N-CSR 1 n-csr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-3363 Exact name of registrant as specified in charter: Delaware Group Limited-Term Government Funds Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: December 31 Date of reporting period: December 31, 2004 Item 1. Reports to Stockholders Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) ANNUAL REPORT DECEMBER 31, 2004 -------------------------------------------------------------------------------- DELAWARE LIMITED-TERM GOVERNMENT FUND [LOGO] POWERED BY RESEARCH.(SM) TABLE OF CONTENTS ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 ----------------------------------------------------------------- PERFORMANCE SUMMARY 3 ----------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 5 ----------------------------------------------------------------- SECTOR ALLOCATION 6 ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statement of Net Assets 7 Statement of Operations 11 Statements of Changes in Net Assets 12 Financial Highlights 13 Notes to Financial Statements 18 ----------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 22 ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 23 ----------------------------------------------------------------- Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2005 Delaware Distributors, L.P. PORTFOLIO DELAWARE LIMITED-TERM GOVERNMENT FUND MANAGEMENT REVIEW January 10, 2005 FUND MANAGERS Paul Grillo Senior Portfolio Manager Stephen R. Cianci Senior Portfolio Manager Q: HOW DID THE FUND PERFORM VERSUS ITS BENCHMARK INDEX AND FUND PEER GROUP FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2004? A: Delaware Limited-Term Government Fund returned +2.31% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended December 31, 2004. During the same 12-month period, the Fund's benchmark, the Merrill Lynch 1-3 Year Treasury Index, rose +0.91% and its peer group, as measured by the Lipper Short-Intermediate Government Funds Average, appreciated +1.60% (source: Lipper Inc.). Q: HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT FOR THE FUND OVER THE LAST YEAR? A: In the first half of 2004, the market backdrop was dominated by volatility. Rates remained low until the strong job numbers in April. Then we moved toward higher rates in June when the Federal Reserve announced its first rate increase. As a result, from June through December, the market was dominated by a flattening of the yield curve (source: Bloomberg). This was a significant development. The yield differential between two-year and 10-year Treasuries went from 195 basis points at the end of June, when the Federal Reserve started raising rates, to 115 basis points at the end of the year -- a flattening of 80 basis points. Another major theme in the market was yield premiums, which shrank on mortgage-backed, asset-backed, and corporate securities. In addition, the dramatic decline in volatility, both realized and as defined by option measures, played a significant role. Q: WHAT STRATEGIES DID THE FUND EMPLOY IN THIS ENVIRONMENT? A: First, it is a good idea to review the Fund's investment parameters. Eighty percent of the Fund's net assets must be invested in government securities, which can include agency securities such as agency mortgage-backed securities. Up to 20 percent of the Fund's net assets can be in non-government-backed securities, such as corporate bonds, which must be rated A or better, and asset-backed securities, which must be rated AAA. With volatility declining, we anticipated a favorable environment for mortgage-backed securities, and we emphasized them in the portfolio. At the end of June, a significant portion of the portfolio was invested in mortgage-backed securities. At the end of December, after significant yield premium shrinkage, we decreased the percentage in mortgage-backed securities. In non-government securities, we started the fiscal year with the highest allocation to corporate bonds, 6.7% of portfolio net assets. In June, we reduced that figure to 5.7%, before increasing the allocation again in the second half of the year. At the end of December, the portfolio had approximately the same level of exposure to high-quality corporate bonds as it did when the year began. We used Treasury Inflation-Protected Securities (TIPS) opportunistically. We held a higher allocation in the early part of year. We decreased our exposure to around two percent of net assets at the end of June, and increased that to 7.7% by fiscal year-end. It's interesting to note that TIPS were the third-best performing fixed-income asset class in 2004, trailing only high-yield corporate bonds and emerging markets debt. As a result, we were able to add value through our TIPS exposure. Q: WHAT WAS THE IMPACT OF FEDERAL RESERVE MONETARY POLICY DURING THE PERIOD? A: The strategy of the Federal Reserve was to normalize the federal funds rate through a series of measured increases, in order to bring it to an equilibrium with the rate of inflation that we witnessed across the country. This policy had a significant influence on short-term rates, but 10-year Treasuries ended the year not far from their beginning point. The flattening of the yield curve was the major impact, as two-year Treasuries took the brunt of the rate increases. Keep in mind that price volatility on very short maturities is comparatively muted. Thus, despite rising rates, we had an environment where fixed income returns were positive for the year. The declining yield premium contributed to performance as well. 1 Q: HOW DID THE FUND'S DURATION STRATEGIES PERFORM IN THIS ENVIRONMENT? A: Our duration strategy also helped the Fund's relative performance. Most of the year, we positioned the portfolio with a defensive maturity or duration averaging 2.2 years. As rates declined in the early part of the year, from January to March, we positioned the portfolio's duration as neutral or somewhat longer than our peers. For much of the remainder of the year, we positioned the Fund's duration more defensively. Throughout the fiscal year, we employed a barbell strategy to add value as the yield curve flattened. Specifically, we gravitated to the ends of the maturity spectrum as opposed to the middle, using securities of two years or less in maturity, floating rate securities, and 10-year securities to equal our targeted average duration. Q: WHAT STRATEGIES DOES THE FUND EMPLOY TO MANAGE RISK? A: Our objective is to place a high premium on safety in order to dampen volatility for our investors. We utilize a disciplined investment process to identify high-quality securities, which we diversify by sector, issuer, and maturity, among other factors. We focus at all times on very high quality securities. The average rating is AAA or the government equivalent. Corporate bonds are the lowest quality sector, and here we invest only in securities that are rated A or better. Among mortgage-backed securities, we favor securities with features that dampen the prepayment risks typical of this sector. Q: WHAT IS YOUR CURRENT VIEW OF THE FIXED-INCOME MARKET? A: Fixed-income markets ended the 12-month period with such low volatility levels and low yield premiums that we believe more defensive moves in the portfolio may be needed going forward. In the present environment, we only have a six percent allocation to corporate bonds because we want to maintain a defensive posture. We believe mortgage-backed securities are a defensive place to be right now, due to their high quality and diversification. Our duration posture will stay short, and we will manage the portfolio credit quality to keep it as high as possible. All of this is consistent with our objective of providing a high-quality fixed-income product for conservative investors. 2 PERFORMANCE SUMMARY DELAWARE LIMITED-TERM GOVERNMENT FUND The performance data quoted represent past performance. Past performance does not guarantee future results. Investment return and principal value will fluctuate, so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. A rise/fall in interest rates can have a significant impact on bond prices and the net asset value (NAV) of the Fund. Funds that invest in bonds can lose their value as interest rates can rise and an investor can lose principal. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Limited-Term Government Fund prospectus contains this and other important information about the investment company. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. FUND PERFORMANCE Average Annual Total Returns Through December 31, 2004 Lifetime 10 Years Five Years One Year -------------------------------------------------------------------------------- Class A (Est. 11/24/85) Excluding Sales Charge +6.02% +5.40% +5.61% +2.31% Including Sales Charge +5.87% +5.12% +5.03% -0.47% -------------------------------------------------------------------------------- Class B (Est. 5/2/94) Excluding Sales Charge +4.65% +4.95% +4.71% +1.44% Including Sales Charge +4.65% +4.95% +4.71% -0.53% -------------------------------------------------------------------------------- Class C (Est. 11/28/95) Excluding Sales Charge +4.22% +4.71% +1.44% Including Sales Charge +4.22% +4.71% +0.46% -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, C, R, and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 2.75% and have an annual distribution and service fee of up to 0.30%. Class B shares are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime and 10-year performance figures for Class B shares reflect conversion to Class A after five years. Class C shares are sold with a contingent deferred sales charge of 1% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. The average annual total returns for the lifetime and one-year periods ended December 31, 2004 for Delaware Limited-Term Government Fund's Class R shares were +1.17% and +1.73%, respectively. Class R shares were first made available on June 2, 2003, and are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60%. The average annual total returns for the lifetime (since 11/24/85), 10-year, five-year, and one-year periods ended December 31, 2004 for Delaware Limited-Term Government Fund's Institutional Class were +6.16%, +5.57%, +5.78%, and +2.46%, respectively. The Institutional Class shares were first made available on June 1, 1992, and are available without sales or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to June 1, 1992 is based on Class A performance and was adjusted to eliminate the sales charges, but not the asset-based distribution charge of Class A shares. An expense limitation was in effect for all classes of Delaware Limited-Term Government Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Institutional Class and Class R shares are available only to certain eligible institutional accounts. Nasdaq Institutional Class symbol: DTINX Nasdaq Class R symbol: DLTRX 3 PERFORMANCE SUMMARY DELAWARE LIMITED-TERM GOVERNMENT FUND FUND BASICS As of December 31, 2004 -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks to provide a high, stable level of income, while attempting to minimize fluctuations in principal and provide maximum liquidity. -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $304.96 million -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 384 -------------------------------------------------------------------------------- FUND START DATE: November 24, 1985 -------------------------------------------------------------------------------- YOUR FUND MANAGER: Paul Grillo holds a BA in business management from North Carolina State University and an MBA in finance from Pace University. Prior to joining Delaware Investments in 1993, he served as a mortgage strategist and trader at Dreyfus Corporation. He is a CFA charterholder. Stephen R. Cianci holds both a BS and an MBA from Widener University. He joined Delaware Investments in 1992 and became co-manager of the Fund in January 1999. Mr. Cianci is an adjunct professor of finance at Widener University and is a CFA charterholder. -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A DTRIX Class B DTIBX Class C DTICX -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT December 31, 1994 through December 31, 2004
DELAWARE LIMITED-TERM GOVERNMENT FUND - FUND MERRILL LYNCH 1 - 3 YEAR INDEX CLASS A SHARES RETURN TREASURY BOND INDEX RETURN 31-Dec-94 $ 9,725 $10,000 31-Dec-95 10,572 8.71 11,000 11.00 31-Dec-96 10,962 3.69 11,652 4.98 31-Dec-97 11,516 5.06 12,428 6.66 31-Dec-98 12,377 7.47 13,298 7.00 31-Dec-99 12,508 1.06 13,705 3.06 31-Dec-00 13,584 8.60 14,800 7.99 31-Dec-01 14,693 8.17 16,029 8.30 31-Dec-02 15,737 7.10 16,952 5.76 31-Dec-03 16,073 2.14 17,274 1.90 31-Dec-04 16,469 2.29 17,431 0.91
Chart assumes $10,000 invested on December 31, 1994 and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. Performance of other Fund classes will vary due to different charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Merrill Lynch 1-3 Year Treasury Index is an unmanaged composite that generally tracks the market for U.S. Treasury securities with maturities of one to three years. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. An expense limitation was in effect for the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 4 DISCLOSURE For the Period July 1, 2004 to December 31, 2004 OF FUND EXPENSES As a shareholder of a fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2004 to December 31, 2004. ACTUAL EXPENSES The first section of the table shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The expenses shown in the table assume reinvestment of all dividends and distributions. *In each case, "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). DELAWARE LIMITED-TERM GOVERNMENT FUND(1) EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses Beginning Ending Paid During Account Account Annualized Period* Value Value Expense 7/1/04 to 7/1/04 12/31/04 Ratio 12/31/04 ------------------------------------------------------------------------------------------------------------ ACTUAL FUND RETURN Class A $1,000.00 $1,019.00 0.75% $3.81 Class B 1,000.00 1,014.70 1.60% 8.10 Class C 1,000.00 1,014.70 1.60% 8.10 Class R 1,000.00 1,016.70 1.20% 6.08 Institutional Class 1,000.00 1,019.80 0.60% 3.05 ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,021.37 0.75% $3.81 Class B 1,000.00 1,017.09 1.60% 8.11 Class C 1,000.00 1,017.09 1.60% 8.11 Class R 1,000.00 1,019.10 1.20% 6.09 Institutional Class 1,000.00 1,022.12 0.60% 3.05 ------------------------------------------------------------------------------------------------------------
(1) Effective March 1, 2005, the Fund's manager decreased contractual expense waivers in effect for the Fund, causing the expenses paid by the Fund to increase. Had the new expenses been if effect during the period, the Fund's expense analysis would be as follows:
Expenses Beginning Ending Paid During Account Account Annualized Period* Value Value Expense 7/1/04 to 7/1/04 12/31/04 Ratio 12/31/04 ------------------------------------------------------------------------------------------------------------ ACTUAL FUND RETURN Class A $1,000.00 $1,018.75 0.80% $4.06 Class B 1,000.00 1,014.45 1.65% 8.36 Class C 1,000.00 1,014.45 1.65% 8.36 Class R 1,000.00 1,016.45 1.25% 6.34 Institutional Class 1,000.00 1,019.55 0.65% 3.30 ------------------------------------------------------------------------------------------------------------ HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,021.11 0.80% $4.06 Class B 1,000.00 1,016.84 1.65% 8.36 Class C 1,000.00 1,016.84 1.65% 8.36 Class R 1,000.00 1,018.85 1.25% 6.34 Institutional Class 1,000.00 1,021.87 0.65% 3.30 ------------------------------------------------------------------------------------------------------------
5 SECTOR ALLOCATION As of December 31, 2004 DELAWARE LIMITED-TERM GOVERNMENT FUND The SEC adopted a requirement that all funds present their categories of portfolio holdings in a table, chart, or graph format in their annual and semiannual shareholder reports, whether or not a schedule of investments is utilized. The following chart lists the Fund's categories of portfolio holdings as a percent of total net assets and is provided in compliance with such requirement. -------------------------------------------------------------------------------- AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 18.38% -------------------------------------------------------------------------------- AGENCY MORTGAGE-BACKED SECURITIES 39.54% -------------------------------------------------------------------------------- AGENCY ASSET-BACKED SECURITIES 3.70% -------------------------------------------------------------------------------- AGENCY OBLIGATIONS 4.25% -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES 4.73% -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED SECURITIES 0.59% -------------------------------------------------------------------------------- CORPORATE BONDS 5.86% -------------------------------------------------------------------------------- Banking & Finance 3.74% Computers & Technology 0.52% Food, Beverage & Tobacco 0.40% Insurance 0.82% Utilities 0.38% -------------------------------------------------------------------------------- MUNICIPAL BONDS 0.28% -------------------------------------------------------------------------------- NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 7.30% -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS 14.22% -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS 6.69% -------------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 105.54% -------------------------------------------------------------------------------- LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (5.54%) -------------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% -------------------------------------------------------------------------------- 6 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS December 31, 2004 Principal Market Amount Value AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 18.38% oCollateralized Mortgage Obligation Trust Series 38 A 3.268% 12/25/17 $ 599,831 $ 600,055 Series 47 D 2.90% 9/1/18 369,704 369,931 oE.F. Hutton Trust III Series 1 Class A 2.88% 10/25/17 247,512 247,697 Fannie Mae Grantor Trust Series 2001-T8 A2 9.50% 7/25/41 2,621,192 2,927,189 Series 2001-T10 A1 7.00% 12/25/41 811,411 855,357 Series 2002-T1 A2 7.00% 11/25/31 348,258 369,044 Series 2002-T16 A3 7.50% 7/25/42 1,031,482 1,108,676 Series 2003-T1 A 3.807% 11/25/12 1,282,607 1,274,048 Fannie Mae Series 1993-18 Park 6.50% 2/25/08 975,000 1,016,109 Series 1996-46 ZA 7.50% 11/25/26 873,529 934,659 Fannie Mae Whole Loan Series 2002-W1 2A 7.50% 2/25/42 617,585 659,773 Series 2003-W14 1A5 4.71% 9/25/43 6,007,137 6,038,184 Series 2004-W9 2A1 6.50% 2/25/44 686,976 718,320 Freddie Mac Series 2480 EH 6.00% 11/15/31 1,766,125 1,786,032 Series 2575 4.50% 6/15/24 2,783,665 2,815,578 Series 2902 5.50% 12/15/17 930,000 953,250 Freddie Mac-GNMA Series 21 J 6.25% 8/25/22 60,543 60,657 Freddie Mac Stated Final Series S.F Series 5 GC 2.95% 12/15/09 2,743,125 2,664,835 Freddie Mac Structured Pass Through Securities Series T-42 A5 7.50% 2/25/42 219,994 236,238 Series T-56 A2A 2.842% 7/25/36 4,445,127 4,411,570 Series T-58 2A 6.50% 9/25/43 3,648,332 3,818,435 GNMA Series 2002-28 B 5.779% 7/16/24 6,000,000 6,408,204 Series 2002-61 BA 4.648% 3/16/26 3,000,000 3,061,311 Series 2003-43 B 4.374% 4/16/33 5,000,000 4,994,979 Series 2003-72 C 4.86% 2/16/30 2,500,000 2,564,681 Series 2003-78 B 5.11% 10/16/27 5,000,000 5,167,022 ----------- TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (cost $55,622,756) 56,061,834 ----------- AGENCY MORTGAGE-BACKED SECURITIES - 39.54% Fannie Mae 4.50% 3/1/14 3,052,122 3,105,534 4.92% 5/1/13 3,865,000 3,956,794 5.50% 5/15/09 1,644,562 1,701,608 6.215% 6/1/08 1,257,931 1,334,979 6.52% 2/1/08 2,313,903 2,454,906 6.75% 10/1/07 1,029,537 1,093,240 6.765% 1/1/07 2,527,314 2,641,833 7.00% 11/15/16 2,017,191 2,139,483 7.41% 4/1/10 4,877,187 5,503,601 8.00% 8/15/07 291,839 302,601 9.00% 11/1/15 303,724 327,547 10.00% 10/1/30 430,337 488,836 10.50% 6/1/30 91,701 104,682 oFannie Mae ARM 3.831% 12/1/33 2,376,647 2,430,319 4.97% 11/1/33 3,809,241 3,836,016 5.184% 8/1/34 752,297 759,184 5.147% 1/1/35 1,525,000 1,542,156 Principal Market Amount Value AGENCY MORTGAGE-BACKED SECURITIES (continued) Fannie Mae Balloon 7 yr 4.00% 8/1/10 $2,738,780 $2,725,086 4.50% 11/1/10 6,665,738 6,713,646 5.00% 8/1/11 3,823,946 3,893,255 Fannie Mae FHAVA 7.25% 4/1/09 21,555 22,579 7.50% 3/1/25 81,955 88,153 8.50% 8/1/09 20,704 22,134 10.00% 1/1/19 72,049 80,740 11.00% 8/1/10 to 12/1/15 960,955 1,076,475 Fannie Mae GPM 11.00% 11/1/10 28,713 31,701 Fannie Mae Relocation 30 yr 5.00% 9/1/33 986,517 989,600 Fannie Mae S.F. 15 yr 4.50% 7/1/19 1,059,502 1,057,185 6.00% 12/1/08 to 6/1/17 4,412,401 4,617,202 6.50% 8/1/08 13,455 14,115 7.50% 4/1/11 30,536 32,434 8.00% 10/1/09 to 10/1/14 818,112 866,275 8.50% 3/1/08 64,367 65,836 Fannie Mae S.F. 15 yr TBA 5.00% 1/1/20 3,400,000 3,454,188 5.50% 1/1/20 3,225,000 3,332,836 Fannie Mae S.F. 20 yr 6.50% 2/1/22 909,956 960,573 Fannie Mae S.F. 30 yr 5.00% 3/1/34 950,521 945,174 5.50% 3/1/29 to 4/1/29 3,981,949 4,057,855 7.00% 8/1/32 to 9/1/32 901,404 955,769 7.50% 12/1/10 to 11/1/31 1,484,848 1,590,888 8.00% 5/1/05 to 5/1/24 1,199,750 1,304,481 8.50% 11/1/07 to 8/1/17 747,278 801,818 9.00% 8/1/22 802,361 894,382 9.25% 3/1/09 to 3/1/20 153,725 170,618 10.00% 2/1/25 1,692,592 1,938,283 11.00% 7/1/12 to 8/1/20 416,682 467,349 11.50% 11/1/16 215,092 247,355 12.50% 2/1/11 8,977 10,001 13.00% 7/1/15 51,504 58,136 Fannie Mae S.F. 30 yr TBA 6.00% 1/25/35 2,900,000 2,998,781 6.50% 1/1/35 6,290,000 6,596,638 7.00% 1/1/35 830,000 879,541 Freddie Mac 6.50% 6/17/14 29,262 31,045 9.00% 3/17/08 26,885 28,162 oFreddie Mac ARM 3.718% 4/1/34 930,152 936,256 3.756% 4/1/33 2,700,838 2,785,763 Freddie Mac Balloon 5 yr 4.00% 3/1/08 to 8/1/08 3,670,806 3,686,867 Freddie Mac Balloon 7 yr 4.50% 12/1/10 1,742,307 1,755,919 6.00% 4/1/09 112,540 115,002 Freddie Mac FHAVA 8.00% 3/1/08 69,020 70,940 8.50% 1/1/09 31,969 34,142 9.50% 2/1/10 88,495 94,082 11.00% 2/1/14 to 11/1/15 29,993 33,106 Freddie Mac Relocation 15 yr 3.50% 9/1/18 to 10/1/18 5,684,894 5,405,979 Freddie Mac Relocation 30 yr 5.00% 9/1/33 3,671,519 3,688,729 6.50% 10/1/30 6,042 6,448 7 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value AGENCY MORTGAGE-BACKED SECURITIES (continued) Freddie Mac S.F. 15 yr 6.00% 10/1/10 $ 42,838 $ 44,967 6.50% 11/1/09 to 6/1/11 93,990 99,495 7.50% 4/1/11 142,885 151,592 8.00% 7/1/16 505,177 536,434 9.00% 10/1/06 10,314 10,572 Freddie Mac S.F. 30 yr 7.00% 11/1/33 2,098,310 2,224,209 8.00% 10/1/07 to 7/1/11 1,495,226 1,562,943 8.25% 3/1/09 262,820 276,043 8.50% 12/1/08 to 11/1/10 287,374 301,338 8.75% 5/1/10 98,463 106,402 9.00% 6/1/09 to 9/1/30 1,133,704 1,248,246 9.50% 6/1/16 20,817 22,353 9.75% 12/1/08 27,243 29,210 11.00% 11/1/19 to 6/1/20 46,711 52,684 11.50% 4/1/11 to 3/1/16 783,741 900,176 Freddie Mac Tiered Payment 9.50% 11/1/05 56,413 59,463 GNMA I Buydown 30 yr 10.50% 11/15/15 103,108 115,287 GNMA I GPM 11.00% 7/15/10 26,422 29,196 11.50% 4/15/10 19,163 21,349 12.00% 10/15/10 10,721 11,984 12.25% 1/15/14 20,293 23,038 GNMA I Mobile Home 6.50% 9/15/10 36,628 38,929 GNMA I S.F. 15 yr 6.00% 2/15/09 79,115 82,972 6.00% 6/15/09 365,352 381,222 7.50% 7/15/10 to 9/15/10 478,421 500,358 9.00% 11/15/06 18,987 19,871 GNMA I S.F. 30 yr 6.00% 4/15/33 773,641 802,653 7.00% 5/15/28 911,006 970,221 7.50% 12/15/23 to 12/15/31 1,117,649 1,203,664 8.00% 6/15/30 40,275 43,736 9.00% 10/15/09 to 2/15/17 294,263 321,554 9.50% 6/15/16 to 11/15/17 122,629 138,188 11.00% 12/15/09 to 5/15/20 470,543 529,646 11.50% 7/15/15 12,294 13,996 12.50% 12/15/10 20,932 23,699 GNMA II GPM 9.75% 12/20/16 to 9/20/17 23,630 26,007 GNMA II S.F. 15 yr 7.50% 3/20/09 30,686 32,307 GNMA II S.F. 30 yr 9.50% 11/20/20 to 11/20/21 337,010 379,406 10.50% 6/20/20 7,824 8,799 11.00% 9/20/15 to 10/20/15 167,616 188,446 11.50% 12/20/17 to 10/20/18 95,516 108,712 12.00% 4/20/14 to 5/20/16 349,991 398,569 12.50% 10/20/13 to 1/20/14 145,137 165,709 ------------ TOTAL AGENCY MORTGAGE-BACKED SECURITIES (cost $119,155,729) 120,562,486 ------------ Principal Market Amount Value AGENCY ASSET-BACKED SECURITIES - 3.70% Fannie Mae Grantor Trust Series 2004-T4 A3 4.42% 8/25/24 $ 2,135,000 $ 2,147,870 oSLMA Student Loan Trust Series 1997-2 A2 2.869% 1/25/10 156,699 156,928 Series 1997-4 A2 3.019% 10/25/10 224,467 226,828 Series 2002-7 A2 2.53% 6/17/13 514,417 514,490 Series 2004-1 A1 2.14% 1/26/15 4,825,601 4,828,057 Series 2004-5 A2 2.13% 4/25/14 2,860,000 2,862,020 Series 2004-6 A2 2.14% 1/25/13 560,000 560,563 ----------- TOTAL AGENCY ASSET-BACKED SECURITIES (cost $11,279,680) 11,296,756 ----------- AGENCY OBLIGATIONS - 4.25% Federal Home Loan Bank 2.75% 12/15/06 115,000 113,978 3.84% 11/25/09 2,419,650 2,401,326 ^Financing Corp Fico Strips PRN 2 5.03% 11/30/17 3,120,000 1,639,033 PRN 10 5.03% 11/30/17 1,870,000 982,369 Freddie Mac 5.00% 7/15/14 2,000,000 2,069,774 ^Freddie Mac PRN 3.57% 10/15/08 6,630,000 5,767,629 ----------- TOTAL AGENCY OBLIGATIONS (cost $12,946,538) 12,974,109 ----------- ASSET-BACKED SECURITIES - 4.73% oAmerican Express Credit Account Master Trust Series 2003-3 Class A 2.513% 11/15/10 500,000 501,250 AmeriCredit Automobile Receivables Trust Series 2001-C A4 5.01% 7/14/08 525,645 531,977 Series 2001-D A4 4.41% 11/12/08 789,844 796,921 oBank One Issuance Trust Series 2003 A6 2.513% 2/15/11 1,025,000 1,027,754 Capital One Master Trust Series 2002-4A A 4.90% 3/15/10 1,340,000 1,383,218 oChase Credit Card Master Trust Series 2002-1 A 2.502% 6/15/09 750,000 751,574 Countrywide Asset-Backed Certificate 2004-S1 A2 3.872% 3/25/20 775,000 773,305 Harley-Davidson Motorcycle Trust Series 2003-4 Class A1 1.47% 4/15/08 795,760 790,162 oNovastar Home Equity Loan Series 2004-4 A2B 2.758% 3/25/35 1,225,000 1,225,317 PP&L Transition Bond Series 1999-1 A5 6.83% 3/25/07 46,455 46,927 Renaissance Home Equity Loan Trust Series 2004-4 AF2 3.856% 2/25/35 870,000 870,000 oResidential Asset Mortgage Products Series 2004-RZ2 AI3 4.30% 1/25/31 755,000 760,443 Residential Asset Securities Series 1999-KS1 AI8 6.32% 4/25/30 2,111,072 2,139,917 Series 2001-KS3 AI4 5.81% 8/25/29 27,051 27,002 #Sierra Receivables Funding Company Series 2003-1A 144A 3.09% 1/15/14 774,888 762,986 Series 2003-2A A1 144A 3.03% 12/15/15 662,127 656,344 WFS Financial Owner Trust Series 2002-1 A4A 4.87% 9/20/09 1,355,000 1,373,359 ----------- TOTAL ASSET-BACKED SECURITIES (cost $14,567,889) 14,418,456 ----------- 8 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value COMMERCIAL MORTGAGE-BACKED SECURITIES - 0.59% Bank of America Commercial Mortgage Series 2004-6 A5 4.811% 12/10/42 $ 1,805,000 $ 1,801,052 ----------- TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (cost $1,814,137) 1,801,052 ----------- CORPORATE BONDS - 5.86% Banking & Finance - 3.74% Core Investment 4.727% 11/30/07 3,225,000 3,299,691 First Bank National Association 7.30% 8/15/05 650,000 664,893 Merrill Lynch 6.00% 2/17/09 500,000 537,128 oMorgan Stanley 2.51% 11/24/06 490,000 490,599 o#Premium Asset Trust Series 2004-01 144A 2.451% 2/6/06 6,400,000 6,404,308 ----------- 11,396,619 ----------- Computers & Technology - 0.52% Computer Sciences 6.75% 6/15/06 1,500,000 1,571,120 ----------- 1,571,120 ----------- Food, Beverage & Tobacco - 0.40% Kraft Foods 4.625% 11/1/06 400,000 408,424 Universal 6.50% 2/15/06 790,000 816,053 ----------- 1,224,477 ----------- Insurance - 0.82% #Berkshire Hathaway Finance 144A 3.40% 7/2/07 1,860,000 1,856,700 Prudential Financial 4.104% 11/15/06 650,000 657,412 ----------- 2,514,112 ----------- Utilities - 0.38% FPL Group Capital 4.086% 2/16/07 115,000 116,277 Southern Capital Funding 5.30% 2/1/07 1,000,000 1,046,136 ----------- 1,162,413 ----------- Total Corporate Bonds (cost $17,906,101) 17,868,741 ----------- MUNICIPAL BONDS - 0.28% oMassachusetts State Special Obligation Revenue Loan 5.044% 6/1/22 (Connie Lee) 750,000 842,100 ----------- Total Municipal Bonds (cost $831,833) 842,100 ----------- NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 7.30% Bank of America Alternative Loan Trust Series 2004-11 1CB1 6.00% 12/25/34 2,194,141 2,264,513 oBank of America Mortgage Securities Series 2004-E 1A1 3.533% 6/25/34 1,107,863 1,099,656 oCountrywide Home Loans Series 2001-HYB2 3A1 5.460% 9/19/31 510,781 511,569 Credit Suisse First Boston Mortgage Securities Series 2003-29 5A1 7.00% 12/25/33 1,298,202 1,348,066 Series 2004-1 3A1 7.00% 2/25/34 579,086 601,311 Deutsche Mortgage Securities Series 2004-4 1A2 4.01% 4/25/34 785,000 785,123 General Motors Acceptance Corporation Mortgage Corp Loan Trust Series 2004-HE5 A2 3.685% 9/25/34 2,400,000 2,392,760 Principal Market Amount Value NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) #GSMPS Mortgage Loan Trust Series 1998-2 A 144A 7.75% 5/19/27 $ 617,651 $ 661,239 Series 1999-3 A 144A 8.00% 8/19/29 1,525,532 1,644,381 GSR Mortgage Home Loan Trust Series 2004-2F 9A1 6.00% 9/25/19 1,546,063 1,588,231 Nomura Asset Acceptance Series 2004-AP1 A2 3.238% 3/25/34 1,630,000 1,622,599 Series 2004-AP2 A2 4.099% 7/25/34 920,000 919,088 Residential Asset Mortgage Products Series 2004-SL1 A3 7.00% 11/25/31 943,546 974,875 Washington Mutual oSeries 2002-AR16 A 4.017% 12/25/32 1,974,481 1,978,242 Series 2003-AR4 A7 3.95% 5/25/33 1,677,204 1,674,666 oWells Fargo Mortgage Backed Securities Trust Series 2004-I 1A1 3.393% 7/25/34 1,363,734 1,359,948 Series 2004-DD 2A3 4.548% 1/25/35 835,000 836,827 ------------ TOTAL NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (cost $22,384,947) 22,263,094 ------------ U.S. TREASURY OBLIGATIONS - 14.22% U.S. Treasury Bonds 12.00% 8/15/13 1,930,000 2,488,042 U.S. Treasury Inflation Index Notes 0.875% 4/15/10 2,246,747 2,225,596 1.875% 7/15/13 1,538,046 1,582,626 @2.00% 1/15/14 to 7/15/14 9,184,221 9,483,477 2.375% 1/15/25 1,194,844 1,278,064 3.00% 7/15/12 1,565,801 1,747,764 3.375% 1/15/07 3,511,701 3,720,348 4.25% 1/15/10 3,040,353 3,527,642 U.S. Treasury Notes 2.875% 11/30/06 4,750,000 4,736,643 ^U.S. Treasury Principal Only Strip 3.989% 8/15/10 15,500,000 12,559,930 ------------ TOTAL U.S. TREASURY OBLIGATIONS (cost $43,154,206) 43,350,132 ------------ REPURCHASE AGREEMENTS- 6.69% With BNP Paribas 1.55% 1/3/05 (dated 12/31/04, to be repurchased at $11,098,433, collateralized by $11,407,000 U.S. Treasury Bills due 4/28/05, market value $11,321,390) 11,097,000 11,097,000 With UBS Warburg 1.55% 1/3/05 (dated 12/31/04, to be repurchased at $9,308,202, collateralized by $9,307,000 U.S. Treasury Bills due 4/28/05, market value $9,236,421 and $255,000 U.S. Treasury Notes 6.75% due 5/15/05, market value $260,870) 9,307,000 9,307,000 ------------ TOTAL REPURCHASE AGREEMENTS (cost $20,404,000) 20,404,000 ------------ TOTAL MARKET VALUE OF SECURITIES - 105.54% (cost $320,067,816) 321,842,760 LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (5.54%) (16,884,448)++ ------------ NET ASSETS APPLICABLE TO 35,952,327 SHARES OUTSTANDING - 100.00% $304,958,312 ============ 9 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF NET ASSETS (CONTINUED) Net Asset Value - Delaware Limited-Term Government Fund Class A ($204,052,581 / 24,055,996 Shares) $8.48 ----- Net Asset Value - Delaware Limited-Term Government Fund Class B ($27,558,615 / 3,249,115 Shares) $8.48 ----- Net Asset Value - Delaware Limited-Term Government Fund Class C ($49,709,100 / 5,860,725 Shares) $8.48 ----- Net Asset Value - Delaware Limited-Term Government Fund Class R ($1,905,447 / 224,565 Shares) $8.49 ----- Net Asset Value - Delaware Limited-Term Government Fund Institutional Class ($21,732,569 / 2,561,926 Shares) $8.48 ----- COMPONENTS OF NET ASSETS AT DECEMBER 31, 2004: Shares of beneficial interest (unlimited authorization - no par) $331,845,225 Accumulated net realized loss on investments (28,505,689) Net unrealized appreciation of investments 1,618,776 ------------ Total net assets $304,958,312 ============ ^Zero coupon bond. The interest rate shown is the effective yield as of time of purchase. #Securities exempt from registration under Rule 144A of the Securities Act of 1933. See Note 10 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of December 31, 2004. ++Of this amount, $19,135,327 represents payable for securities purchased as of December 31, 2004. @Partially pledged as collateral for financial futures contract. SUMMARY OF ABBREVIATIONS: ARM - Adjustable Rate Mortgage Connie Lee - Insured by the College Construction Insurance Association FHAVA - Federal Housing Administration & Veterans Administration GNMA - Government National Mortgage Association GPM - Graduate Payment Mortgage PRN - Principal Only Strip S.F. - Single Family SLMA - Student Loan Marketing Association TBA - To Be Announced yr - year NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE LIMITED-TERM GOVERNMENT FUND Net asset value Class A (A) $8.48 Sales charge (2.75% of offering price) (B) 0.24 ----- Offering price $8.72 ===== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. FUTURE CONTRACTS Financial futures contracts open at December 31, 2004 were as follows:
Unrealized Contracts Notional Cost Notional Expiration Appreciation to Buy (Sell) (Proceeds) Value Date (Depreciation) ------------- ------------- -------- ---------- -------------- 86 U.S. Treasury 10 year Notes $9,645,765 $9,626,625 March 2005 ($19,140) (155) U.S. Treasury 2 year Notes (32,510,071) (32,487,031) March 2005 23,040 (367) U.S. Treasury 5 year Notes (40,025,652) (40,197,969) March 2005 (172,317) 23 U.S. Long Bond 2,575,251 2,587,500 March 2005 12,249 --------- ($156,168) =========
The use of futures contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional amount presented above represents the Fund's total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund's net assets. See accompanying notes 10 STATEMENT DELAWARE LIMITED-TERM GOVERNMENT FUND OF OPERATIONS Year Ended December 31, 2004
INVESTMENT INCOME: Interest $12,445,538 ----------- EXPENSES: Management fees $1,729,327 Distribution expenses -- Class A 691,971 Distribution expenses -- Class B 324,022 Distribution expenses -- Class C 607,761 Distribution expenses -- Class R 10,713 Dividend disbursing and transfer agent fees and expenses 761,464 Accounting and administration expenses 123,359 Registration fees 75,897 Reports and statements to shareholders 74,393 Legal and professional fees 55,669 Trustees' fees 18,615 Pricing fees 14,612 Custodian fees 11,890 Other 6,553 4,506,246 ---------- Less expenses absorbed or waived (777,158) Less waiver of distribution expenses -- Class A (345,985) Less expense paid indirectly (11,890) ----------- Total expenses 3,371,213 ----------- NET INVESTMENT INCOME 9,074,325 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments 974,779 Futures contracts (1,610,621) Options written 1,769 Swap agreements 312,392 ----------- Net realized gain (321,681) Net change in unrealized appreciation/depreciation of investments (1,875,293) ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (2,196,974) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,877,351 ===========
See accompanying notes 11 STATEMENTS DELAWARE LIMITED-TERM GOVERNMENT FUND OF CHANGES IN NET ASSETS
Year Ended 12/31/04 12/31/03 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 9,074,325 $ 9,295,976 Net realized gain (loss) on investments (321,681) 4,990,124 Net change in unrealized appreciation/depreciation of investments (1,875,293) (6,658,617) ------------ ------------ Net increase in net assets resulting from operations 6,877,351 7,627,483 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (8,983,172) (9,514,180) Class B (985,589) (1,267,290) Class C (1,847,269) (2,170,318) Class R (61,707) (5,990) Institutional Class (875,872) (560,921) Return of capital: Class A -- (525,114) Class B -- (62,205) Class C -- (116,571) Class R -- (2,208) Institutional Class -- (34,833) ------------ ------------ (12,753,609) (14,259,630) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 41,878,039 71,852,730 Class B 4,214,315 13,076,956 Class C 9,856,959 33,470,252 Class R 636,522 1,589,403 Institutional Class 12,934,332 6,264,430 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 6,992,277 7,756,306 Class B 754,179 1,025,233 Class C 1,363,602 1,656,390 Class R 61,306 6,845 Institutional Class 867,592 588,306 ------------ ------------ 79,559,123 137,286,851 ------------ ------------ Cost of shares repurchased: Class A (90,781,272) (76,184,416) Class B (14,660,215) (25,919,343) Class C (32,501,936) (32,927,494) Class R (261,687) (94,369) Institutional Class (8,349,764) (3,231,739) ------------ ------------ (146,554,874) (138,357,361) ------------ ------------ Decrease in net assets derived from capital share transactions (66,995,751) (1,070,510) ------------ ------------ NET DECREASE IN NET ASSETS (72,872,009) (7,702,657) NET ASSETS: Beginning of year 377,830,321 385,532,978 ------------ ------------ End of year (there was no undistributed net investment income at either year end) $304,958,312 $377,830,321 ============ ============
See accompanying notes 12 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
DELAWARE LIMITED-TERM GOVERNMENT FUND CLASS A ----------------------------------------------------------------------------------------------------------------------- Year Ended 12/31/04 12/31/03 12/31/02 12/31/01(1) 12/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.244 0.222 0.349 0.423 0.522 Net realized and unrealized gain (loss) on investments (0.048) (0.039) 0.255 0.238 0.161 ------ ------ ------ ------ ------ Total from investment operations 0.196 0.183 0.604 0.661 0.683 ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.336) (0.315) (0.434) (0.491) (0.523) Return of capital -- (0.018) -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.336) (0.333) (0.434) (0.491) (0.523) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.480 $8.620 $8.770 $8.600 $8.430 ====== ====== ====== ====== ====== TOTAL RETURN(2) 2.31% 2.12% 7.08% 8.16% 8.59% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $204,053 $249,845 $250,729 $208,152 $208,565 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.89% 1.13% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.13% 1.14% 1.05% 1.08% 1.13% Ratio of net investment income to average net assets 2.85% 2.57% 3.99% 4.92% 6.36% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.47% 2.18% 3.69% 4.73% 6.36% Portfolio turnover 313% 483% 313% 386% 273%
(1) As required, effective January 1, 2001, the Fund adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies that requires 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 of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 13 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
DELAWARE LIMITED-TERM GOVERNMENT FUND CLASS B ----------------------------------------------------------------------------------------------------------------------- Year Ended 12/31/04 12/31/03 12/31/02 12/31/01(1) 12/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.170 0.152 0.274 0.348 0.453 Net realized and unrealized gain (loss) on investments (0.047) (0.044) 0.255 0.238 0.160 ------ ------ ------ ------ ------ Total from investment operations 0.123 0.108 0.529 0.586 0.613 ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.263) (0.244) (0.359) (0.416) (0.453) Return of capital -- (0.014) -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.263) (0.258) (0.359) (0.416) (0.453) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.480 $8.620 $8.770 $8.600 $8.430 ====== ====== ====== ====== ====== TOTAL RETURN(2) 1.44% 1.25% 6.17% 7.22% 7.68% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $27,559 $37,774 $50,326 $21,743 $8,600 Ratio of expenses to average net assets 1.60% 1.60% 1.60% 1.74% 1.98% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.83% 1.86% 1.90% 1.93% 1.98% Ratio of net investment income to average net assets 2.00% 1.72% 3.14% 4.07% 5.51% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.46% 2.84% 3.88% 5.51% Portfolio turnover 313% 483% 313% 386% 273%
(1) As required, effective January 1, 2001, the Fund adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies that requires 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 of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 14 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
DELAWARE LIMITED-TERM GOVERNMENT FUND CLASS C ----------------------------------------------------------------------------------------------------------------------- Year Ended 12/31/04 12/31/03 12/31/02 12/31/01(1) 12/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.170 0.152 0.274 0.347 0.453 Net realized and unrealized gain (loss) on investments (0.047) (0.044) 0.255 0.238 0.160 ------ ------ ------ ------ ------ Total from investment operations 0.123 0.108 0.529 0.585 0.613 ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.263) (0.244) (0.359) (0.415) (0.453) Return of capital -- (0.014) -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.263) (0.258) (0.359) (0.415) (0.453) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.480 $8.620 $8.770 $8.600 $8.430 ====== ====== ====== ====== ====== TOTAL RETURN(2) 1.44% 1.25% 6.16% 7.20% 7.68% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $49,709 $72,045 $71,189 $21,386 $4,506 Ratio of expenses to average net assets 1.60% 1.60% 1.60% 1.74% 1.98% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.83% 1.86% 1.90% 1.93% 1.98% Ratio of net investment income to average net assets 2.00% 1.72% 3.14% 4.07% 5.51% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.46% 2.84% 3.88% 5.51% Portfolio turnover 313% 483% 313% 386% 273%
(1) As required, effective January 1, 2001, the Fund adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies that requires 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 of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 15 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
DELAWARE LIMITED-TERM GOVERNMENT FUND CLASS R ------------------------------------------------------------------------------------------------- Year 6/2/03(1) Ended to 12/31/04 12/31/03 NET ASSET VALUE, BEGINNING OF PERIOD $8.630 $8.800 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.205 0.074 Net realized and unrealized gain (loss) on investments (0.048) (0.063) ------ ------ Total from investment operations 0.157 0.011 ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.297) (0.165) Return of capital -- (0.016) ------ ------ Total dividends and distributions (0.297) (0.181) ------ ------ NET ASSET VALUE, END OF PERIOD $8.490 $8.630 ====== ====== TOTAL RETURN(2) 1.73% 0.14% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,905 $1,499 Ratio of expenses to average net assets 1.20% 1.20% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.43% 1.38% Ratio of net investment income to average net assets 2.40% 1.86% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.17% 1.68% Portfolio turnover 313% 483%
(1) Date of commencement of operations. Ratios have been annualized and total return has not been annualized. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 16 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
DELAWARE LIMITED-TERM GOVERNMENT FUND INSTITUTIONAL CLASS ----------------------------------------------------------------------------------------------------------------------- Year Ended 12/31/04 12/31/03 12/31/02 12/31/01(1) 12/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $8.620 $8.770 $8.600 $8.430 $8.270 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.256 0.234 0.364 0.437 0.534 Net realized and unrealized gain (loss) on investments (0.047) (0.038) 0.255 0.238 0.161 ------ ------ ------ ------ ------ Total from investment operations 0.209 0.196 0.619 0.675 0.695 ------ ------ ------ ------ ------ LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.349) (0.328) (0.449) (0.505) (0.535) Return of capital -- (0.018) -- -- -- ------ ------ ------ ------ ------ Total dividends and distributions (0.349) (0.346) (0.449) (0.505) (0.535) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $8.480 $8.620 $8.770 $8.600 $8.430 ====== ====== ====== ====== ====== TOTAL RETURN(2) 2.46% 2.27% 7.27% 8.34% 8.75% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $21,732 $16,667 $13,289 $7,116 $4,514 Ratio of expenses to average net assets 0.60% 0.60% 0.60% 0.74% 0.98% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.83% 0.86% 0.90% 0.93% 0.98% Ratio of net investment income to average net assets 3.00% 2.72% 4.14% 5.07% 6.51% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.77% 2.46% 3.84% 4.88% 6.51% Portfolio turnover 313% 483% 313% 386% 273%
(1) As required, effective January 1, 2001, the Fund adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies that requires 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 of 0.80%. Per share data and ratios for periods prior to January 1, 2001 have not been restated to reflect these changes in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividend and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 17 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS December 31, 2004 Delaware Group Limited-Term Government Funds (the "Trust") is organized as a Delaware statutory trust and offers one fund: Delaware Limited-Term Government Fund (the "Fund"). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 2.75%. Class B shares are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately 5 years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed, during the first 12 months. Class R and Institutional shares are not subject to a sales charge and are offered for sales exclusively to a limited group of investors. The investment objective of the Fund is to seek a high stable level of current income, while attempting to minimize fluctuations in principal and provide maximum liquidity. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- The Fund intends to continue to qualify for federal tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income, common expenses are allocated to the various classes of the Fund on the basis of "settled shares" of each class in relation to the net assets of the Fund. Realized and unrealized gains (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Repurchase Agreements -- The Fund may invest in a pooled cash account along with other members of the Delaware Investments Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Premiums and discounts are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset- backed securities are classified as interest income. The Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The earnings credits for the year ended December 31, 2004 were approximately $11,890. The expense paid under the above arrangement is included in custody fees on the Statement of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.50% on the first $500 million of average daily net assets of the Fund, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and 0.425% on average daily net assets in excess of $2.5 billion. DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed 0.60% of average daily net assets of the Fund through February 28, 2005. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, the Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net asset of Class R shares. DDLP has contracted to waive distribution and service fees through February 28, 2005 in order to prevent distribution and service fees of Class A shares from exceeding 0.15% of average daily net assets. Institutional Class shares paid no distribution and service expenses. At December 31, 2004, the Fund had liabilities payable to affiliates as follows: Investment management fee payable to DMC $52,428 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 51,502 Other expenses payable to DMC and affiliates* 15,305 *DMC, as part of its administrative services, pays operating expenses on behalf of the Funds and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. 18 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (continued) As provided in the investment management agreement, the Fund bears the cost of certain legal services expenses, including internal legal services, provided to the Fund by DMC employees. For the year ended December 31, 2004, the Fund was charged $11,169 for internal legal services provided by DMC. For the year ended December 31, 2004, DDLP earned $36,491 for commissions on sales of the Fund's Class A shares. Certain officers of DMC, DSC and DDLP are officers, and/or trustees of the Fund. These officers and trustees are paid no compensation by the Fund. 3. INVESTMENTS For the year ended December 31, 2004, the Fund made purchases of $636,471,165 and sales of $673,735,245 of investment securities other than long-term U.S. government securities and short-term investments. For the year ended December 31, 2004, the Fund made purchases of $443,252,792 and sales of $475,080,557 of long-term U.S. government securities. At December 31, 2004, the cost of investments for federal income tax purposes was $321,143,204. At December 31, 2004, net unrealized appreciation was $699,556 of which $2,235,373 related to unrealized appreciation of investments and $1,535,817 related to unrealized depreciation of investments. 4. DIVIDEND AND DISTRIBUTION INFORMATION. Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, gains (losses) on net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended December 31, 2004 and 2003 was as follows: Year Ended 12/31/04 12/31/03 -------- -------- Ordinary income $12,753,609 $13,518,699 Return of capital -- 740,931 ----------- ----------- Total $12,753,609 $14,259,630 =========== =========== As of December 31, 2004, the components of net assets on a tax basis were as follows: Shares of beneficial interest $331,845,225 Capital loss carryforwards (26,969,464) Post-October losses (617,005) Unrealized appreciation of investments 699,556 ------------ Net assets $304,958,312 ============ Post-October losses represent losses realized on investment transactions from November 1, 2004 through December 31, 2004 that, in accordance with federal income tax regulations the Fund has elected to defer and treat as having arisen in the following fiscal year. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the year ended December 31, 2004, the Fund recorded the following reclassifications. Reclassifications are primarily due to tax treatment of expiration of capital loss carryforwards, paydown gain (loss) on mortgage- and asset-backed securities and market discounts and premiums on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. Undistributed net investment income $3,679,284 Accumulated net realized gain (loss) 12,956,298 Paid-in capital (16,635,582) For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains, $16,636,244 expired in 2004. Capital loss carryforwards remaining at December 31, 2004 will expire as follows: $9,442,127 expires in 2005, $5,505,504 expires in 2007, $5,888,621 expires in 2008 and $6,133,212 expires in 2012. 5. CAPITAL SHARES Transactions in capital shares were as follows: Year Ended 12/31/04 12/31/03 Shares sold: Class A 4,891,801 8,251,896 Class B 492,221 1,498,856 Class C 1,147,265 3,831,293 Class R 74,227 183,937 Institutional Class 1,506,248 719,932 Shares issued upon reinvestment of dividends and distributions: Class A 816,795 892,179 Class B 88,106 117,872 Class C 159,254 190,539 Class R 7,166 793 Institutional Class 101,468 67,690 ----------- ---------- 9,284,551 15,754,987 ----------- ---------- Shares repurchased: Class A (10,623,056) (8,771,483) Class B (1,711,432) (2,976,690) Class C (3,799,848) (3,787,429) Class R (30,591) (10,967) Institutional Class (978,461) (370,698) ----------- ---------- (17,143,388) (15,917,267) ----------- ---------- Net decrease (7,858,837) (162,280) =========== ========== For the years ended December 31, 2004 and 2003, 162,083 Class B shares were converted to 162,083 Class A shares valued at $1,390,225 and 122,579 Class B shares were converted to 122,579 Class A shares valued at $1,065,018, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets. 19 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS (CONTINUED) 6. LINE OF CREDIT The Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $183,100,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amount outstanding as of December 31, 2004, or at any time during the year. 7. FUTURES CONTRACTS The Fund may invest in financial futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S government securities to a broker, equal to the minimum "initial margin" requirements of the exchange on which the contract is traded. (In some cases, due to the form of the futures agreement, initial margin is held in a segregated account with the Fund's custodian, rather than directly with the broker.) Subsequent payments are received from the broker or paid to the broker (or added to the segregated account) each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as "variation margin" and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risk of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. 8. OPTIONS WRITTEN During the year ended December 31, 2004, the Fund entered into options contracts in accordance with its investment objectives. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Series has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Transactions in options written during the year ended December 31, 2004 for the Fund, were as follows: Number of Contracts Premiums ------------ -------- Options outstanding at December 31, 2003 650 $ 249,354 Options written 2,163 996,639 Options terminated in closing purchase transactions (2,813) (1,245,993) ------ ---------- Options outstanding at December 31, 2004 -- $ -- ====== ========== 20 NOTES DELAWARE LIMITED-TERM GOVERNMENT FUND TO FINANCIAL STATEMENTS (CONTINUED) 9. SWAP AGREEMENTS During the year ended December 31, 2004, the Fund entered into total return swap agreements in accordance with its investment objectives. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Total return swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. The change in value of swap agreements outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap agreement. The Fund had no total return swap agreements outstanding at December 31, 2004. 10. CREDIT AND MARKET RISK The Fund invests in fixed-income securities whose value is derived from an underlying pool of mortgages or consumer loans. Investors receive principal and interest payments as the underlying mortgages and consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities, which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse affect on the Fund's yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories. The Fund invests in private-backed CMOs only if they are 100% collateralized at the time of issuance by securities or certificates issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund may invest up to 10% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. Illiquid securities, if any, have been denoted in the Statement of Net Assets. 11. CONTRACTUAL OBLIGATIONS The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund's existing contracts and expects the risk of loss to be remote. 12. TAX INFORMATION (UNAUDITED) For the fiscal year ended December 31, 2004, the Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary Capital Gains Income Total Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) ------------- ------------- ------------- -- 100% 100% (A) and (B) are based on a percentage of the Fund's total distributions. 21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Delaware Group Limited-Term Government Funds -- Delaware Limited-Term Government Fund We have audited the accompanying statement of net assets of the Delaware Limited-Term Government Fund (the only series of Delaware Group Limited-Term Government Funds) (the "Fund") as of December 31, 2004, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Limited-Term Government Fund of Delaware Group Limited-Term Government Funds at December 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Philadelphia, Pennsylvania February 9, 2005 22 DELAWARE INVESTMENTS FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors which has oversight responsibility for the management of a fund's business affairs. Trustees/ Directors establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Directors and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, President, 4 Years - Since August 2000, 75 None 2005 Market Street Chief Executive Executive Officer Mr. Driscoll has served in Philadelphia, PA Officer and various executive capacities 19103 Trustee(4) 1 Year - at different times at Trustee Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES WALTER P. BABICH Trustee 16 Years Board Chairman - 92 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 JOHN H. DURHAM Trustee 25 Years(3) Private Investor 92 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 President/Director - 22 WR Corporation August 7, 1937 JOHN A. FRY Trustee(4) 3 Years President - 75 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 92 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
23
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer - 92 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation Director - Systemax Inc. November 1, 1940 THOMAS F. MADISON Trustee 10 Years President/Chief 92 Director - 2005 Market Street Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - and Consulting) CenterPoint Energy (January 1993 - Present) February 25, 1936 Director - Digital River Inc. Director - Rimage Corporation Director - Valmont Industries, Inc. JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 92 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS JOSEPH H. HASTINGS Executive 1 Year Mr. Hastings has served in 92 None(5) 2005 Market Street Vice President various executive capacities Philadelphia, PA and at different times at 19103 Chief Financial Delaware Investments. Officer Decenber 19, 1999 RICHELLE S. MAESTRO Executive Vice President, 1 Year Ms. Maestro has served in 92 None(5) 2005 Market Street Chief Legal Officer various executive capacities Philadelphia, PA and Secretary at different times at 19103 Delaware Investments. November 26, 1957 MICHAEL P. BISHOF Senior Vice President 8 Years Mr. Bishof has served in 92 None(5) 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the funds 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. Hastings, Mr. Bishof and Ms. Maestro 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. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 24 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Limited-Term Government Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Limited-Term Government Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL JOSEPH H. HASTINGS INVESTMENT MANAGER Chairman Executive Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA NATIONAL DISTRIBUTOR WALTER P. BABICH Delaware Distributors, L.P. Board Chairman RICHELLE S. MAESTRO Philadelphia, PA Citadel Construction Corporation Executive Vice President, King of Prussia, PA Chief Legal Officer and Secretary SHAREHOLDER SERVICING, DIVIDEND Delaware Investments Family of Funds DISBURSING AND TRANSFER AGENT JOHN H. DURHAM Philadelphia, PA Delaware Service Company, Inc. Private Investor 2005 Market Street Gwynedd Valley, PA MICHAEL P. BISHOF Philadelphia, PA 19103-7094 Senior Vice President and Treasurer JOHN A. FRY Delaware Investments Family of Funds FOR SHAREHOLDERS President Philadelphia, PA 800 523-1918 Franklin & Marshall College Lancaster, PA FOR SECURITIES DEALERS AND FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY ANTHONY D. KNERR 800 362-7500 Managing Director Anthony Knerr & Associates WEB SITE New York, NY www.delawareinvestments.com ANN R. LEVEN Former Treasurer/Chief Fiscal Officer National Gallery of Art Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN
-------------------------------------------------------------------------------- The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -------------------------------------------------------------------------------- (9157) Printed in the USA AR-022 [12/04] IVES 2/05 J9983 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Ann R. Leven Thomas F. Madison Janet L. Yeomans(1) Item 4. Principal Accountant Fees and Services (a) Audit fees. The aggregate fees billed for services provided to the Registrant by its independent auditors for the audit of the Registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $26,030 for the fiscal year ended December 31, 2004. The aggregate fees billed for services provided to the Registrant by its independent auditors for the audit of the Registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $23,750 for the fiscal year ended December 31, 2003. ----------------------- (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. (b) Audit-related fees. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the Registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2004. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the financial statements of the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $164,700 for the Registrant's fiscal year ended December 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act, issuance of agreed upon procedures reports to the Registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass through of Placed in Operation and Tests of Operating Effectiveness Relating to the Retirement Plan Services Division ("SAS 70 report"). The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the Registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2003. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the financial statements of the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $162,700 for the Registrant's fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act, issuance of agreed upon procedures reports to the Registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass through of Placed in Operation and Tests of Operating Effectiveness Relating to the Retirement Plan Services Division ("SAS 70 report"). (c) Tax fees. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,750 for the fiscal year ended December 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2004. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,250 for the fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2003. (d) All other fees. The aggregate fees billed for all services provided by the independent auditors to the Registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended December 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the Registrant's independent auditors to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. The aggregate fees billed for all services provided by the independent auditors to the Registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the Registrant's independent auditors to the Registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended December 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. (e) The Registrant's Audit Committee has not established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by the Registrant's independent auditors for services rendered to the Registrant and to its investment adviser and other service providers under common control with the adviser were $354,209 and $286,850 for the Registrant's fiscal years ended December 31, 2004 and December 31, 2003, respectively. (h) In connection with its selection of the independent auditors, the Registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the Registrant's investment adviser and other service providers under common control with the adviser(s) that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. NAME OF REGISTRANT: DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS JUDE T. DRISCOLL ------------------------------- By: Jude T. Driscoll ----------------------- Title: Chairman Date: March 2, 2005 ----------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. JUDE T. DRISCOLL ------------------------------- By: Jude T. Driscoll ----------------------- Title: Chairman Date: March 2, 2005 ----------------------- MICHAEL P. BISHOF ------------------------------- By: Michael P. Bishof ----------------------- Title: Chief Financial Officer Date: March 2, 2005 -----------------------