliance Department will review all notifications and reports, such as portfolio holdings and securities transaction reports. (b) The Legal or Compliance Department shall report to the Chief Compliance Officer and the President or Chief Executive Officer any apparent violations of the prohibitions or reporting requirements contained in this Code of Ethics. Such Chief Executive Officer or President, or both, will review the reports made and determine whether or not the Code of Ethics has been violated and shall determine what sanctions, if any, should be imposed in addition to any that may already have been imposed. On a quarterly basis, a summary report of material violations of the Code and the sanctions imposed will be made to the Board of Directors or Committee of Directors created for that purpose. In reviewing this report, the Board will consider whether the appropriate sanctions were imposed. When the Legal Department finds that a transaction otherwise reportable above could not reasonably be found to have resulted in a fraud, deceit or manipulative practice in violation of Rule 17j-1(b), it may, in its discretion, lodge a written memorandum of such finding in lieu of reporting the transaction. (c) All material purchases and sales specifically approved by the President or Chief Executive Officer in accordance with Section (I)(b)(D) of Prohibited Activities, as described herein, shall be reported to the Board at its next regular meeting. (d) The Board of Directors, including a majority of independent directors, must approve the Fund's Code, as well as the Code of any adviser and principal underwriter. If an adviser or underwriter makes a material changes to its code, the Board must approve the material change within six months. The Board must base its approval of a code of ethics, or a material change to a code, upon 7 a determination that the code contains provisions reasonable necessary to prevent "access persons" from violating the anti-fraud provisions of the Rule 17j-1. (e) At least once a year, the Board must be provided a written report from each Rule 17j-1 organization that (1) describes issues that arose during the previous year under the code or procedures applicable to the Rule 17j-1 organization, including, but not limited to, information about material code or procedure violations and sanctions imposed in response to those material violations and (2) certifies to the Fund's board that the Rule 17j-1 organization has adopted procedures reasonably necessary to prevent its access persons from violating its Code of Ethics. 8 ADDENDUM TO DELAWARE INVESTMENTS CODE OF ETHICS Effective April 1, 2001, the Delaware Investments Code of Ethics (the "Code") is being amended to reflect the integration of the former Lincoln 401K Group into Retirement Financial Services, Inc. All employees of this Fort Wayne based unit are "affiliated persons" under the Code and consequently are subject to all applicable requirements EXCEPT that they will not be subject to requirements specified in Part I, Prohibited Activities, Sections (b) (other than the Mutual Funds listed in Appendix A which will require preclearance) through (e) inclusive. 9 Appendix A - List of Mutual Funds subject to the Code of Ethics o All Delaware Investments Family of Funds o All Optimum Fund Trust Funds o All Lincoln National VIP Funds o Diversified Investment Advisers - Small Cap Growth Fund o First Tennessee - First Funds Capital Appreciation o First Tennessee - First Horizon Capital Appreciation o Frank Russell Investment Company - Fixed Income I Fund o Frank Russell Investment Company - Fixed Income III Fund o Frank Russell Investment Company - Multistrategy Bond Fund o Frank Russell Trust Company - Russell Common Trust Core Bond Fund o Frank Russell Company Limited - Frank Russell Multi-Strategy Global Bond Fund o Frank Russell Company Limited - Frank Russell Investment Company plc - The U.S. Bond Fund o Mercantile Capital Opportunities Fund o MLIG Roszel/Delaware Small Cap Portfolio o MLIG Roszel/Delaware Trend Portfolio o SEI Institutional Investments Trust - Small Cap Fund o SEI Institutional Investments Trust - Small/Mid Cap Equity Fund o SEI Institutional Managed Trust - Small Cap Growth Fund o SEI Institutional Managed Trust - Tax Managed Small Cap Fund o UBS Pace Small/Medium Co Growth Equity Fund 10 EX-99 7 ex99-p3.txt EX99-P3 Exhibit-99.(p)(3) CODE OF ETHICS LINCOLN FINANCIAL DISTRIBUTORS, INC. CREDO IT IS THE DUTY OF ALL LINCOLN FINANCIAL DISTRIBUTORS, INC., EMPLOYEES, OFFICERS, AND DIRECTORS TO CONDUCT THEMSELVES WITH INTEGRITY AND AT ALL TIMES TO PLACE THE INTERESTS OF SHAREHOLDERS AND CLIENTS FIRST. IN THE INTEREST OF THIS CREDO, ALL PERSONAL SECURITIES TRANSACTIONS WILL BE CONDUCTED CONSISTENT WITH THE CODE OF ETHICS AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S POSITION OF TRUST AND RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS THAT PERSONNEL SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITION. PROHIBITED ACTIVITIES The following restrictions apply to Lincoln Financial Distributors, Inc. ("LFD") employees, officers and directors: o No individual shall engage in any act, practice or course of conduct, which would violate the provisions of Rule 17j-1. o Insider Trading Insider trading is a prohibited practice of trading in securities based on material non-public information. Officers, directors, registered principals and registered representatives of LFD and any associated persons are prohibited from trading, either personally or on behalf of others (including family) on material non-public information or from communicating material non-public information to others. These individuals are also prohibited from giving advice based on inside information. o Use of Unapproved Advertisements and Sales Materials All advertisements and all sales materials which will be used with more than one prospect or client must be approved by Compliance prior to use. Failure to submit an advertisement or sale material may subject an individual to sanctions including a fine, suspension or termination. o Mutual Fund Late Trading and Market Timing Abuses o Late trading is illegal under SEC Rules because late trading would permit a purchase or redemption order received after 4:00 p.m. to receive the share price calculated as of 4:00 p.m. that same day. o Market timing trades, while not illegal, harm fund investors; therefore, market timing is strongly discouraged. If a fund has rules restricting market timing, those rules must be followed and will be strictly enforced by LFD. o LFD employees, officers and directors are prohibited from engaging in selective sharing or disclosure of portfolio holdings information. o LFD employees, officers and directors are prohibited from using fund information for their own personal gain or for any clients of the firm. o LFD employees and officers are required to notify LFD Compliance Department of any mutual fund accounts in which they have a financial interest or exercise discretionary authority that include any of the Delaware Funds or the Optimum Funds. o LFD employees and officers are required to have mutual fund accounts that include any of the Delaware Funds or the Optimum Funds held in-house with Delaware Investments, Inc. o All mutual funds with Delaware Investments, Inc. that are now subject to the Code of Ethics will be required to be held for a minimum of sixty (60) days before selling the fund at a profit. Closing positions at a loss is not prohibited. o No registered representative can participate in, or conduct business in, a number of activities that are identified below. The prohibitions are necessary in order to protect the investing public. o Selling Away A registered representative must obtain written approval from LFD Compliance prior to participating in any private securities transaction. A private securities transaction is any securities transaction that is executed outside, or away from LFD. The definition includes money-raising activities, offerings involving a limited number of purchases or sales, issuing promissory notes, and some multi-level marketing programs. o Purchase of Initial Public Offerings or Hot Issues An initial public offering (IPO) is a new securities issue that is publicly traded at a premium above the initial offering price. When a new issue sells at an increase in the secondary market, then that issue would be considered a "hot issue". This rule applies to all associated persons and their immediate family members with limited exceptions. o Engage In Prohibited Sales and Marketing Practices Certain sales practices are specifically prohibited by various Federal and State laws, including the NAIC Model Unfair Trade Practices Act, which has been adopted by many states. Among the sale practices that registered representatives and employees should not engage in include: o Arranging For credit o Bashing o Business Valuation o Churning o Deceptive Practices o Fraud o High Pressure Tactics o Rebating o Unfair Trade Practices o Twisting A comprehensive list of policies and procedures are included in the LFD Compliance Manual. REQUIRED REPORTS The following reports are required to be made by all LFD's associated persons. Associated persons include any officers, directors, partners, or non-clerical employees of LFD. o Disclose brokerage relationship at employment and at the time of opening any new accounts o Direct their brokers to supply to LFD Compliance, on a timely basis, duplicate copies of all confirmations and statements for all securities accounts o Annually certify that they have read and complied with this Code of Ethics. EX-99 8 ex99-q.txt EX99-Q.TXT Exhibit-99.(q) [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Jude T. Driscoll - ------------------------- Jude T. Driscoll DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Joseph H. Hastings, Richelle S. Maestro and Walter P. Babich, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. John A. Fry - ------------------------- John A. Fry DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Anthony D. Knerr - ------------------------- Anthony D. Knerr DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax Free Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Ann R. Leven - ------------------------- Ann R. Leven DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax Free Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Thomas F. Madison - ------------------------- Thomas F. Madison DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax Free Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the undersigned member of the Boards of Trustees/Directors of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Jan L. Yeomans - ------------------------- Jan L. Yeomans DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax Free Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. [LOGO OF DELAWARE INVESTMENTS(SM)] POWER OF ATTORNEY I, the Chief Financial Officer of Delaware Investments Family of Funds listed below (the "Trust"), hereby constitute and appoint Jude T. Driscoll, Richelle S. Maestro and Michael P. Bishof, and each of them singly, my true and lawful attorneys-in-fact, with full power of substitution, and with full power to each of them, to sign for me and in my name in the appropriate capacity, all Registration Statements of the Trust on Form N-1A, Form N-8A or any successor thereto, any and all subsequent Amendments, Pre-Effective Amendments, or Post-Effective Amendments to said Registration Statements on Form N-1A or any successor thereto, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, to comply with the provisions of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission. I hereby ratify and confirm all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. This power of attorney is effective for all documents filed on or after February 17, 2005. IN WITNESS WHEREOF, the undersigned has executed this instrument as of this 17th day of February 2005. Michael P. Bishof - ------------------------- Michael P. Bishof DELAWARE INVESTMENTS FAMILY OF FUNDS Delaware Group Adviser Funds Delaware Group Cash Reserve Delaware Group Equity Funds I Delaware Group Equity Funds II Delaware Group Equity Funds III Delaware Group Equity Funds IV Delaware Group Equity Funds V Delaware Group Foundation Funds Delaware Group Global & International Funds Delaware Group Government Fund Delaware Group Income Funds Delaware Group Limited-Term Government Funds Delaware Group State Tax-Free Income Trust Delaware Group Tax-Free Fund Delaware Group Tax-Free Money Fund Delaware Pooled Trust Delaware VIP Trust Voyageur Insured Funds Voyageur Intermediate Tax-Free Funds Voyageur Investment Trust Voyageur Mutual Funds Voyageur Mutual Funds II Voyageur Mutual Funds III Voyageur Tax Free Funds Delaware Investments Dividend and Income Fund, Inc. Delaware Investments Global Dividend and Income Fund, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Colorado Insured Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. -----END PRIVACY-ENHANCED MESSAGE-----