<PAGE>
The Delaware Group includes --------------------------------------
funds with a wide range of investment DELAWARE GROUP ADVISER FUNDS, INC.
objectives. Stock funds, income funds, (FORMERLY LINCOLN ADVISOR FUNDS, INC.)
tax-free funds, money market funds, --------------------------------------
global and international funds and A CLASSES
closed-end equity funds give investors --------------------------------------
the ability to create a portfolio that B CLASSES
fits their personal financial goals. --------------------------------------
For more information, shareholders of C CLASSES
the Fund Classes should contact their --------------------------------------
financial adviser or call Delaware INSTITUTIONAL CLASSES
Group at 800-523- 4640 and shareholders --------------------------------------
of the Institutional Class should
contact Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
INVESTMENT SUB-ADVISERS
Lynch & Mayer, Inc.
520 Madison Avenue
New York, NY 10022
Walter Scott & Partners Limited
Millburn Tower, Gogar
Edinburgh, Scotland EH12 9BS
John Govett & Company Limited
Shackleton House
4 Battlebridge Lane
London, England SE1 2HR
Lincoln Investment Management, Inc. PART B
200 East Berry Street
Fort Wayne, IN 46802 STATEMENT OF
ADDITIONAL INFORMATION
NATIONAL DISTRIBUTOR --------------------------------------
Delaware Distributors, L.P. MAY 6, 1996
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Coopers & Lybrand, L.L.P.
Eleven Penn Center Plaza
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank, N.A. DELAWARE
4 Chase Metrotech Center GROUP
Brooklyn, NY 11245 --------
<PAGE>
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PART B--STATEMENT OF ADDITIONAL INFORMATION
MAY 6, 1996
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DELAWARE GROUP ADVISER FUNDS, INC.
ENTERPRISE FUND
U.S. GROWTH FUND
WORLD GROWTH FUND
NEW PACIFIC FUND
FEDERAL BOND FUND
CORPORATE INCOME FUND
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1818 Market Street
Philadelphia, PA 19103
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For more information about the Institutional Class shares of each Fund:
800-828-5052
For a Prospectus and Performance information for the A Class, B Class and C
Class of each Fund: 800-523-4640
For Information on Existing Accounts of the A Class, B Class and C Class of each
Fund:
(SHAREHOLDERS ONLY) 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY) 800-362-7500
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TABLE OF CONTENTS
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Cover Page
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Investment Objectives and Policies
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Investment Restrictions
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Performance Information
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Trading Practices and Brokerage
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Purchasing Shares
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Investment Plans
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Determining Offering Price and Net Asset Value
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Redemption and Repurchase
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Dividends, Distributions and Taxes
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Investment Management Agreements
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Officers and Directors
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Exchange Privilege
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General Information
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Financial Statements
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Appendix A--IRA Information
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Appendix B--The Equity Market
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Delaware Group Adviser Funds, Inc. ("Adviser Funds, Inc.") is a
professionally-managed mutual fund currently offering six separate series of
shares: the Enterprise Fund, U.S. Growth Fund, World Growth Fund, New Pacific
Fund, Federal Bond Fund and Corporate Income Fund (each a "Fund" and
collectively, the "Funds"). This Statement of Additional Information ("Part B"
of Adviser Funds, Inc.'s registration statement) describes each of the Funds,
except where noted. Until the close of business on May 3, 1996, Delaware Group
Adviser Funds, Inc. was called Lincoln Advisor Funds, Inc., and the Enterprise
Fund, U.S. Growth Fund, World Growth Fund, New Pacific Fund, Federal Bond Fund
and Corporate Income Fund were called the Lincoln Enterprise Portfolio, Lincoln
U.S. Growth Portfolio, Lincoln World Growth Portfolio, Lincoln New Pacific
Portfolio, Lincoln Government Income Portfolio and Lincoln Corporate Income
Portfolio, respectively.
Each Fund offers four classes of shares consisting of an A Class of
shares ("Class A Shares"), a B Class of shares ("Class B Shares"), a C Class of
shares ("Class C Shares") (together the "Fund Classes") and an Institutional
Class of shares (individually, an "Institutional Class" and collectively, the
"Institutional Classes"). Each class may be referred to individually as a
"Class" and collectively as the "Classes." The Fund Classes are offered through
a Prospectus dated May 6, 1996, and the Institutional Classes are offered
through a separate Prospectus also dated May 6, 1996.
Class B Shares, Class C Shares and Institutional Class shares may be
purchased at a price equal to the next determined net asset value per share.
Class A Shares may be purchased at the public offering price, which is equal to
the next determined net asset value per share, plus a front-end sales charge.
Class A Shares are subject to a maximum front-end sales charge of 4.75% and
annual 12b-1 Plan expenses of up to .35% (currently, .30% pursuant to Board
action). Class B Shares are subject to a contingent deferred sales charge
("CDSC") which may be imposed on redemptions made within six years of purchase
and annual 12b-1 Plan expenses of up to 1%, which are assessed against Class B
Shares for approximately eight years after purchase. See Automatic Conversion of
Class B Shares under Classes of Shares in the Fund Classes' Prospectus. Class C
Shares are subject to a CDSC which may be imposed on redemptions made within 12
months of purchase and annual 12b-1 Plan expenses of up to 1%, which are
assessed against Class C Shares for the life of the investment. All references
to "shares" in this Part B refer to all Classes of shares of the Fund, except
where noted.
This Part B supplements the information contained in the current
Prospectus for the Fund Classes, and the current Prospectus for the
Institutional Classes, as they may be amended from time to time. It should be
read in conjunction with the respective Class' Prospectus. Part B is not itself
a prospectus but is, in its entirety, incorporated by reference into each Class'
Prospectus. A Prospectus relating to the Fund Classes and a Prospectus relating
to the Institutional Classes may be obtained by writing or calling your
investment dealer or by contacting the Fund's national distributor, Delaware
Distributors, L.P. (the "Distributor"), 1818 Market Street, Philadelphia, PA
19103.
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INVESTMENT OBJECTIVES AND POLICIES
The Prospectuses discuss the Funds' investment objectives and the
policies followed to achieve those objectives. The following discussion
supplements the description of the Funds' investment objectives and policies in
the Prospectuses. Capitalized terms that are not defined herein are defined in
the Funds' Prospectuses.
Lower-Rated Debt Securities
The U.S. Growth Fund and the Corporate Income Fund may purchase
securities that are rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or lower than BBB by Standard & Poor's Ratings Group ("S&P"). These
securities are often considered to be speculative and involve significantly
higher risk of default on the payment of principal and interest or are more
likely to experience significant price fluctuation due to changes in the
issuer's creditworthiness. Market prices of these securities may fluctuate more
than higher-rated debt securities and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.
While the market for high yield corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the market in
recent years has experienced a dramatic increase in the large-scale use of such
securities to fund highly leveraged corporate acquisitions and restructurings.
Accordingly, past experience may not provide an accurate indication of future
performance of the high yield bond market, especially during periods of economic
recession. See Description of Security Ratings in the Prospectuses.
The market for lower-rated securities may be less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. If market quotations are not available, these securities
will be valued in accordance with procedures established by the Board of
Directors, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield corporate debt securities than is the case
for securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by a Fund to value its
portfolio securities and the Fund's ability to dispose of these lower-rated debt
securities.
Since the risk of default is higher for lower-quality securities, the
Manager's and/or sub-adviser's research and credit analysis is an integral part
of managing any securities of this type held by a Fund. In considering
investments for a Fund, the Manager and/or sub-adviser will attempt to identify
those issuers of high-yielding securities whose financial condition is adequate
to meet future obligations, has improved, or is expected to improve in the
future. The Manager's and/or sub-adviser's analysis focuses on relative values
based on such factors as interest or dividend coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer. There can
be no assurance that such analysis will prove accurate.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of shareholders.
Mortgage-Backed Securities
Each Fund may invest in mortgage-related securities including those
representing an undivided ownership interest in a pool of mortgages.
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<PAGE>
Government National Mortgage Association Certificates. Certificates
issued by the Government National Mortgage Association ("GNMA") are
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are issued by lenders such as mortgage bankers, commercial banks
and savings and loan associations, and are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A pool of these
mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. The timely payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government.
Principal is paid back monthly by the borrower over the term of the
loan. Investment of prepayments may occur at higher or lower rates than the
anticipated yield on the certificates. Due to the prepayment feature and the
need to reinvest prepayments of principal at current market rates, GNMA
certificates can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates. GNMA
certificates typically appreciate or decline in market value during periods of
declining or rising interest rates, respectively. Due to the regular repayment
of principal and the prepayment feature, the effective maturities of mortgage
pass-through securities are shorter than stated maturities, will vary based on
market conditions and cannot be predicted in advance. The effective maturities
of newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
nine and 12 years.
FNMA and FHLMC Mortgage-Backed Obligations. The Federal National
Mortgage Association ("FNMA"), a federally chartered and privately-owned
corporation, issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest but this guarantee is not backed by the full faith and credit of the
U.S. Government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the U.S. Government, issues participation
certificates which represent an interest in a pool of conventional mortgage
loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but the certificates are not backed by the full faith and
credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and
realized yield on particular FNMA and FHLMC pass-through securities will vary
based on the prepayments of the underlying pool of mortgages and cannot be
predicted.
Other Mortgage-Backed Securities. The Federal Bond and Corporate Income
Funds may invest in mortgage-backed securities issued by financial institutions
such as commercial banks, savings and loan associations, mortgage bankers and
securities broker/dealers (or separate trusts or affiliates of such institutions
established to issue these securities). These securities include mortgage
pass-through certificates, collateralized mortgage obligations ("CMOs") (which
include real estate mortgage investment conduits as authorized under the
Internal Revenue Code of 1986) or mortgage-backed bonds. Each class of bonds in
a CMO series may have a different maturity than the other classes of bonds in
the series and may bear a different coupon. The different maturities occur
because payments of principal, both regular principal payments as well as any
prepayments are passed through first to the holders of the class with the
shortest maturity until it is completely retired. Thereafter, principal payments
are passed through to the next class of bonds in the series, until all the
classes have been paid off. As a result, an acceleration in the rate of
prepayments may also be associated with declining interest rates, shortening the
expected life of each class, with the greatest cash flow impact on those classes
with the shortest maturities. Should the rate of prepayments slow down, as may
happen in times of rising interest rates, the expected life of each class
lengthens, again with the greatest cash flow impact on those classes with the
shortest maturities. In the case of some CMO series, each class may receive a
different proportion of the monthly interest and principal repayments on the
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<PAGE>
underlying collateral. In these series the classes have proportionally greater
interests in principal repayments generally and would be more affected by a
change in the rate of prepayments although the percentage impact on those
classes consisting mostly of interest payments could be greater.
Asset-Backed Securities. The Federal Bond and Corporate Income Funds
may invest in bonds or notes backed by loan paper or accounts receivable
originated by banks, credit card companies, or other providers of credit. These
securities are often "enhanced" by a bank letter of credit or by insurance
coverage provided by an institution other than the issuer; such an enhancement
typically covers only a portion of the par value until exhausted. Generally, the
originator of the loan or accounts receivable paper sells it to a specially
created trust, which repackages it as securities with a term of five years or
less. Examples of these types of securities include "certificates for automobile
receivables" (commonly referred to as "CARs") and bonds backed by credit card
loan receivables (commonly referred to as "plastic bonds"). The loans underlying
these securities are subject to prepayments which can decrease maturities and
returns. The values of these securities are ultimately dependent upon payment of
the underlying loans by individuals, and the holders generally have no recourse
against the originator of the loans. Holders of these securities may experience
losses or delays in payment if the original payments of principal and interest
are not made to the trust with respect to the underlying loans. The values of
these securities also may fluctuate due to changes in the market perception of
the creditworthiness of the servicing agent for the loan pool, the originator of
the loan, or the financial institution providing the credit enhancement.
Foreign Investments
The World Growth and New Pacific Funds may invest substantially all of
their assets in foreign investments. Certain of the Funds may invest the
following percentages of their assets in foreign securities: the Enterprise Fund
(15%), the U.S. Growth Fund (20%) and the Corporate Income Fund (10%). Foreign
investments can involve significant risks in addition to the risks inherent in
U.S. investments. The value of securities denominated in or indexed to foreign
currencies, and of dividends and interest from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be highly
volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial costs, are generally
higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Manager or sub-adviser
will be able to anticipate or counter these potential events.
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The considerations noted above generally are intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
The Funds may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.
American Depository Receipts and European Depository Receipts ("ADRs"
and "EDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed for
use in U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.
Mortgage Dollar Rolls
Each Fund may enter into mortgage "dollar rolls" in which the Fund
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. Dollar roll transactions
consist of the sale by a Fund of mortgage-backed securities, together with a
commitment to purchase similar, but not necessarily identical, securities at a
future date. Any difference between the sale price and the purchase price is
netted against the interest income foregone on the securities to arrive at an
implied borrowing (reverse repurchase) rate. Alternatively, the sale and
purchase transactions which constitute the dollar roll can be executed at the
same price, with the Fund being paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed prior to cash settlement
and initially may involve only a firm commitment agreement by the Fund to buy a
security. If the broker/dealer to whom the Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
The Fund will place U.S. Government or other liquid, high quality assets in a
segregated account in an amount sufficient to cover its repurchase obligation.
Options on Foreign and U.S. Currencies and Securities
The Funds may purchase and sell (write) put and call options on
securities, although the present intent is to write only covered call options.
These covered call options must remain covered so long as a Fund is obligated as
a writer. A call option written by a Fund is "covered" if the Fund owns the
security underlying the option or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by the Fund's Custodian) upon
conversion or exchange of other securities held in its fund. A call option is
also covered if a Fund holds on a share-for-share basis a call on the same
security as the call written where the exercise price of the call held is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, treasury bills or other high grade, short-term debt obligations in a
segregated account with the Custodian. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
If the writer of an option wishes to terminate the obligation, he or
she may effect a "closing purchase transaction." This is accomplished by buying
an option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
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<PAGE>
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option (whether an exchange-traded
option or a NASDAQ option) is required to pledge for the benefit of the broker
the underlying security or other assets in accordance with the rules of The
Options Clearing Corporation (OCC), the Chicago Board of Trade and the Chicago
Mercantile Exchange, institutions which interpose themselves between buyers and
sellers of options. Technically, each of these institutions assumes the other
side of every purchase and sale transaction on an exchange and, by doing so,
guarantees the transaction.
An option position may be closed out only on an exchange, board of
trade or other trading facility which provides a secondary market for an option
of the same series. Although a Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange or other trading
facility will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may exist. In
such event it might not be possible to effect closing transactions in particular
options, with the result that the Fund would have to exercise its options in
order to realize any profit and would incur brokerage commissions upon the
exercise of call options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options or upon the purchase of
underlying securities for the exercise of put options. If a Fund as a covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. However, the OCC, based on forecasts provided by the U.S. exchanges,
believes that its facilities are adequate to handle the volume of reasonably
anticipated options transactions, and such exchanges have advised such clearing
corporation that they believe their facilities will also be adequate to handle
reasonably anticipated volume.
Options on Stock Indices
Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple (the "multiplier").
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in cash.
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<PAGE>
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Except as described below, a Fund will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When a
Fund writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with the Custodian, or pledge to a broker as
collateral for the option, cash, cash equivalents or at least one "qualified
security" with a market value at the time the option is written of not less than
100% of the current index value times the multiplier times the number of
contracts. A Fund will write call options on broadly-based stock market indices
only if at the time of writing it holds a diversified portfolio of stocks.
If a Fund has written an option on an industry or market segment index,
it will so segregate or put into escrow with the Custodian, or pledge to a
broker as collateral for the option, at least ten "qualified securities," which
are stocks of an issuer in such industry or market segment, with a market value
at the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the Fund's holdings in that
industry or market segment. No individual security will represent more than 15%
of the amount so segregated, pledged or escrowed in the case of broadly-based
stock market index options or 25% of such amount in the case of industry or
market segment index options.
If at the close of business, the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, a Fund will
segregate, escrow or pledge an amount in cash, Treasury bills or other high
grade short-term debt obligations equal in value to the difference. In addition,
when a Fund writes a call on an index which is in-the-money at the time the call
is written, the Fund will segregate with the Custodian or pledge to the broker
as collateral, cash, U.S. Government or other high grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. However, if a Fund holds a call on the same index
as the call written where the exercise price of the call held is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high grade short-term debt obligations in a segregated
account with the Custodian, it will not be subject to the requirements described
in this paragraph.
Risks of Options on Stock Indices. Index prices may be distorted if
trading of certain securities included in the index is interrupted. Trading in
the index options also may be interrupted in certain circumstances, such as if
trading were halted in a substantial number of securities included in the index.
If this occurred, a Fund would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in substantial losses
to the Fund. It is the Funds' policy to purchase or write options only on
indices which include a number of securities sufficient to minimize the
likelihood of a trading halt in the index.
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<PAGE>
Special Risks of Writing Calls on Stock Indices. Unless a Fund has
other liquid assets which are sufficient to satisfy the exercise of a call, the
Fund would be required to liquidate portfolio securities in order to satisfy the
exercise. Because an exercise must be settled within hours after receiving the
notice of exercise, if a Fund fails to anticipate an exercise it may have to
borrow from a bank (in amounts not exceeding 20% of the value of the Fund's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When a Fund has written a call, there is also a risk that the market
may decline between the time the Fund has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell securities in its portfolio. As
with stock options, a Fund will not learn that an index option has been
exercised until the day following the exercise date. Unlike a call on stock
where the Fund would be able to deliver the underlying securities in settlement,
the Fund may have to sell part of its portfolio in order to make settlement in
cash, and the price of such securities might decline before they can be sold.
This timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which a Fund has written is "covered" by an index
call held by the Fund with the same strike price, the Fund will bear the risk
that the level of the index may decline between the close of trading on the date
the exercise notice is filed with the clearing corporation and the close of
trading on the date the Fund exercises the call it holds or the time the Fund
sells the call, which in either case would occur no earlier than the day
following the day the exercise notice was filed.
Over-the-Counter Options and Illiquid Securities. As indicated in the
Prospectuses, all Funds may deal in over-the-counter ("OTC") options. The Funds
understand the position of the staff of the Securities and Exchange Commission
("SEC") to be that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities. The Funds, the Manager, and the
sub-advisers disagree with this position and have found the dealers with which
they engage in OTC options transactions generally agreeable to and capable of
entering into closing transactions. As also indicated in the Prospectuses, the
Funds have adopted procedures for engaging in OTC options for the purpose of
reducing any potential adverse impact of such transactions upon the liquidity of
each Fund's portfolio.
As part of these procedures the Funds will engage in OTC options
transactions only with primary dealers that have been specifically approved by
the Board of Directors of Adviser Funds, Inc. and the Manager and/or
sub-advisers believe that the approved dealers should be agreeable and able to
enter into closing transactions if necessary and, therefore, present minimal
credit risks to the Funds. The Funds anticipate entering into written agreements
with those dealers to whom the Funds may sell OTC options, pursuant to which the
Funds would have the absolute right to repurchase the OTC options from such
dealers at any time at a price determined pursuant to a formula set forth in
certain no action letters published by the SEC staff. A Fund will not engage in
OTC options transactions if the amount invested by the Fund in OTC options plus,
with respect to OTC options written by the Fund, the amounts required to be
treated as illiquid pursuant to the terms of such letters (and the value of the
assets used as cover with respect to OTC option sales which are not within the
scope of such letters), plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's total assets. OTC options on
securities other than U.S. Government securities may not be within the scope of
such letters and, accordingly, the amount invested by a Fund in OTC options on
such other securities and the value of the assets used as cover with respect to
OTC option sales regarding such non-U.S. Government securities will be treated
as illiquid and subject to the 10% limitation on the Fund's net assets that may
be invested in illiquid securities. See "Illiquid Securities" herein.
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Futures Contracts and Options Thereon
A futures contract is an agreement in which the writer (or seller) of
the contract agrees to deliver to the buyer an amount of cash or securities
equal to a specific dollar amount times the difference between the value of a
specific fixed-income security or index at the close of the last trading day of
the contract and the price at which the agreement is made. No physical delivery
of the underlying securities is made. When the futures contract is entered into,
each party deposits with a broker or in a segregated custodial account
approximately 5% of the contract amount, called the "initial margin." Subsequent
payments to and from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying security or index fluctuates, making
the long and short positions in the futures contracts more or less valuable, a
process known as "marking to market." In the case of options on futures
contracts, the holder of the option pays a premium and receives the right, upon
exercise of the option at a specified price during the option period, to assume
a position in the futures contract (a long position if the option is a call and
a short position if the option is a put). If the option is exercised by the
holder before the last trading day during the option period, the option writer
delivers the futures position, as well as any balance in the writer's futures
margin account. If it is exercised on the last trading day, the option writer
delivers to the option holder cash in an amount equal to the difference between
the option exercise price and the closing level of the relevant security or
index on the date the option expires.
Each Fund intends to engage in futures contracts and options thereon as
a hedge against changes, resulting from market conditions, in the value of
securities which are held by the Fund or which the Fund intends to purchase, in
accordance with the rules and regulations of the Commodity Futures Trading
Commission ("CFTC"). Additionally, the Funds may write options on futures
contracts to realize through the receipt of premium income a greater return than
would be realized in a Fund's portfolio securities alone.
Risks of Transactions in Futures Contracts. There are several risks in
connection with the use of futures contracts as a hedging device. Successful use
of futures contracts by a Fund is subject to the ability of the Fund's Manager
or sub-adviser to correctly predict movements in the direction of interest rates
or changes in market conditions. These predictions involve skills and techniques
that may be different from those involved in the management of the portfolio
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying index or securities
and movements in the price of the securities which are the subject of the hedge.
A decision of whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in interest rates.
Although certain Funds will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event a Fund could not close a futures position and the value
of such position declined, the Fund would be required to continue to make daily
cash payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, there is no guarantee that the price movements
of the securities will, in fact, correlate with the price movements in the
futures contract and thus provide an offset to losses on a futures contract.
The hours of trading of futures contracts may not conform to the hours
during which a Fund may trade the underlying securities. To the extent that the
futures markets close before the securities markets, significant price and rate
movements can take place in the securities markets that cannot be reflected in
the futures market.
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Foreign Currency Transactions. The Enterprise Fund, the U.S. Growth
Fund, the World Growth Fund, the New Pacific Fund and the Corporate Income Fund
may hold foreign currency deposits from time to time and may convert dollars and
foreign currencies in the foreign exchange markets. Currency conversion involves
dealer spreads and other costs, although commissions usually are not charged.
Currencies may be exchanged on a spot (i.e., cash) basis, or by entering into
forward contracts to purchase or sell foreign currencies at a future date and
price. Forward contracts generally are traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. The parties to a forward contract may agree to offset or terminate
the contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.
Forward Foreign Currency Exchange Contracts
The Funds' dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect to specific
receivables or payables of a Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency. A Fund may not position hedge with respect to a
particular currency for an amount greater than the aggregate market value
(determined at the time of making any sale of a forward contract) of securities
held in its portfolio denominated or quoted in, or currently convertible into,
such currency.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when a Fund anticipates the
receipt in a foreign currency of dividends or interest payments on a security
which it holds, the Fund may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest payment as
the case may be. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, a Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Manager and/or applicable sub-adviser believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, a Fund may enter into a forward contract for a
fixed amount of dollars, to sell the amount of foreign currency approximating
the value of some or all of the securities of the Fund denominated in such
foreign currency.
The Funds may use currency forward contracts to manage currency risks
and to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by these Funds.
In connection with purchases and sales of securities denominated in
foreign currencies, a Fund may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Manager and/or sub-advisers expect to enter into
settlement hedges in the normal course of managing the Funds' foreign
investments. The Funds could also enter into forward contracts to purchase or
sell a foreign currency in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific investments
have not yet been selected by the Manager and/or sub-adviser.
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The Funds may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge (sometimes referred
to as a "position hedge") would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally will not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
Under certain conditions, SEC guidelines require mutual funds to set
aside cash and appropriate liquid assets in a segregated custodian account to
cover currency forward contracts. As required by SEC guidelines, the Enterprise
Fund, the U.S. Growth Fund, the World Growth Fund, the New Pacific Fund and the
Corporate Income Fund will segregate assets to cover currency forward contracts,
if any, whose purpose is essentially speculative. The Funds will not segregate
assets to cover forward contracts, including settlement hedges, position hedges,
and proxy hedges. Successful use of forward currency contracts will depend on
the Manager's and/or sub-advisers' skill in analyzing and predicting currency
values. Forward contracts may substantially change the Funds' investment
exposure to changes in currency exchange rates, and could result in losses to
the Funds if currencies do not perform as the Manager and/or sub-advisers
anticipate. For example, if a currency's value rose at a time when the Manager
and/or applicable sub-adviser had hedged a Fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the currency's
appreciation. If the Manager and/or applicable sub-adviser hedges currency
exposure through proxy hedges, a Fund could realize currency losses from the
hedge and the security position at the same time if the two currencies do not
move in tandem. Similarly, if the Manager and/or sub-adviser increases a Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss. There is no assurance that the Manager's and/or
sub-advisers' use of forward currency contracts will be advantageous to the
Funds or that it will hedge at an appropriate time.
Foreign Currency Options
The Enterprise Fund, the U.S. Growth Fund, the World Growth Fund, the
New Pacific Fund and the Corporate Income Fund may purchase U.S. exchange-listed
call and put options on foreign currencies. Such options on foreign currencies
operate similarly to options on securities. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealer or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
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transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options market.
Foreign Currency Conversion
Although foreign exchange dealers do not charge a fee for currency
conversion, they do realize a profit based on the difference (the "spread")
between prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Enterprise Fund, the U.S.
Growth Fund, the World Growth Fund, the New Pacific Fund or the Corporate Income
Fund at one rate, while offering a lesser rate of exchange should those Funds
desire to resell that currency to the dealer.
Combined Transactions
Each Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single transaction, as
part of a single or combined strategy when, in the opinion of the Manager and/or
sub-adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Manager's and/or sub-adviser's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars
Each Fund may enter into interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Funds expect to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds intend to use these transactions as hedges and not speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
nominal amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
investment manager and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
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being subject to its borrowing restrictions. A Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or is determined to
be of equivalent credit quality by the Manager and/or sub-adviser. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agent utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
Eurodollar Instruments
The Funds may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. A Fund might
use Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Lending of Portfolio Securities
As discussed in the Prospectuses, each Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed one-third of a
Fund's total assets. A Fund may not lend its portfolio securities to Lincoln
National Corporation or its affiliates unless it has applied for and received
specific authority from the SEC. Loans of securities by the Funds will be
collateralized by cash, letters of credit or U.S. Government securities, which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. From time to time, a Fund may
return a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party, which is
unaffiliated with the Fund or with Lincoln National Corporation, and which is
acting as a "finder."
In lending its portfolio securities, a Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term instruments or obtaining yield in
the form of interest paid by the borrower when government securities are used as
collateral. Requirements of the SEC, which may be subject to future
modifications, currently provide that the following conditions must be met
whenever portfolio securities are loaned: (a) the Fund must receive at least
100% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of the loaned
securities rises above the level of such collateral; (c) the Fund must be able
to terminate the loan at any time; (d) the Fund must receive reasonable interest
on the loan, as well as an amount equal to any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (e)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(f) voting rights on the loaned securities may pass to the borrower; however, if
a material event adversely affecting the investment occurs, the Fund's Board of
Directors must terminate the loan and regain the right to vote the securities.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially.
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When-Issued Securities
As discussed in the Prospectuses, the Funds may purchase securities on
a "when-issued" basis. When a Fund agrees to purchase securities, the Custodian
will set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the Custodian will set aside
portfolio securities to satisfy a purchase commitment. In such a case, a Fund
may be required subsequently to place additional assets in the separate account
in order to assure that the value of the account remains equal to the amount of
the Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. No Fund intends to
purchase "when-issued" securities for speculative purposes but only in
furtherance of its investment objective. Because a Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described, the Fund's liquidity and the ability of the Manager or sub-adviser to
manage the Fund might be affected in the event its commitments to purchase
when-issued securities ever exceeded 25% of the value of its assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing the opportunity to obtain a price considered
to be advantageous.
Money Market Instruments
Each Fund may invest for defensive purposes in corporate government
bonds and notes and money market instruments. Money market instruments in which
the Funds may invest include U.S. Government securities; certificates of
deposit, time deposits and bankers' acceptances issued by domestic banks
(including their branches located outside the U.S. and subsidiaries located in
Canada), domestic branches of foreign banks, savings and loan associations and
similar institutions; high grade commercial paper; and repurchase agreements
with respect to the foregoing types of instruments. The following is a more
detailed description of such money market instruments.
Bank Obligations
Certificates of deposit ("CDs") are short-term negotiable obligations
of commercial banks; time deposits ("TDs") are non-negotiable deposits
maintained in banking institutions for specified periods of time at stated
interest rates; and bankers' acceptances are time drafts drawn on commercial
banks by borrowers usually in connection with international transactions.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and government
regulation. Such obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental restrictions
that may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on interest
income. Foreign branches of domestic banks are not necessarily subject to the
same or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank than about a
domestic bank. CDs issued by wholly owned Canadian subsidiaries of domestic
banks are guaranteed as to repayment of principal and interest (but not as to
sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental regulation as
well as governmental action in the country in which the foreign bank has its
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head office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may or may
not be required to: (a) pledge to the regulator by depositing assets with a
designated bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (b) maintain assets within the state in an amount equal
to a specified percentage of the aggregate amount of liabilities of the foreign
bank payable at or through all of its agencies or branches within the state. The
deposits of state branches may not necessarily be insured by the FDIC. In
addition, there may be less publicly available information about a domestic
branch of a foreign bank than about a domestic bank.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks or by domestic branches of
foreign banks, the Manager and/or sub-advisers will carefully evaluate such
investments on a case-by-case basis.
Savings and loan associations whose CDs may be purchased by the Funds
are supervised by the Office of Thrift Supervision and are insured by the
Savings Association Insurance Fund, which is administered by the FDIC and is
backed by the full faith and credit of the U.S. Government. As a result, such
savings and loan associations are subject to regulation and examination.
Reverse Repurchase Agreements
All Funds are authorized to enter into reverse repurchase agreements. A
reverse repurchase agreement is the sale of a security by a Fund and its
agreement to repurchase the security at a specified time and price. A Fund will
maintain in a segregated account with the Custodian cash, cash equivalents or
U.S. Government securities in an amount sufficient to cover its obligations
under reverse repurchase agreements with broker/dealers (but no collateral is
required on reverse repurchase agreements with banks). Under the 1940 Act,
reverse repurchase agreements may be considered borrowings by a Fund;
accordingly, each Fund will limit its investments in reverse repurchase
agreements, together with any other borrowings, to no more than one-third of its
total assets. The use of reverse repurchase agreements by a Fund creates
leverage which increases the Fund's investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the costs of the agreements, a Fund's earnings or net asset value will increase
faster than otherwise would be the case; conversely, if the income and gains
fail to exceed the costs, earnings or net asset value would decline faster than
otherwise would be the case.
"Roll" Transactions
Each Fund may engage in "roll" transactions. A "roll" transaction is
the sale of securities together with a commitment (for which a Fund may receive
a fee) to purchase similar, but not identical, securities at a future date.
Under the 1940 Act, these transactions may be considered borrowings by the
Funds; accordingly, each Fund will limit its use of these transactions, together
with any other borrowings, to no more than one-third of its total assets. The
Funds will segregate liquid assets such as cash, U.S. Government securities or
other high grade debt obligations in an amount sufficient to meet their payment
obligations in these transactions. Although these transactions will not be
entered into for leveraging purposes, to the extent a Fund's aggregate
commitments under these transactions exceed its holdings of cash and securities
that do not fluctuate in value (such as short-term money market instruments),
the Fund temporarily will be in a leveraged position (i.e., it will have an
amount greater than its net assets subject to market risk). Should the market
value of a Fund's portfolio securities decline while the Fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were it
not in such a position. As a Fund's aggregate commitments under these
transactions increase, the opportunity for leverage similarly increases.
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Repurchase Agreements
While the Funds are permitted to do so, they normally do not invest in
repurchase agreements, except to invest cash balances.
The funds in the Delaware Group have obtained an exemption (the
"Order")from the joint-transaction prohibitions of Section 17(d) of the 1940 act
to allow the Delaware Group funds jointly to invest cash balances. The Funds may
invest cash balances in a joint repurchase agreement in accordance with the
terms of the Order and subject generally to the conditions described below.
A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt security and the seller agrees to
repurchase the obligation at a future time and set price, thereby determining
the yield during the purchaser's holding period. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Funds, if any, would be the difference between the repurchase price and the
market value of the security. A Fund will limit its investments in repurchase
agreements to those which the Manager and/or sub-adviser, under the guidelines
of the Board of Directors, determines to present minimal credit risks and which
are of high quality. In addition, a Fund must have collateral of at least 100%
of the repurchase price, including the portion representing the Fund's yield
under such agreements, which is monitored on a daily basis.
Illiquid Securities
Each Fund may invest no more than 10% of the value of its net assets in
illiquid securities.
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Funds.
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of a Fund's 10% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security that was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed the Fund's 10% limit on investment in such
securities, the Manager will determine what action to take to ensure that the
Fund continues to adhere to such limitation.
Variable and Floating Rate Notes
Variable rate master demand notes, in which the Funds may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. A Fund will not invest over 5% of its assets in variable rate
master demand notes. Because master demand notes are direct lending arrangements
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between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. In
determining average weighted portfolio maturity, a variable amount master demand
note will be deemed to have a maturity equal to the period of time remaining
until the principal amount can be recovered from the issuer through demand.
A variable rate note is one whose terms provide for the adjustment of
its interest rate on set dates and which, upon such adjustment, can reasonably
be expected to have a market value that approximates its par value. A floating
rate note is one whose terms provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by a Fund will be determined by the
Fund's Manager and/or sub-adviser under guidelines established by the Fund's
Board of Directors to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. In
making such determinations, the Manager and/or sub-adviser, if any, will
consider the earning power, cash flow and other liquidity ratios of the issuers
of such notes (such issuers include financial, merchandising, bank holding and
other companies) and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
variable or floating rate note purchased by a Fund, the Fund may re-sell the
note at any time to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of the variable
or floating rate note involved in the event the issuer of the note defaulted on
its payment obligations, and the Fund could, for this or other reasons, suffer a
loss to the extent of the default. Variable or floating rate notes may be
secured by bank letters of credit.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceed 10% of the Fund's total assets only if such notes are
subject to a demand feature that will permit the Fund to demand payment of the
Principal within seven days after demand by the Fund. If not rated, such
instruments must be found by the Fund's Manager and/or sub-adviser under
guidelines established by the Fund's Board of Directors, to be of comparable
quality to instruments that are rated high quality. A rating may be relied upon
only if it is provided by a nationally recognized statistical rating
organization that is not affiliated with the issuer or guarantor of the
instruments. For a description of the rating symbols of S&P and Moody's used in
this paragraph, see the Prospectuses. The Fund may also invest in Canadian
Commercial Paper which is commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation and in Europaper which is U.S. dollar
denominated commercial paper of a foreign issuer.
Municipal Securities Municipal Securities are issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, roads, schools, water and sewer
works, and other utilities. Other public purposes for which Municipal Securities
may be issued include refunding outstanding obligations, obtaining funds for
general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain debt obligations known as
"private activity bonds" may be issued by or on behalf of municipalities and
-18-
<PAGE>
public authorities to obtain funds to provide certain water, sewage and solid
waste facilities, qualified residential rental projects, certain local electric,
gas and other heating or cooling facilities, qualified hazardous waste
facilities, high-speed intercity rail facilities, governmentally-owned airports,
docks and wharves and mass commuting facilities, certain qualified mortgages,
student loan and redevelopment bonds and bonds used for certain organizations
exempt from federal income taxation. Certain debt obligations known as
"industrial development bonds" under prior federal tax law may have been issued
by or on behalf of public authorities to obtain funds to provide certain
privately-operated housing facilities, sports facilities, industrial parks,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities, sewage or solid waste
disposal facilities, and certain facilities for water supply. Other private
activity bonds and industrial development bonds issued to finance the
construction, improvement, equipment or repair of privately-operated industrial,
distribution, research, or commercial facilities may also be Municipal
Securities, but the size of such issues is limited under current and prior
federal tax law.
Information about the financial condition of issuers of Municipal
Securities may be less available than about corporations with a class of
securities registered under the Securities Exchange Act of 1934.
-19-
<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted policies and investment restrictions. The
investment restrictions numbered 1 through 9 may not be changed without a
majority vote of its outstanding shares, and are considered fundamental. Such
majority is defined in the 1940 Act as the vote of the lesser of: (i) 67% or
more of the outstanding voting securities present at a meeting, if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy, or (ii) more than 50% of the outstanding voting securities. All
percentage limitations expressed in the following investment restrictions are
measured immediately after and giving effect to the relevant transaction.
Investment restrictions numbered 10 through 12 may be changed by the vote of a
majority of the Board of Directors.
Each Fund normally may not:
1. Purchase any security (other than obligations of
the U.S. Government, its agencies or instrumentalities) if as
a result, with respect to 75% of the Fund's total assets, more
than 5% of the Fund's assets (determined at the time of
investment) would then be invested in securities of a single
issuer;
2. Purchase any securities (other than obligations of
the U.S. Government, its agencies and instrumentalities) if as
a result 25% or more of the value of the Fund's total assets
(determined at the time of investment) would be invested in
the securities of one or more issuers conducting their
principal business activities in the same industry, provided
that there is no limitation with respect to money market
instruments of domestic banks, U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and
foreign branches of domestic banks (provided that the domestic
bank is unconditionally liable in the event of the failure of
the foreign branch to make payment on its instruments for any
reason). Foreign governments, including agencies and
instrumentalities thereof, and each of the electric utility,
natural gas distribution, natural gas pipeline, combined
electric and natural gas utility, and telephone industries
shall be considered as a separate industry for this purpose;
3. Buy or sell real estate, interests in real estate
or commodities or commodity contracts; however, each Fund may
invest in debt securities secured by real estate or interests
therein, or issued by companies which invest in real estate or
interests therein, including real estate investment trusts,
and may purchase or sell currencies (including forward
currency contracts) and financial futures contracts and
options thereon;
4. Engage in the business of underwriting securities
of other issuers, except to the extent that the disposal of an
investment position may technically cause the Adviser Funds,
Inc. to be considered an underwriter as that term is defined
under the Securities Act of 1933, as amended;
5. Make loans in an aggregate amount in excess of
one-third of a Fund's total assets, taken at the time any loan
is made, provided that entering into certain repurchase
agreements and purchasing debt securities shall not be deemed
loans for the purposes of this restriction;
-20-
<PAGE>
6. Make short sales of securities or maintain a short
position if, when added together, more than 25% of the value
of the Fund's net assets would be (i) deposited as collateral
for the obligation to replace securities borrowed to effect
short sales and (ii) allocated to segregated accounts in
connection with short sales;
7. Borrow money, except from banks for temporary or
emergency purposes not in excess of one-third of the value of
a Fund's assets, and except that Funds may enter into reverse
repurchase agreements and engage in "roll" transactions,
provided that reverse repurchase agreements, "roll"
transactions and any other transactions constituting borrowing
by a Fund may not exceed one-third of the Fund's total assets;
8. Invest in securities of other investment companies
except as may be acquired as part of a merger, consolidation,
reorganization or acquisition of assets and except that each
of the Funds may invest up to 5% of its total assets in the
securities of any one investment company, but may not own more
than 3% of the securities of any investment company or invest
more than 10% of its total assets in the securities of other
investment companies;
9. Make investments for the purpose of exercising
control or management;
10. Invest in securities of any issuer if, to the
knowledge of Adviser Funds, Inc., any officer or director of
the Adviser Funds, Inc. or the Manager or any sub-adviser owns
more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers and directors who own more than 1/2
of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer;
11. Purchase any security if as a result a Fund would
then have more than 5% of its total assets (determined at the
time of investment) invested in securities of companies
(including predecessors) less than three years old; or
12. Purchase illiquid securities or other securities
that are not readily marketable if more than 10% of the total
assets of the Fund would be invested in such securities.
In order to comply with certain state "blue sky" restrictions, each
Fund will not as a matter of operating policy:
1. Invest in oil, gas and mineral leases or programs;
2. Purchase warrants if as a result the Fund would
then have more than 5% of its net assets (determined at the
time of investment) invested in warrants. Warrants will be
valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange
or American Stock Exchange will be limited to 2% of the net
assets of the Adviser Funds, Inc. (determined at the time of
investment). For the purpose of this limitation, warrants
acquired in units or attached to securities are deemed to be
without value;
-21-
<PAGE>
3. In connection with investment restriction number
eight above, invest in securities issued by other investment
companies without waiving the advisory fee on that portion of
its assets invested in such securities; or
4. Purchase puts, calls, straddles, spreads, and any
combination thereof if by reason thereof the value of its
aggregate investment in such classes of securities will exceed
5% of its total assets.
-22-
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state total return for each Class in
advertisements and other types of literature. Any statements of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. Each
Fund may also advertise aggregate and average compounded rate of return
information of each Class over additional periods of time.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from which,
in the case of only Class A Shares, the maximum front-end
sales charge is deducted;
T = average annual total return;
n = number of years;
ERV = redeemable value of the hypothetical $1,000 purchase at
the end of the period after the deduction of the applicable
CDSC, if any, with respect to Class B Shares and Class C
Shares.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the Fund
Classes for a description of the Limited CDSC and the limited instances in which
it applies. All references to a CDSC will apply to Class B Shares or Class C
Shares.
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
The performance of Class A Shares, Class B Shares, Class C Shares and
the Institutional Class, as shown below, is the average annual total return
quotations through October 31, 1995, computed as described above.
The average annual total return for Class A Shares at offer reflects
the maximum front-end sales charge of 4.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV) does not
reflect the payment of the maximum front-end sales charge of 4.75%.
-23-
<PAGE>
The average annual total return for Class B Shares and Class C Shares
including deferred sales charge reflects the deduction of the applicable CDSC
that would be paid if the shares were redeemed on October 31, 1995. The average
annual total return for Class B Shares and Class C Shares excluding deferred
sales charge assumes the shares were not redeemed on October 31, 1995 and
therefore does not reflect the deduction of a CDSC.
Pursuant to applicable regulation, total return shown for the
Institutional Classes for the periods prior to the commencement of operations of
such Classes is calculated by taking the performance of the respective Class A
Shares and adjusting it to reflect the elimination of all front-end sales
charges. However, for those periods, no adjustment has been made to eliminate
the impact of 12b-1 payments, and performance may have been affected had such an
adjustment been made.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
<TABLE>
<CAPTION>
Average Annual Total Return(1)
Enterprise Fund
<S> <C> <C> <C> <C> <C>
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
1 year 1 year
ended ended
10/31/95 16.87% 22.72% 10/31/95 17.92% 21.92%
Period Period
12/3/93(4) 4/14/94(4)
through through
10/31/95 3.89% 6.58% 10/31/95 9.80% 12.23%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 20.86% 21.86% 10/31/95 22.43%
Period Period
5/10/94(4) 2/3/94(4)
through through
10/31/95 14.45% 14.45% 10/31/95 7.27%
<PAGE>
U.S. Growth Fund
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
1 year 1 year
ended ended
10/31/95 15.95% 21.74% 10/31/95 17.00% 21.00%
Period Period
12/3/93(4) 3/29/94(4)
through through
10/31/95 9.28% 12.11% 10/31/95 11.70% 14.04%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 20.00% 21.00% 10/31/95 22.19%
Period Period
5/23/94(4) 2/3/94(4)
through through
10/31/95 18.97% 18.97% 10/31/95 13.66%
World Growth Fund
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
1 year 1 year
ended ended
10/31/95 (1.13%) 3.81% 10/31/95 (0.81%) 3.19%
Period Period
12/3/93(4) 3/29/94(4)
through through
10/31/95 4.59% 7.29% 10/31/95 2.23% 4.69%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 2.16% 3.16% 10/31/95 4.22%
Period Period
5/10/94(4) 2/3/94(4)
through through
10/31/95 5.18% 5.18% 10/31/95 8.42%
-24-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return(1)
New Pacific Fund
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1 year 1 year
ended ended
10/31/95 (18.07%) (13.99%) 10/31/95 (17.88%) (14.57%)
Period Period
12/3/93(4) 3/29/94(4)
through through
10/31/95 (7.81%) (5.43%) 10/31/95 (6.93%) (4.59%)
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 (15.40%) (14.57%) 10/31/95 (13.65%)
Period Period
7/7/94(4) 2/3/94(4)
through through
10/31/95 (6.91%) (6.91%) 10/31/95 (11.78%)
- ----------------------
</TABLE>
(1) The previous Investment Manager, Lincoln Investment Management, Inc.,
waived a portion of its annual compensation or reimbursed expenses to limit
the operating expenses of the Funds. See Investment Management Agreements.
In the absence of such waivers or reimbursements, performance would have
been affected negatively.
(2) The 12b-1 fees payable by each Fund for the Class A Shares were at a rate
equal to .35% of the average daily net assets. Beginning May 6, 1996, the
Board of Directors reduced the payments to .30%. Performance calculations
for periods after May 6, 1996 will be made using the lower 12b-1 fee rate.
(3) The maximum front-end sales charge was reduced from 5.5% to 4.75% effective
May 6, 1996. The above performance figures are calculated using 4.75% as
the applicable sales charge for all time periods.
(4) Commencement of operations.
(5) Effective May 6, 1996, Class B Shares will be subject to a CDSC schedule of
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase;
(iv) 1% if shares are redeemed during the sixth year following purchase;
and (v) 0% thereafter. The above performance figures are calculated using
the new applicable CDSC schedule.
<PAGE>
<TABLE>
<CAPTION>
Federal Bond Fund
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1 year 1 year
ended ended
10/31/95 8.28% 13.72% 10/31/95 9.09% 13.09%
Period Period
12/3/93(4) 7/27/94(4)
through through
10/31/95 1.48% 4.18% 10/31/95 6.13% 9.23%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 10.59% 11.59% 10/31/95 14.15%
Period Period
7/7/94(4) 2/3/94(4)
through through
10/31/95 8.08% 8.08% 10/31/95 4.64%
Corporate Income Fund
Class B Class B
Class A Class A Shares Shares
Shares(2)(3) Shares(2) (including (excluding
(at offer) (at NAV) CDSC)(5) CDSC)
---------- -------- -------- -----
1 year 1 year
ended ended
10/31/95 12.11% 17.71% 10/31/95 13.05% 17.05%
Period Period
12/3/93(4) 5/11/94(4)
through through
10/31/95 4.83% 2.19% 10/31/95 8.73% 11.31%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
1 year 1 year
ended ended
10/31/95 15.23% 16.23% 10/31/95 18.27%
Period Period
9/14/94(4) 2/3/94(4)
through through
10/31/95 13.23% 13.23% 10/31/95 5.45%
</TABLE>
<PAGE>
- ----------------------
(1) The previous Investment Manager, Lincoln Investment Management, Inc.,
waived a portion of its annual compensation or reimbursed expenses to limit
the operating expenses of the Funds. See Investment Management Agreements.
In the absence of such waivers or reimbursements, performance would have
been affected negatively.
(2) The 12b-1 fees payable by each Fund for the Class A Shares were at a rate
equal to .35% of the average daily net assets. Beginning May 6, 1996, the
Board of Directors reduced the payments to .30%. Performance calculations
for periods after May 6, 1996 will be made using the lower 12b-1 fee rate.
The maximum front-end sales charge was reduced from 5.5% to 4.75% effective
May 6, 1996. The above performance figures are calculated using 4.75% as
the applicable sales charge for all time periods.
(3) The maximum front-end sales charge was increased from 4.5% to 4.75%
effective May 6, 1996. The above performance figures are calculated using
4.75% as the applicable sales charge for all time periods.
(4) Commencement of operations.
(5) Effective May 6, 1996, Class B Shares will be subject to a CDSC schedule of
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase;
(iv) 1% if shares are redeemed during the sixth year following purchase;
and (v) 0% thereafter. The above performance figures are calculated using
the new applicable CDSC schedule.
-25-
<PAGE>
As stated in the Prospectuses, the Federal Bond Fund and the Corporate
Income Fund may also quote the current yield for each of its Classes in
advertisements and investor communications. The yield computation is determined
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period and annualizing
the resulting figure, according to the following formula:
a -- b
------- 6
YIELD = 2[( cd + 1) -- 1]
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
The above formula will be used in calculating quotations of yield of
each Class, based on specified 30- day periods identified in advertising by the
Fund. Yield assumes the maximum front-end sales charge, if any, and does not
reflect the deduction of any CDSC or Limited CDSC. Actual yield may be affected
by variations in front-end sales charges on investments. Past performance, such
as is reflected in quoted yields, should not be considered as a representation
of the results which may be realized from an investment in any class of Adviser
Funds, Inc. in the future.
From time to time, the Funds may also quote actual total return for
each Class in advertising and other types of literature compared to indices or
averages of alternative financial products available to prospective investors.
For example, the performance comparisons may include the average return of
various bank instruments, some of which may carry certain return guarantees
offered by leading banks and thrifts as monitored by Bank Rate Monitor, and
those of corporate bond and government security price indices of various
durations prepared by Lehman Brothers and Salomon Brothers, Inc. These indices
are not managed for any investment goal.
Comparative information on the Consumer Price Index may also be
included. The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.
-26-
<PAGE>
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations
may also be used in the promotion of sales in the Fund. Any indices used are not
managed for any investment goal.
CDA Investment Technologies, Inc., Lipper Analytical Services,
Inc. and Morningstar, Inc. are performance evaluation services
that maintain statistical performance databases, as reported
by a diverse universe of independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a
variety of historical data including total return, capital
appreciation and income on the stock market as well as other
investment asset classes, and inflation. With their
permission, this information will be used primarily for
comparative purposes and to illustrate general financial
planning principles.
Interactive Data Corporation is a statistical access service
that maintains a database of various international industry
indicators, such as historical and current price/earning
information, individual equity and fixed income price and
return information.
Salomon Brothers and Lehman Brothers are statistical research
firms that maintain databases of international market, bond
market, corporate and government-issued securities of various
maturities. This information, as well as unmanaged indices
compiled and maintained by these firms, will be used in
preparing comparative
illustrations.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. As well, current rate information on
municipal debt obligations of various durations, as reported daily by The Bond
Buyer, may also be used. The Bond Buyer is published daily and is an
industry-accepted source for current municipal bond market information.
The following table is an example, for purposes of illustration only,
of cumulative total return performance for Class A Shares, Class B Shares, Class
C Shares and the Institutional Classes through October 31, 1995. For these
purposes, the calculations assume the reinvestment of any realized securities
profits distributions and income dividends paid during the indicated periods. In
addition, these calculations, as shown below, reflect maximum sales charges, if
any, paid on the purchase or redemption of shares, as applicable, but not any
income taxes payable by shareholders on the reinvested distributions included in
the calculations. The performance of Class B Shares and Class C Shares is
calculated both with the applicable CDSC included and excluded. Pursuant to
applicable regulation, total return shown for an Institutional Class for the
periods prior to the commencement of operations of such Class is calculated by
taking the performance of the respective Class A Shares and adjusting it to
reflect the elimination of all sales charges. However, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments, and
performance may have been affected had such an adjustment been made.
The net asset value of a Class fluctuates so shares, when redeemed, may
be worth more or less than the original investment, and a Class' results should
not be considered as representative of future performance.
-27-
<PAGE>
Cumulative Total Return(1)
Enterprise Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer) CDSC)(4) CDSC)
---------- -------- -----
3 months 3 months
ended ended
10/31/95 (2.84%) 10/31/95 (2.13%) 1.87%
6 months 6 months
ended ended
10/31/95 8.04% 10/31/95 9.15% 13.15%
9 months 9 months
ended ended
10/31/95 21.66% 10/31/95 23.23% 27.23%
1 year 1 year
ended ended
10/31/95 16.87% 10/31/95 17.92% 21.92%
Period Period
12/3/93(3) 4/14/94(3)
through through
10/31/95 7.58% 10/31/95 15.60% 19.60%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 0.84% 1.83% 10/31/95 1.62%
6 months 6 months
ended ended
10/31/95 12.06% 13.06% 10/31/95 13.11%
9 months 9 months
ended ended
10/31/95 26.06% 27.06% 10/31/95 27.40%
1 year 1 year
ended ended
10/31/95 20.86% 21.86% 10/31/95 22.43%
Period Period
5/10/94(3) 2/3/94(3)
through through
10/31/95 22.10% 22.10% 10/31/95 13.00%
<PAGE>
U.S. Growth Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer CDSC)(4) CDSC)
--------- -------- -----
3 months 3 months
ended ended
10/31/95 (0.32%) 10/31/95 0.49% 4.49%
6 months 6 months
ended ended
10/31/95 16.82% 10/31/95 18.32% 22.32%
9 months 9 months
ended ended
10/31/95 22.10% 10/31/95 23.51% 27.51%
1 year 1 year
ended ended
10/31/95 15.95% 10/31/95 17.00% 21.00%
Period Period
12/3/93(3) 3/29/94(3)
through through
10/31/95 18.50% 10/31/95 19.30% 23.30%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 3.56% 4.56% 10/31/95 4.78%
6 months 6 months
ended ended
10/31/95 21.38% 22.38% 10/31/95 23.03%
9 months 9 months
ended ended
10/31/95 26.61% 27.61% 10/31/95 28.47%
1 year 1 year
ended ended
10/31/95 20.00% 21.00% 10/31/95 22.19%
Period Period
5/23/94(3) 2/3/94(3)
through through
10/31/95 28.50% 28.50% 10/31/95 25.00%
-28-
<PAGE>
Cumulative Total Return(1)
World Growth Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer) CDSC)(4) CDSC)
---------- -------- -----
3 months 3 months
ended ended
10/31/95 (3.63%) 10/31/95 (2.96%) 1.04%
6 months 6 months
ended ended
10/31/95 1.74% 10/31/95 2.57% 6.57%
9 months 9 months
ended ended
10/31/95 10.51% 10/31/95 11.53% 15.53%
1 year 1 year
ended ended
10/31/95 (1.13%) 10/31/95 (.81%) 3.19%
Period Period
12/3/93(3) 3/29/94(3)
through through
10/31/95 8.96% 10/31/95 3.58% 7.58%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 (0.06%) 0.94% 10/31/95 1.24%
6 months 6 months
ended ended
10/31/95 5.45% 6.45% 10/31/95 7.03%
9 months 9 months
ended ended
10/31/95 14.50% 15.50% 10/31/95 16.38%
1 year 1 year
ended ended
10/31/95 2.16% 3.16% 10/31/95 4.22%
Period Period
5/10/94(3) 2/3/94(3)
through through
10/31/95 7.75% 7.75% 10/31/95 15.13%
<PAGE>
New Pacific Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer) CDSC)(4) CDSC)
---------- -------- -----
3 months 3 months
ended ended
10/31/95 (8.99%) 10/31/95 (8.47%) (4.66%)
6 months 6 months
ended ended
10/31/95 (2.46%) 10/31/95 (1.96%) 2.04%
9 months 9 months
ended ended
10/31/95 1.16% 10/31/95 1.75% 5.75%
1 year 1 year
ended ended
10/31/95 (18.07%) 10/31/95 (17.88%) (14.57%)
Period Period
12/3/93(3) 3/29/94(3)
through through
10/31/95 (14.40%) 10/31/95 (10.82%) (7.27%)
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 (5.70%) (4.75%) 10/31/95 4.47%
6 months 6 months
ended ended
10/31/95 0.96% 1.96% 10/31/95 2.57%
9 months 9 months
ended ended
10/31/95 4.62% 5.62% 10/31/95 6.56%
1 year 1 year
ended ended
10/31/95 (15.40%) (14.57%) 10/31/95 (13.65%)
Period Period
7/7/94(3) 2/3/94(3)
through through
10/31/95 (9.02%) (9.02%) 10/31/95 (18.85%)
- ----------------------
(1) The previous Investment Manager, Lincoln Investment Management, Inc.,
waived a portion of its annual compensation or reimbursed expenses to limit
the operating expenses of the Funds. See Investment Management Agreements.
In the absence of such waivers or reimbursements, performance would have
been affected negatively.
(2) The 12b-1 fees payable by each Fund for the Class A Shares were at a rate
equal to .35% of the average daily net assets. Beginning May 6, 1996, the
Board of Directors reduced the payments to .30%. Performance calculations
for periods after May 6, 1996 will be made using the lower 12b-1 fee rate.
The maximum front-end sales charge was reduced from 5.5% to 4.75% effective
May 6, 1996. The above performance figures are calculated using 4.75% as
the applicable sales charge for all time periods.
(3) Commencement of operations.
(4) Effective May 6, 1996, Class B Shares will be subject to a CDSC schedule of
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase;
(iv) 1% if shares are redeemed during the sixth year following purchase;
and (v) 0% thereafter. The above performance figures are calculated using
the new applicable CDSC.
-29-
<PAGE>
Cumulative Total Return(1)
Federal Bond Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer) CDSC)(4) CDSC)
---------- -------- -----
3 months 3 months
ended ended
10/31/95 1.65% 10/31/95 (0.86%) 3.14%
6 months 6 months
ended ended
10/31/95 2.35% 10/31/95 3.12% 7.12%
9 months 9 months
ended ended
10/31/95 6.14% 10/31/95 6.97% 10.97%
1 year 1 year
ended ended
10/31/95 8.28% 10/31/95 9.09% 13.09%
Period Period
12/3/93(3) 7/27/94(3)
through through
10/31/95 2.84% 10/31/95 7.82% 11.82%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 2.21% 3.21% 10/31/95 3.31%
6 months 6 months
ended ended
10/31/95 6.15% 7.15% 10/31/95 7.60%
9 months 9 months
ended ended
10/31/95 10.08% 11.08% 10/31/95 11.74%
1 year 1 year
ended ended
10/31/95 10.59% 11.59% 10/31/95 14.15%
Period Period
7/7/94(3) 2/3/94(3)
through through
10/31/95 10.81% 10.81% 10/31/95 8.23%
<PAGE>
Corporate Income Fund
Class B Class B
Class A Shares Shares
Shares(2) (including (excluding
(at offer) CDSC)(4) CDSC)
---------- -------- -----
3 months 3 months
ended ended
10/31/95 (0.65%) 10/31/95 0.01% 4.01%
6 months 6 months
ended ended
10/31/95 4.35% 10/31/95 5.21% 9.21%
9 months 9 months
ended ended
10/31/95 9.43% 10/31/95 10.41% 14.41%
1 year 1 year
ended ended
10/31/95 12.11% 10/31/95 13.05% 17.05%
Period Period
12/3/93(3) 5/11/94(3)
through through
10/31/95 4.23% 10/31/95 13.15% 17.15%
Class C Class C
Shares Shares
(including (excluding
CDSC) CDSC) Institutional Class
----- ----- -------------------
3 months 3 months
ended ended
10/31/95 3.02% 4.02% 10/31/95 4.26%
6 months 6 months
ended ended
10/31/95 8.21% 9.21% 10/31/95 9.68%
9 months 9 months
ended ended
10/31/95 12.67% 13.67% 10/31/95 15.16%
1 year 1 year
ended ended
10/31/95 15.23% 16.23% 10/31/95 18.27%
Period Period
9/14/94(3) 2/3/94(3)
through through
10/31/95 15.09% 15.09% 10/31/95 9.69%
--------------------
(1) The previous Investment Manager, Lincoln Investment Management, Inc.,
waived a portion of its annual compensation or reimbursed expenses to limit
the operating expenses of the Funds. See Investment Management Agreements.
In the absence of such waivers or reimbursements, performance would have
been affected negatively.
(2) The 12b-1 fees payable by each Fund for the Class A Shares were at a rate
equal to .35% of the average daily net assets. Beginning May 6, 1996, the
Board of Directors reduced the payments to .30%. Performance calculations
for periods after May 6, 1996 will be made using the lower 12b-1 fee rate.
The maximum front-end sales charge was increased from 4.5% to 4.75%
effective May 6, 1996. The above performance figures are calculated using
4.75% as the applicable sales charge for all time periods.
(3) Commencement of operations.
(4) Effective May 6, 1996, Class B Shares will be subject to a CDSC schedule of
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iii) 2% if shares are redeemed during the fifth year following purchase;
(iv) 1% if shares are redeemed during the sixth year following purchase;
and (v) 0% thereafter. The above performance figures are calculated using
the new applicable CDSC schedule.
-30-
<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's or sub-adviser's
overriding investment philosophy and how that philosophy impacts the Funds', and
other Delaware Group funds', investment disciplines employed in seeking their
objectives. The Distributor may also from time to time cite general or specific
information about the institutional clients of the Manager or sub-adviser's,
including the number of such clients serviced by such persons.
Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important
things to remember. Dollar-cost averaging works best over longer time periods,
and it doesn't guarantee a profit or protect against losses in declining
markets. If you need to sell your investment when prices are low, you may not
realize a profit no matter what investment strategy you utilize. That's why
dollar-cost averaging can make sense for long-term goals. Since the potential
success of a dollar-cost averaging program depends on continuous investing, even
through periods of fluctuating prices, you should consider your dollar-cost
averaging program a long-term commitment and invest an amount you can afford and
probably won't need to withdraw. Investors also should consider their financial
ability to continue to purchase shares during periods of low fund share prices.
Delaware Group offers three services -- Automatic Investing Program, Direct
Deposit Program and the Wealth Builder Option -- that can help to keep your
regular investment program on track. See Investing by Electronic Fund Transfer -
Direct Deposit Purchase Plan and Automatic Investing Plan under Investment Plans
and Wealth Builder Option under Redemption and Repurchase for a complete
description of these services including restrictions or limitations.
The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.
Number of
Investment Amount Price Per Share Shares Purchased
Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 12
Month 4 $100 $10.00 10
----------------------------------------------------
$400 $37.50 48
Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)
This example is for illustration purposes only. It is not intended to represent
the actual performance of any Fund.
-31-
<PAGE>
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional shares of a
Fund, your investment is given yet another opportunity to grow. It's called the
Power of Compounding and the following chart illustrates just how powerful it
can be.
Compounded Returns
Results for various assumed fixed rates of return on a $10,000
investment compounded monthly for 10 years:
6% 8% 10% 12%
Rate of Rate of Rate of Rate of
Return Return Return Return
------ ------ ------ ------
1 Year $10,617 $10,830 $11,047 $11,268
2 Years $11,272 $11,729 $12,204 $12,697
3 Years $11,967 $12,702 $13,482 $14,308
4 Years $12,705 $13,757 $14,894 $16,122
5 Years $13,488 $14,898 $16,453 $18,167
6 Years $14,320 $16,135 $18,176 $20,471
7 Years $15,203 $17,474 $20,079 $23,067
8 Years $16,141 $18,924 $22,182 $25,993
9 Years $17,137 $20,495 $24,504 $29,290
10 Years $18,194 $22,196 $27,070 $33,004
Results for various assumed fixed rates of return on a $10,000
investment compounded quarterly for 10 years:
6% 8% 10% 12%
Rate of Rate of Rate of Rate of
Return Return Return Return
------ ------ ------ ------
1 Year $10,614 $10,824 $11,038 $11,255
2 Years $11,265 $11,717 $12,184 $12,668
3 Years $11,956 $12,682 $13,449 $14,258
4 Years $12,690 $13,728 $14,845 $16,047
5 Years $13,468 $14,859 $16,386 $18,061
6 Years $14,295 $16,084 $18,087 $20,328
7 Years $15,172 $17,410 $19,965 $22,879
8 Years $16,103 $18,845 $22,038 $25,751
9 Years $17,091 $20,399 $24,326 $28,983
10 Years $18,140 $22,080 $26,851 $32,620
The figures are calculated assuming a fixed constant investment return
and assume no fluctuation in the value of principal. These figures, which do not
reflect payment of applicable taxes or sales charges, are not intended to be a
projection of investment results and do not reflect the actual performance
results of any of the classes.
-32-
<PAGE>
TRADING PRACTICES AND BROKERAGE
Fund transactions are executed by the Manager or any sub-adviser
(collectively referred to in this section as the "Manager") on behalf of the
Fund in accordance with the standards described below.
Brokers, dealers, banks and others are selected to execute transactions
for the purchase or sale of portfolio securities or other instruments on the
basis of the Manager's judgment of their professional capability to provide the
service. The primary consideration is to have brokers, dealers or banks execute
securities transactions at best price and execution. Best price and execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. Trades are generally
made on a net basis where securities are either bought or sold directly from or
to a broker, dealer or bank or others. In these instances, there is no direct
commission charged, but there is a spread (the difference between the buy and
sell price) which is the equivalent of a commission. When a commission is paid,
the Funds pay reasonably competitive brokerage commission rates based upon the
professional knowledge of the Manager's trading department as to rates paid and
charged for similar transactions throughout the securities industry. In some
instances, the Funds pay a minimal share transaction cost when the transaction
presents no difficulty.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under their management, brokerage business to
brokers, dealers or members of an exchange who provide brokerage and research
services. These services include advice, either directly or through publications
or writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends; assisting in determining portfolio strategy; providing
computer software and hardware used in security analyses; and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Manager in connection with its investment decision-making
process with respect to one or more funds and accounts managed by it, and may
not be used, or used exclusively, with respect to the fund or account generating
the brokerage.
As provided in the Securities Exchange Act of 1934 and the Investment
Management and Sub-Advisory Agreements, higher commissions are permitted to be
paid to brokers, dealers or members of an exchange who provide brokerage and
research services than to broker, dealers or members of an exchange who do not
provide such services, if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to brokers, dealers or members of an exchange who
provide such brokerage and research services, the Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to the Funds and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.
-33-
<PAGE>
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Board of
Directors that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Manager may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of the Funds as a factor
in the selection of brokers and dealers to execute portfolio transactions.
Subject to the above considerations, an affiliate of the Manager may
act as a securities broker for the Funds. In order for an affiliate of the
Manager to effect any portfolio transactions for the Funds, the commissions,
fees or other remuneration received by the affiliate must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow an affiliate of the Manager to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Directors of the
Adviser Funds, Inc., including a majority of the Directors who are not
"interested" persons, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliate of
the Manager are consistent with the foregoing standard. In accordance with
Section 11(a) under the Securities Exchange Act of 1934, an affiliate of the
Manager may not retain compensation for effecting transactions on a national
securities exchange for the Funds unless the Adviser Funds, Inc. has expressly
authorized the retention of such compensation in a written contract executed by
the Adviser Funds, Inc. and such affiliate. Section 11(a) provides that an
affiliate of the Manager must furnish to the Adviser Funds, Inc. at least
annually a statement setting forth the total amount of all compensation retain
by the affiliate from transactions effected for the Funds during the applicable
period. Brokerage and futures transactions with an affiliate of the Manager are
also subject to such fiduciary standards as may be imposed by applicable law. No
such trade have been made through affiliates to date.
Brokerage commissions for the Funds for the fiscal year ended October
31, 1995 and the period ended October 31, 1994, respectively, were as follows:
Enterprise Fund $42,482 and $35,533; U.S. Growth Fund $23,709 and $27,955; World
Growth Fund $12,019 and $31,838; and New Pacific Fund $187,987 and $142,441. The
other Funds did not incur brokerage commissions in either period.
Portfolio Turnover
While the Funds do not intend to trade in securities for short-term
profits, securities may be sold without regard to the amount of time they have
been held by a Fund when warranted by the circumstances. A Fund's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for a year by the monthly average value of portfolio
securities for that year. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation. A portfolio
turnover rate of 100% would occur, for example, if all the securities in the
Fund's portfolio were replaced once during a period of one year. A high
-34-
<PAGE>
rate of portfolio turnover in any year may increase brokerage commissions paid
and could result in high amounts of realized investment gain subject to the
payment of taxes by shareholders. The turnover rate may also be affected by cash
requirements from redemptions and repurchases of fund shares.
For the Federal Bond Fund and Corporate Income Fund, which are
fixed-income funds, portfolio trading will be undertaken principally to
accomplish the Funds' objectives in relation to anticipated movements in the
general level of interest rates, and not for the purpose of realizing capital
gains, although capital gains may be realized on certain portfolio transactions.
For example, capital gains may be realized when a security is sold (i) so that,
provided capital is preserved or enhanced, another security can be purchased to
obtain a higher yield, (ii) to take advantage of what the Manager believes to be
a temporary disparity in the normal yield relationship between the two
securities to increase income or improve the quality of the portfolio, (iii) to
purchase a security which the Manager believes is of higher quality than its
rating or current market value would indicate, or (iv) when the Manager
anticipates a decline in value due to market risk or credit risk. The Fund is
free to dispose of portfolio securities at any time, subject to complying with
the Internal Revenue Code and the 1940 Act, when changes in circumstances or
conditions make such a move desirable in light of the investment objective. The
Fund will not attempt to achieve or be limited to a predetermined rate of
portfolio turnover, such a turnover always being incidental to transactions
undertaken with a view to achieving the Fund's investment objective.
Although the Fixed-Income Funds trade principally to seek a high level
of income and stability of principal and not for profits, the portfolio turnover
may be high, particularly if interest rates are volatile. The portfolio turnover
rate of the Funds is calculated by dividing the lesser of purchases or sales of
portfolio securities for the particular fiscal year by the monthly average of
the value of the portfolio securities owned by the Funds during the particular
fiscal year, exclusive of securities whose maturities at the time of acquisition
are one year or less.
During the period ended October 31, 1994 and the fiscal year ended
October 31, 1995, the Fund's portfolio turnover rates were as follows:
FUND 1994 1995
---- ---- ----
Enterprise Fund 120% 106%
U.S. Growth Fund 66% 58%
World Growth Fund 6% 9%
New Pacific Fund 104% 163%
Federal Bond Fund 366% 227%
Corporate Income Fund 185% 119%
-35-
<PAGE>
PURCHASING SHARES
The Distributor serves as the national distributor for each Funds' four
classes of shares - Class A Shares, Class B Shares, Class C Shares and the
Institutional Class, and has agreed to use its best efforts to sell shares of
the Classes. See the Prospectuses for additional information on how to invest.
Shares of the Funds are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting Adviser Funds,
Inc. or its agent.
The minimum initial investment for each of the Fund Classes generally
is $1,000. Subsequent purchases generally must be at least $100. The initial and
subsequent minimum investment with respect to Class A Shares will be waived for
purchases by officers, directors and employees of any Delaware Group fund, the
Manager or any sub-adviser to a Fund, or any affiliates of the Manager or any
such sub-adviser if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Delaware Group Asset
Planner service are subject to a minimum initial investment of $2,000 per Asset
Planner Strategy selected. There are no minimum purchase requirements for the
Institutional Classes, but certain eligibility requirements must be satisfied.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Adviser Funds, Inc. will reject any order for
purchase of more than $250,000 of Class B Shares and $1,000,000 or more of Class
C Shares. An investor may exceed these limitations by making cumulative
purchases over a period of time. In doing so, an investor should keep in mind,
however, that reduced front-end sales charges apply to investments of $100,000
or more in Class A Shares, which are subject to lower annual 12b-1 Plan expenses
than Class B Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers have the responsibility of transmitting orders
promptly. Adviser Funds, Inc. reserves the right to reject any order for the
purchase of a Fund's shares if in the opinion of management such rejection is in
the Fund's best interest. The NASD has adopted Rules of Fair Practice relating
to investment company sales charges. Adviser Funds, Inc. and the Distributor
intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also subject
to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and are subject to a
CDSC of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year of purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v) 0% thereafter. Class
B Shares are also subject to annual 12b-1 Plan expenses which are higher than
those to which Class A Shares are subject and are assessed against Class B
Shares for approximately eight years after purchase.
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
-36-
<PAGE>
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses.
Institutional Class shares, Class A Shares, Class B Shares and Class C
Shares of each Fund represent a proportionate interest in the particular Fund's
assets and will receive a proportionate interest in the particular Fund's
income, before application, as to Class A, Class B and Class C Shares, of any
expenses under the Fund's 12b-1 Plans.
See Automatic Conversion of Class B Shares under Classes of Shares in
the Fund Classes' Prospectus, and Determining Offering Price and Net Asset Value
and Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Certificates representing shares purchased are not ordinarily issued
unless a shareholder submits a specific request. Certificates are not issued in
the case of Class B Shares or Class C Shares. However, purchases not involving
the issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing shares
purchased by sending a letter to the Transfer Agent requesting the certificate.
No charge is assessed by Adviser Funds, Inc. for any certificate issued.
Investors who hold certificates representing any of their shares may only redeem
those shares by written request. The investor's certificate(s) must accompany
such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A Shares, Class B Shares
and Class C Shares permit investors to choose the method of purchasing shares
that is most suitable for their needs given the amount of their purchase, the
length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of .35%
(currently, no more than .30% pursuant to Board action) of the average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are
subject to a CDSC if the shares are redeemed within six years of purchase, and
Class C Shares are subject to a CDSC if the shares are redeemed within 12 months
of purchase. Class B and Class C Shares are each subject to annual 12b-1 Plan
expenses of up to a maximum of 1% (.25% of which are service fees to be paid to
the Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of the respective
Class. Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase and, thereafter, be subject to annual
12b-1 Plan expenses of up to a maximum of .35% (currently no more than .30%
pursuant to Board action) of average daily net assets of such shares. Unlike
Class B Shares, Class C Shares do not convert to another class.
Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below, for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
-37-
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
Dealer's
Commission***
Offering Front-End Sales Charge as % of as % of
Amount of Purchase Price Amount Invested** Price
- -------------------------------------------------------------------------------------------------------------------------------
Corpo-
Enter- U.S. World New Federal rate
prise Growth Growth Pacific Bond Income
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than $100,000 4.75% 4.96% 4.99% 5.00% 4.94% 5.00% 5.02% 4.00%
$100,000 but under $250,000 3.75 3.90 3.86 3.86 3.90 3.88 3.89 3.00
$250,000 but under $500,000 2.50 2.57 2.57 2.54 2.53 2.55 2.56 2.00
$500,000 but under $1,000,000* 2.00 2.04 2.01 2.02 2.07 2.04 2.05 1.00
</TABLE>
* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited CDSC
may apply upon redemption of such shares.
** Based on the net asset value per share of the Class A Shares as of the end
of Adviser Funds, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------
Each Fund, as appropriate, must be notified when a sale takes place
which would qualify for the reduced front-end sales charge on the basis
of previous or current purchases. The reduced front-end sales charge
will be granted upon confirmation of the shareholder's holdings by such
Fund. Such reduced front-end sales charges are not retroactive.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to .15%
of the offering price. Dealers who receive 90% or more of the sales
charge may be deemed to be underwriters under the Securities Act of
1933.
- --------------------------------------------------------------------------------
Certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional commission of up to .15% of
the offering price in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.
-38-
<PAGE>
Dealer's Commission
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are effected in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -----------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75%
Next $2 million up to $5 million 0.50%
Amount over $5 million 0.25%
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund Classes Prospectus) may be aggregated with those of Class A
Shares of a Fund. Financial advisers also may be eligible for a dealer's
commission in connection with certain purchases made under a Letter of Intention
or pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price. Nor will a CDSC be assessed on redemption of shares acquired
through reinvestment of dividends or capital gains distributions. See Waiver of
Contingent Deferred Sales Charge - Class B and Class C Shares under Redemption
and Exchange in the Prospectus for the Fund Classes for a list of the instances
in which the CDSC is waived.
The following table sets forth the rates of the CDSC for the Class B
Shares of each Fund:
Contingent Deferred Sales
Year After Charge (as a Percentage of
Purchase Made Dollar Amount Subject to Charge)
------------- --------------------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
-39-
<PAGE>
During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the
relevant Fund. See Automatic Conversion of Class B Shares under Classes of
Shares in the Fund Classes' Prospectus. Such conversion will constitute a
tax-free exchange for federal income tax purposes. See Dividends, Distributions
and Taxes in the Prospectus for the Fund Classes.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, Adviser Funds, Inc. has
adopted a separate plan for each of the Class A Shares, Class B Shares and Class
C Shares of each Fund (the "Plans"). Each Plan permits the particular Fund to
pay for certain distribution, promotional and related expenses involved in the
marketing of only the Class to which the Plan applies. The Plans do not apply to
the Institutional Classes of shares. Such shares are not included in calculating
the Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of the Institutional Classes. Shareholders of the
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit the Funds, pursuant to the Distribution Agreements, to
pay out of the assets of Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into agreements with the Distributor. The Plan
expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.
In addition, the Funds may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.
The maximum aggregate fee payable by the Funds under the Plans, and the
Funds' Distribution Agreements, is on an annual basis up to .35% of Class A
Shares' average daily net assets for the year, and up to 1% (.25% of which are
service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of Class B
Shares' and Class C Shares' average daily net assets for the year. Adviser
Funds, Inc.'s Board of Directors may reduce these amounts at any time. The
Distributor has agreed to waive these distribution fees to the extent such fees
for any day exceeds the net investment income realized by the Fund Classes for
such day.
The Board of Directors has determined, effective at the close of
business on May 3, 1996, that the annual fee payable on a monthly basis under
the Class A Shares' Plan will be equal to .30% of average daily net assets.
All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from such classes. Subject to seeking best price and execution,
the Fund may, from time to time, buy or sell portfolio securities from or to
firms which receive payments under the Plans. From time to time, the Distributor
may pay additional amounts from its own resources to dealers for aid in
distribution or for aid in providing administrative services to shareholders.
-40-
<PAGE>
The Plans and the Distribution Agreement, as amended, have been
approved by the Board of Directors of Adviser Funds, Inc., including a majority
of the directors who are not "interested persons" (as defined in the 1940 Act)
of Adviser Funds, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Distribution Agreement. Continuation of the Plans
and the Distribution Agreement, as amended, must be approved annually by the
Board of Directors in the same manner as specified above.
Each year, the directors must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, Class A Shares,
Class B Shares and Class C Shares and that there is a reasonable likelihood of
the Plan relating to a Fund Class providing a benefit to the relevant
shareholders of that Class. The Plans and the Distribution Agreement, as
amended, may be terminated at any time without penalty by a majority of those
directors who are not "interested persons" or by a majority vote of the
outstanding voting securities of the relevant Fund Class. Any amendment
materially increasing the percentage payable under the Plans must likewise be
approved by a majority vote of the outstanding voting securities of the relevant
Fund Class, as well as by a majority vote of those directors who are not
"interested persons." With respect to the Class A Shares' Plan, any material
increase in the maximum percentage payable thereunder must also be approved by a
majority of the outstanding voting Class B Shares. Also, any other material
amendment to the Plans must be approved by a majority vote of the directors,
including a majority of the directors who are not "interested persons" of
Adviser Funds, Inc. having no interest in the Plans. In addition, in order for
the Plans to remain effective, the selection and nomination of directors who are
not "interested persons" of Adviser Funds, Inc. must be effected by the
directors who themselves are not "interested persons" and who have no direct or
indirect financial interest in the Plans. Persons authorized to make payments
under the Plans must provide written reports at least quarterly to the Board of
Directors for their review.
-41-
<PAGE>
For the fiscal year ended October 31, 1995, payments to the Distributor
and, in its capacity as national distributor, LNC Equity under the Plans for the
Class A Shares, Class B Shares and Class C Shares were as follows:
12b-1 Fees Paid
In Year Ended
Fund and Class 10/31/95
-------------- --------
Enterprise Fund
Class A Shares $42,883
Class B Shares $12,474
Class C Shares $486
U.S. Growth Fund
Class A Shares $40,509
Class B Shares $3,983
Class C Shares $127
World Growth Fund
Class A Shares $41,866
Class B Shares $8,469
Class C Shares $408
New Pacific Fund
Class A Shares $35,982
Class B Shares $5,374
Class C Shares $159
Federal Bond Fund
Class A Shares $36,161
Class B Shares $2,650
Class C Shares $74
Corporate Income Fund
Class A Shares $36,880
Class B Shares $2,991
Class C Shares $53
-42-
<PAGE>
The staff of the Securities and Exchange Commission ("SEC") has
proposed amendments to Rule 12b-1 and other related regulations that could
impact Rule 12b-1 Distribution Plans. Adviser Funds, Inc. intends to amend the
Plans, if necessary, to comply with any new rules or regulations the SEC may
adopt with respect to Rule 12b-1.
Other Payments to Dealers - Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to .25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
Payment to dealers made in connection with seminars, conferences or
contests relating to the promotion of fund shares may be in an amount up to 100%
of the expenses incurred or awards made. The Distributor may also pay a portion
of the expense of preapproved dealer advertisements promoting the sale of
Delaware Group fund shares.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Adviser Funds,
Inc., any other fund in the Delaware Group, the Manager, or any of the Manager's
affiliates that may in the future be created, legal counsel to the funds and
registered representatives and employees of broker/dealers who have entered into
Dealer's Agreements with the Distributor may purchase Class A Shares of the
Funds and any of the funds in the Delaware Group, including any fund that may be
created, at the net asset value per share. Family members of such persons at
their direction, and any employee benefit plan established by any of the
foregoing funds, corporations, counsel or broker/dealers may also purchase
shares at net asset value. Purchases of Class A Shares may also be made by
clients of registered representatives of an authorized investment dealer at net
asset value within 12 months after the registered representative changes
employment, if the purchase is funded by proceeds from an investment where a
front-end sales charge, contingent deferred sales charge or other sales charge
has been assessed. Purchases of Class A Shares may also be made at net asset
value by bank employees that provide services in connection with agreements
between the bank and unaffiliated brokers or dealers concerning sales of
Delaware Group funds. Officers, directors and key employees of institutional
clients of the Manager, or any of its affiliates, may purchase Class A Shares at
net asset value. Moreover, purchases may be effected at net asset value for the
benefit of the clients of brokers, dealers and registered investment advisers
affiliated with a broker or dealer, if such broker, dealer or investment adviser
has entered into an agreement with the Distributor providing specifically for
the purchase of Class A Shares in connection with special investment products,
such as wrap accounts or similar fee based programs. Such purchasers are
required to sign a letter stating that the purchase is for investment only and
that the securities may not be resold except to the issuer. Such purchasers may
-43-
<PAGE>
also be required to sign or deliver such other documents as Adviser Funds, Inc.
may reasonably require to establish eligibility for purchase at net asset value.
Adviser Funds, Inc. must be notified in advance that the trade qualifies for
purchase at net asset value.
Investors who held shares in any class of any Delaware Group fund as of
December 1, 1995, may currently purchase Class A Shares at net asset value
through the Delaware Group Asset Planner service if such shares are being
purchased with proceeds from the redemption of shares of a fund (other than a
money market fund) outside of the Delaware Group of funds. The Investment
Application and check for such a transaction should note that the investment is
being made under the "NAV/Asset Planner Accommodation Program." Prior notice
will be given should this program be discontinued. Class A Shares may also be
purchased at net asset value in an IRA through the Delaware Group Asset Planner
service if the assets being invested are being transferred from an existing IRA
held outside of the Delaware Group or are part of a distribution received from
an employer-sponsored or other retirement plan. See Delaware Group Asset Planner
under How To Buy Shares in the Prospectus for the Fund Classes.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made by
any such purchaser previously enumerated within a 13-month period pursuant to a
written Letter of Intention provided by the Distributor and signed by the
purchaser, and not legally binding on the signer or Adviser Funds, Inc., which
provides for the holding in escrow by the Transfer Agent of 5% of the total
amount of Class A Shares intended to be purchased until such purchase is
completed within the 13-month period. A Letter of Intention may be dated to
include shares purchased up to 90 days prior to the date the Letter is signed.
The 13-month period begins on the date of the earliest purchase. If the intended
investment is not completed, except as noted below, the purchaser will be asked
to pay an amount equal to the difference between the front-end sales charge on
Class A Shares purchased at the reduced rate and the front-end sales charge
otherwise applicable to the total shares purchased. If such payment is not made
within 20 days following the expiration of the 13-month period, the Transfer
Agent will surrender an appropriate number of the escrowed shares for redemption
in order to realize the difference. Such purchasers may include the value (at
offering price at the level designated in their Letter of Intention) of all
their shares of the Funds and of any class of any of the other mutual funds in
the Delaware Group (except shares of any Delaware Group fund which do not carry
a front-end sales charge or CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC) previously purchased and still held as of the date of their Letter of
Intention toward the completion of such Letter. For purposes of satisfying an
investor's obligation under a Letter of Intention, Class B Shares and Class C
Shares of the Funds and the corresponding classes of shares of other Delaware
Group funds which offer such shares may be aggregated with Class A Shares of the
Funds and the corresponding class of shares of the other Delaware Group funds.
-44-
<PAGE>
Employers offering a Delaware Group retirement plan may also complete a
Letter of Intention to obtain a reduced front-end sales charge on investments of
Class A Shares made by the plan. The aggregate investment level of the Letter of
Intention will be determined and accepted by the Transfer Agent at the point of
plan establishment. The level and any reduction in front-end sales charge will
be based on actual plan participation and the projected investments in Delaware
Group funds that are offered with a front-end sales charge, CDSC or Limited CDSC
for a 13-month period. The Transfer Agent reserves the right to adjust the
signed Letter of Intention based on this acceptance criteria. The 13-month
period will begin on the date this Letter of Intention is accepted by the
Transfer Agent. If actual investments exceed the anticipated level and equal an
amount that would qualify the plan for further discounts, any front-end sales
charges will be automatically adjusted. In the event this Letter of Intention is
not fulfilled within the 13-month period, the Plan level will be adjusted
(without completing another Letter of Intention) and the employer will be billed
for the difference in front-end sales charges due, based on the plan's assets
under management at that time. Employers may also include the value (at offering
price at the level designated in their Letter of Intention) of all their shares
intended for purchase that are offered with a front-end sales charge, CDSC or
Limited CDSC of any class. Class B Shares and Class C Shares of the Funds and
other Delaware Group funds which offer corresponding classes of shares may also
be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class B Shares and/or Class C Shares of the
Funds, as well as shares of any other class of any of the other Delaware Group
funds (except shares of any Delaware Group fund which do not carry a front-end
sales charge, CDSC or Limited CDSC, other than shares of Delaware Group Premium
Fund, Inc. beneficially owned in connection with the ownership of variable
insurance products, unless they were acquired through an exchange from a
Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC).
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of the Funds, as
well as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Funds, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
shares from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC). If, for example, any such purchaser has previously purchased
and still holds Class A Shares and/or shares of any other of the classes
described in the previous sentence with a value of $40,000 and subsequently
purchases $60,000 at offering price of additional shares of Class A Shares, the
charge applicable to the $60,000 purchase would currently be 3.75%. For the
purpose of this calculation, the shares presently held shall be valued at the
public offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares to determine the applicability of the Right of
Accumulation to their particular circumstances.
-45-
<PAGE>
12-Month Reinvestment Privilege
Holders of Class A Shares (and of Institutional Class shares which were
acquired through an exchange of one of the other mutual funds in the Delaware
Group offered with a front-end sales charge) who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of a Fund or in Class A Shares of any of the other
funds in the Delaware Group, subject to applicable eligibility and minimum
purchase requirements, in states where shares of such other funds may be sold,
at net asset value without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the redemption of the shares
triggered the payment of a Limited CDSC. Persons investing redemption proceeds
from direct investments in mutual funds in the Delaware Group offered without a
front-end sales charge will be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does not extend to a
redemption of either Class B or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is proposed to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectus) in connection with the
features described above.
Group Investment Plans
Group Investment Plans which are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares set forth in the table on page 00, based on
total plan assets. If a company has more than one plan investing in the Delaware
Group of funds, then the total amount invested in all plans would be used in
determining the applicable front-end sales charge reduction upon each purchase,
both initial and subsequent, upon notification to the Funds at the time of each
such purchase. Employees participating in such Group Investment Plans may also
combine the investments made in their plan account when determining the
applicable front-end sales charge on purchases to non-retirement Delaware Group
investment accounts if they so notify the Funds in connection with each
purchase.
For other retirement plans and special services, see Retirement Plans
for the Fund Classes under Investment Plans.
-46-
<PAGE>
Adviser Funds Institutional Classes
The Institutional Classes are available for purchase only by: (a)
retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans; (b) tax-exempt employee benefit
plans of the Manager or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, a division of the Manager, or its affiliates and
their corporate sponsors, as well as subsidiaries and related employee benefit
plans and rollover individual retirement accounts from such institutional
advisory accounts; (d) banks, trust companies and similar financial institutions
investing for their own account or for the account of their trust customers for
whom such financial institution is exercising investment discretion in
purchasing shares of a class; and (e) registered investment advisers investing
on behalf of clients that consist solely of institutions and high net-worth
individuals having at least $1,000,000 entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a broker
or dealer and derives compensation for its services exclusively from its clients
for such advisory services.
Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
-47-
<PAGE>
INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional Class
are reinvested in the account of the holders of such shares (based on the net
asset value in effect on the reinvestment date). Confirmations of any
distributions from realized securities profits will be mailed to shareholders in
the first quarter of each fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund. Such
purchases, which must meet the minimum subsequent purchase requirements set
forth in the Prospectuses and this Part B, are made for Class A Shares at the
public offering price, and for the Institutional Classes, Class B and Class C
Shares at the net asset value, at the end of the day of receipt. A reinvestment
plan may be terminated at any time. This plan does not assure a profit nor
protect against depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest their dividends and/or
distributions in any of the mutual funds in the Delaware Group, including the
Funds, in states where their shares may be sold. Such investments will be made
at the net asset value per share at the close of business on the reinvestment
date without any front-end sales charge or service fee. The shareholder must
notify the Transfer Agent in writing and must have established an account in the
fund into which the dividends and/or distributions are to be invested. Any
reinvestment directed to a fund in which the investor does not then have an
account, will be treated like all other initial purchases of a fund's shares.
Consequently, an investor should obtain and read carefully the prospectus for
the fund in which the investment is proposed to be made before investing or
sending money. The prospectus contains more complete information about the fund,
including charges and expenses. See also Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares in the
Prospectus for the Fund Classes.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Funds at
net asset value, provided an account has been established. Dividends from Class
A Shares may not be directed to Class B or Class C Shares. Likewise, dividends
from Class B Shares may only be directed to other Class B Shares and dividends
from Class C Shares may only be directed to other Class C Shares. See Classes
Offered under Classes of Shares in the Fund Classes' Prospectus for the funds in
the Delaware Group that are eligible for investment by holders of Fund shares.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for the Funds to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments by Electronic Fund
Transfer. This method of investment assures the timely credit to the
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shareholder's account of payments such as social security, veterans' pension or
compensation benefits, federal salaries, Railroad Retirement benefits, private
payroll checks, dividends, and disability or pension fund benefits. It also
eliminates lost, stolen and delayed checks.
Automatic Investing Plan--Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
accounts. This type of investment will be handled in either of the following two
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either option should contact the Shareholder Service Center at 800-523-1918
for the necessary authorization forms and information. These services can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to the Funds from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Funds may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Funds.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund account. The Funds will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact the Funds for proper
instructions.
Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred retirement
plans. Among the retirement plans noted below, Class B Shares are available for
investment only by Individual Retirement Accounts, Simplified Employee Pension
Plans, 403(b)(7) Deferred Compensation Plans and 457 Deferred Compensation
Plans. The CDSC may be waived on certain redemptions of Class B Shares and Class
C Shares. See Waiver of Contingent Deferred Sales Charge - Class B and Class C
Shares under Redemption and Exchange in the Prospectus for the Fund Classes for
a list of the instances in which the CDSC is waived.
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<PAGE>
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000 for retirement plans. Each purchase of Class C Shares
must be in an amount that is less than $1,000,000 for such plans. The maximum
purchase limitations apply only to the initial purchase of shares by the
retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans, other than Individual Retirement Accounts
("IRAs"), for which there is a minimum initial purchase of $250 and a minimum
subsequent purchase of $25 regardless of which class is selected. Retirement
plans may be subject to plan establishment fees, annual maintenance fees and/or
other administrative or trustee fees. Fees are based upon the number of
participants in the plan as well as the services selected. Additional
information about fees is included in retirement plan materials. Fees are quoted
upon request. Annual maintenance fees may be shared by Delaware Management Trust
Company, the Transfer Agent, other affiliates of the Manager and others that
provide services to such plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Classes.
See Adviser Funds Institutional Classes, above. For additional information on
any of the Plans and Delaware's retirement services, call the Shareholder
Service Center telephone number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding. Please contact your investment dealer or the Distributor
for the special application forms required for the plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype plans are available for self-employed individuals,
partnerships and corporations which replace the former Keogh and corporate
retirement plans. These plans contain profit sharing or money purchase pension
plan provisions. Contributions may be invested only in Class A and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
by making contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year or elects to be treated
as having no compensation for the year. Investments in each of the Fund Classes
are permissible.
The Tax Reform Act of 1986 (the "Act") restructured, and in some cases
eliminated, the tax deductibility of IRA contributions. Under the Act, the full
deduction for IRAs ($2,000 for each working spouse and $2,250 for one-income
couples) was retained for all taxpayers who are not covered by an
employer-sponsored retirement plan. Even if a taxpayer (or his or her spouse) is
covered by an employer-sponsored retirement plan, the full deduction is still
available if the taxpayer's adjusted gross income is below $25,000 ($40,000 for
taxpayers filing joint returns). A partial deduction is allowed for married
couples with incomes between $40,000 and $50,000, and for single individuals
with incomes between $25,000 and $35,000. The Act does not permit deductions for
contributions to IRAs by taxpayers whose adjusted gross income before IRA
deductions exceeds $50,000 ($35,000 for singles) and who are active participants
in an employer-sponsored retirement plan. Taxpayers who are not allowed
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deductions on IRA contributions still can make nondeductible IRA contributions
of as much as $2,000 for each working spouse ($2,250 for one-income couples),
and defer taxes on interest or other earnings from the IRAs. Special rules apply
for determining the deductibility of contributions made by married individuals
filing separate returns.
A company or association may establish a Group IRA for employees or
members who want to purchase shares of the Funds. Purchases of $1 million or
more of the Class A Shares qualify for purchase at net asset value but may,
under certain circumstances, be subject to a Limited CDSC. See Purchasing Shares
for information on reduced front-end sales charges applicable to Class A Shares.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. See Class B Shares and Class C Shares under Alternative Purchase
Arrangements in the Fund Classes' Prospectus concerning the applicability of a
CDSC upon redemption.
See Appendix A for additional IRA information.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Fund Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Employers with 25 or fewer eligible employees can establish this plan
which permits employer contributions and salary deferral contributions in Class
A Shares and Class C Shares only.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Plan documents are available to
enable employers to establish a plan. An employer may also elect to make profit
sharing contributions and/or matching contributions with investments in only
Class A Shares and Class C Shares or certain other funds in the Delaware Group.
Purchases under the Plan may be combined for purposes of computing the reduced
front-end sales charge applicable to Class A Shares as set forth in the table on
page 00.
Deferred Compensation Plan for Public Schools and Non-Profit
Organizations ("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase any of
the Fund Classes in conjunction with such an arrangement. Applicable front-end
sales charges with respect to Class A Shares for such purchases are set forth in
the table on page 00.
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Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of any of the Fund Classes. Although investors
may use their own plan, there is available a Delaware Group 457 Deferred
Compensation Plan. Interested investors should contact the Distributor or their
investment dealers to obtain further information. Applicable front-end sales
charges for such purchases of Class A Shares are set forth in the table on page
00.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the offering
price next calculated by the Funds after receipt of the order by the Funds or
their agent. Orders for purchases of Class B Shares, Class C Shares and the
Institutional Class of a Fund are effected at the net asset value per share next
calculated by the Funds after receipt of the order by the Fund or its agent.
Selling dealers have the responsibility of transmitting orders promptly.
The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Fund will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
An example showing how to calculate the net asset value per share and,
in the case of Class A Shares, the offering price per share, is included in the
Funds' financial statements which are incorporated by reference into this Part
B.
The Funds' net asset value per share is computed by adding the value of
all securities and other assets in the portfolio of the Funds, deducting any
liabilities and dividing by the number of shares outstanding. Expenses and
income are accrued daily. U.S. Government and other debt securities are valued
at the mean between the last reported bid and asked prices. Options are valued
at the last reported sales price or, if no sales are reported, at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are valued at amortized cost. All other
securities and assets, including non-Exchange-traded options, are valued at fair
value as determined in good faith by the Board of Directors of Adviser Funds,
Inc.
Each Class of the Funds will bear, pro-rata, all of the common expenses
of the particular Fund. The net asset values of all outstanding shares of each
Class of a Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in the Funds represented by the value
of shares of that Class. All income earned and expenses incurred by the Funds
will be borne on a pro-rata basis by each outstanding share of a Class, based on
each Class' percentage in the Funds represented by the value of shares of such
Classes, except that the Institutional Classes will not incur any of the
expenses under the Funds' 12b-1 Plans and Class A, Class B and Class C Shares
alone will bear the 12b-1 Plan expenses payable under their respective Plans.
Due to the specific distribution expenses and other costs that would be
allocable to each Class, the dividends paid to each Class of a Fund and the net
asset value of each Class may vary. However, the net asset value per share of
each Class is expected to be equivalent.
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REDEMPTION AND REPURCHASE
Any shareholder may require the Funds to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Funds at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C Shares.
If stock certificates have been issued for shares being redeemed, they must
accompany the written request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the request must be signed by all owners
of the shares or the investment dealer of record, but a signature guarantee is
not required. When the redemption is for more than $50,000, or if payment is
made to someone else or to another address, signatures of all record owners are
required and a signature guarantee may be required. Each signature guarantee
must be supplied by an eligible guarantor institution. The Funds reserve the
right to reject a signature guarantee supplied by an eligible institution based
on its creditworthiness. The Funds may request further documentation from
corporations, retirement plans, executors, administrators, trustees or
guardians.
In addition to redemption of Fund shares by the Funds, the Distributor,
acting as agent of the Funds, offers to repurchase Fund shares from
broker/dealers acting on behalf of shareholders. The redemption or repurchase
price, which may be more or less than the shareholder's cost, is the net asset
value per share next determined after receipt of the request in good order by
the Fund or its agent, subject to any applicable CDSC or Limited CDSC. This is
computed and effective at the time the offering price and net asset value are
determined. See Determining Offering Price and Net Asset Value. The Funds and
the Distributor end their business days at 5 p.m., Eastern time. This offer is
discretionary and may be completely withdrawn without further notice by the
Distributor.
Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus for the Fund Classes. Redemptions of
Class B Shares made within three years of purchase are subject to a CDSC of: (i)
4% if shares are redeemed within two years of purchase; (ii) 3% if shares are
redeemed during the third or fourth year following purchase; (iii) 2% if shares
are redeemed during the fifth year following purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v) 0% thereafter. See
Restructuring of the Funds under Management of the Funds in the Prospectus for
the Fund Classes. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B and Class C Shares under Classes of Shares in the Prospectus
for the Fund Classes. Except for the applicable CDSC or Limited CDSC and, with
respect to the expedited payment by wire described below, for which there is
currently a $7.50 bank wiring cost, neither the Funds nor their Distributor
charges a fee for redemptions or repurchases, but such fees could be charged at
any time in the future.
Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order. If a shareholder redeems an entire account, all dividends accrued
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to the time of withdrawal will be paid by a separate check at the end of that
particular monthly dividend period.
Each Fund will process written redemption requests to the extent that
the purchase orders for the shares being redeemed have already settled. No Fund
will honor redemption requests as to shares for which a check was tendered as
payment until the Fund is reasonably satisfied that the check has cleared. This
potential delay can be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
appropriate Fund will automatically redeem from the shareholder's account the
Fund's shares purchased by the check plus any dividends earned thereon.
Shareholders may be responsible for any losses to the Fund or to the
Distributor.
In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Funds of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the Commission has provided for such suspension for
the protection of shareholders, the Funds may postpone payment or suspend the
right of redemption or repurchase. In such case, the shareholder may withdraw
the request for redemption or leave it standing as a request for redemption at
the net asset value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in cash
or in kind, or partly in cash and partly in kind. Any portfolio securities paid
or distributed in kind would be valued as described in Determining Offering
Price and Net Asset Value. Subsequent sale by an investor receiving a
distribution in kind could result in the payment of brokerage commissions.
The value of the Funds' investments are subject to changing market
prices. Thus, a shareholder reselling shares to the Fund may sustain either a
gain or loss, depending upon the price paid and the price received for such
shares.
Small Accounts
Before the Funds involuntarily redeem shares from an account that,
under the circumstances listed in the relevant Prospectus, has remained below
the minimum amounts required by the Funds' Prospectuses and sends the proceeds
to the shareholder, the shareholder will be notified in writing that the value
of the Fund shares in the account is less than the minimum required and will be
allowed 60 days from the date of notice to make an additional investment to meet
the required minimum. See The Conditions of Your Purchase under How to Buy
Shares in the Funds' Prospectuses. Any redemption in an inactive account
established with a minimum investment may trigger mandatory redemption. No CDSC
or Limited CDSC will apply to the redemptions described in this paragraph.
* * *
The Funds have made available certain special redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
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Expedited Telephone Redemptions
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of Fund shares of $50,000 or less for which
certificates have not been issued may call the Shareholder Service Center at
800-523-1918 or, in the case of shareholders of the Institutional Classes, their
Client Services Representative at 800-828-5052 prior to the time the offering
price and net asset value are determined, as noted above, and have the proceeds
mailed to them at the record address. Checks payable to the shareholder(s) of
record will normally be mailed the next business day, but no later than seven
days, after the receipt of the redemption request. This option is only available
to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
numbers listed above. An authorization form must have been completed by the
shareholder and filed with the particular Fund before the request is received.
Payment will be made by wire or check to the bank account designated on the
authorization form as follows:
1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.
2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to the Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. The Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form. Each Fund will process telephone
redemption requests to the extent that the purchase orders for the shares being
redeemed have already settled. No Fund will honor redemption requests as to
shares for which a check was tendered as payment until the Fund is reasonably
satisfied that the check has cleared.
If expedited payment under these procedures could adversely affect the
Funds, the Funds may take up to seven days to pay the shareholder.
Neither the Funds nor the Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Funds will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Funds or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
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Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price, or net asset
value, as applicable, for which certificates have not been issued may establish
a Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or
quarterly withdrawals of $75 or more, although the Fund does not recommend any
specific amount of withdrawal. This $5,000 minimum does not apply for the Fund's
prototype retirement plans. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend) and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may in time be depleted, particularly in a declining market.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares of the Fund may be disadvantageous to the shareholder.
Purchases of Class A Shares through a periodic investment program in a fund
managed by the Manager must be terminated before a Systematic Withdrawal Plan
with respect to such shares can take effect, except if the shareholder is a
participant in one of our retirement plans or is investing in funds of the
Delaware Group which do not carry a sales charge. Redemptions of Class A Shares
pursuant to a Systematic Withdrawal Plan may be subject to a Limited CDSC if the
purchase was made at net asset value and a dealer's commission has been paid on
that purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B and Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus for the Fund Classes. Shareholders should consult their
financial advisers to determine whether a Systematic Withdrawal Plan would be
suitable for them.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
The Systematic Withdrawal Plan is not available for the Institutional
Classes.
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Wealth Builder Option
Shareholders of the Fund Classes may elect to invest in one or more of
the other mutual funds in the Delaware Group through our Wealth Builder Option.
Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Fund Classes'
Prospectus. See Wealth Builder Option and Redemption and Exchange in the
Prospectus for the Fund Classes.
The investment will be made on the 20th day of each month (or, if the
fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges.
Shareholders can also use the Wealth Builder Option to invest in the
Fund Classes through regular liquidations of shares in their accounts in other
mutual funds in the Delaware Group, subject to the conditions and limitations
described in the Fund Classes' Prospectus. Shareholders can terminate their
participation at any time by written notice to the particular Fund.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans. This option also is not available to shareholders
of the Institutional Classes.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The following supplements the information in each Prospectus under the
heading Dividends, Distributions and Taxes.
Tax Information Concerning All Funds
Each Fund has qualified and intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). By doing so, each Fund expects to eliminate or
reduce to a nominal amount the federal income taxes to which it may be subject.
In order to qualify as a regulated investment company, each Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payment with respect to securities loans, and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies, (2)
derive less than 30% of its gross income from the sale or other disposition of
stock, securities, options, futures, forward contracts, and certain foreign
currencies (or options, futures, or forward contracts on foreign currencies)
held for less than three months, and (3) diversify its holdings so that at the
end of each quarter of its taxable year (i) at least 50% of the market value of
the Fund's assets is represented by cash or cash items (including receivables),
United States Government securities, securities of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Fund's assets at the date of
purchase and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than United States Government securities or the securities
of other regulated investment companies) or of two or more issuers that the
Adviser Funds, Inc. controls and that are engaged in the same, similar or
related trades or businesses. These requirements may restrict the degree to
which the Adviser Funds, Inc. may engage in short-term trading and limit the
range of the Adviser Funds, Inc.'s investments. If a Fund qualifies as a
regulated investment company, it will not be subject to federal income tax on
the part of its income distributed to shareholders, provided the Fund
distributes at least 90% of its net investment income (including short-term
capital gains) other than long-term capital gains in each year. Each Fund
intends to make sufficient distributions to shareholders to meet this
requirement.
Consequently, in order to avoid realizing a gain within the three-month
period, each Fund may be required to defer the closing out of a contract beyond
the time when it might otherwise be advantageous to do so. Each Fund may also be
restricted in the sale of purchased put options and the purchase of put options
for the purpose of hedging underlying securities because of the application of
the short sale holding period rules with respect to such underlying securities.
The Code imposes a non-deductible excise tax on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
"ordinary income" (as defined) for the calendar year plus 98% of their "capital
gain net income" (as defined) for the one-year period ending on October 31 of
such calendar year plus 100% of the prior calendar year's undistributed income
(if any). The balance, if any, of such income must be distributed during the
next calendar year. For the foregoing purposes, a Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. If distributions during a calendar year are less
than the required amount, that particular Fund will be subject to a
non-deductible excise tax equal to 4% of the deficiency.
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<PAGE>
Shareholders of the Funds will generally pay federal income tax on
distributions received from the Fund. Dividends that are attributable to a
Fund's taxable net investment income will be taxed as ordinary income.
Distributions of net capital gain that are designated by a Fund as capital gain
dividends will generally be taxable as long-term capital gain. Distributions in
excess of a Fund's current and accumulated earnings and profits will be treated
by shareholders receiving such distributions as a return of capital; a return of
capital is taxable to a shareholder as capital gain to the extent that it
exceeds such shareholder's basis in its shares in the Fund. Shareholders not
subject to tax on their income generally will not be required to pay tax on
amounts distributed to them. Such shareholders will include qualified retirement
plans.
It is the present policy of Adviser Funds, Inc. to declare and pay
dividends from net investment income of each fixed-income Fund monthly.
Dividends are declared at the time the offering price and net asset value are
determined (see Determining Offering Price and Net Asset Value) on the second to
last business day of each month and are payable on the last business day of each
month. For the Equity Funds, the current policy is to declare dividends of net
investment income, if any, on the second to last business day of each quarter
which are payable on the last business day of the quarter. Checks are normally
mailed within three business days of the payable date. Any check in payment of
dividends or other distributions which cannot be delivered by the United States
Post Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Fund may deduct from
a shareholder's account the costs of the Fund's effort to locate a shareholder
if a shareholder's mail is returned by the United States Post Office or the Fund
is otherwise unable to locate the shareholder or verify the shareholder's
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for their location services.
Net investment income earned on days when a Fund is not open will be declared as
a dividend on the next business day. Purchases of Fund shares by wire begin
earning dividends when converted into Federal Funds and available for
investment, normally the next business day after receipt. Purchases by check
earn dividends upon conversion to Federal Funds, normally one business day after
receipt.
Each class of a Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class A Shares, Class B Shares
and the Class C Shares alone will incur distribution fees under their respective
12b-1 Plans.
For each of the Fund classes, dividends and realized securities profits
distributions are automatically reinvested in additional shares of a Fund at net
asset value in effect on the payable date, and credited to the shareholder's
account, unless an election to receive distributions in cash has been made by
the shareholder. All dividends and distributions are reinvested for the
Institutional Class. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again.
Adviser Funds, Inc. anticipates distributing to its shareholders
substantially all of a Fund's net investment income. Any net short-term capital
gains after deducting any net long-term capital losses (including carryforwards)
would be distributed quarterly but, in the discretion of Adviser Funds, Inc.'s
Board of Directors, might be distributed less frequently. Distributions of net
long-term gains, if any, realized on sales of investments will be distributed
annually during the quarter following the close of the fiscal year.
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<PAGE>
Taxation of Shareholders
Gain or loss on the sale of a security generally will be long-term
capital gain or loss if a Fund has held the securities for more than one year.
Gain or loss on the sale of securities held for not more than one year will be
short-term. If one of the Funds acquires a debt security at a substantial
discount, a portion of any gain upon the sale or redemption will be taxed as
ordinary income, rather than capital gain to the extent it reflects accrued
market discount. Alternatively, this discount may be accredited as ordinary
income on a daily basis rather than recognized at disposition.
Dividends of net investment income and distributions of net realized
short-term capital gains will be taxable to shareholders as ordinary income for
federal income tax purposes, whether received in cash or reinvested in
additional shares. Dividends received by corporate shareholders will qualify for
the dividends-received deduction only to the extent that each of the Equity
Funds designates the amount distributed as a dividend and the amount so
designated does not exceed the aggregate amount of dividends received by the
Funds from domestic corporations for the taxable year. The federal
dividends-received deduction for corporate shareholders may be further reduced
or disallowed if the shares with respect to which dividends are received are
treated as debt-financed or are deemed to have been held for less than 46 days.
Foreign countries may impose withholding and other taxes on dividends
and interest paid to the Funds with respect to investments in foreign
securities. However, certain foreign countries have entered into tax conventions
with the U.S. to reduce or eliminate such taxes.
Distributions of long-term capital gains will be taxable to
shareholders as such, whether paid in cash or reinvested in additional shares
and regardless of the length of time that the shareholder has held his or her
interest in one of the Funds. If a shareholder receives a distribution taxable
as long-term capital gain with respect to his or her investment in a Fund and
redeems or exchanges the shares before he or she has held them for more than six
months, any loss on the redemption or exchange that is less than or equal to the
amount of the distribution will be treated as a long-term capital loss.
If a shareholder: (a) incurs a sales charge or in acquiring or
redeeming shares of one of the Funds; (b) disposes of those shares and acquires
within 90 days after the original acquisition; or (c) acquires within 90 days of
the redemption those shares in a mutual fund for which the otherwise applicable
sales charge is reduced by reason of reinvestment right (i.e., an exchange
privilege), the original sales charge increases the shareholder's tax basis in
the original shares only to the extent the other applicable sales charge for the
second acquisition is not reduced. The portion of the original sales charge that
does not increase the shareholder's tax basis in the original shares would be
treated as incurred with respect to the second acquisition and, as a general
rule, would increase the shareholder's tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the newly acquired
or redeemed shares made within 90 days of the second acquisition. This provision
prevents a shareholder from immediately deducting the sales charge by shifting
his or her investment in a family of mutual funds.
Investors considering buying shares of one of the Funds just prior to a
record date for a taxable dividend or capital gain distribution should be aware
that, regardless of whether the price of the Fund shares to be purchased
reflects the amount of the forthcoming dividend or distribution payment, any
such payment will be a taxable dividend or distribution payment. This is of
particular concern for investors in the Equity Funds since these Funds may make
distributions on an annual basis.
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<PAGE>
Each Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or of gross proceeds from
redemptions paid to any shareholder who has provided either an incorrect tax
identification number or no number at all, or who is subject to withholding by
the Internal Revenue Service for failure to properly include on his tax return
payments of interest or dividends. This withholding, known as backup
withholding, is not an additional tax, and any amounts withheld may be credited
against the shareholder's ultimate U.S. tax liability.
Certain investments and hedging activities of the Funds, including
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles, foreign currencies, and foreign securities will be subject
to special tax rules. See Option Transactions, Straddles and Wash Sales. In a
given case, these rules may accelerate income to a Fund, defer losses to a Fund,
cause adjustments in the holding periods of a Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of a Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. Each Fund will endeavor
to make any available elections pertaining to such transactions in a manner
believed to be in the best interest of a Fund.
Certain securities purchased by the Funds (such as STRIPS, CUBES, TRs,
TIGRs and CATS), are sold at original issue discount and do not make periodic
cash interest payments. A Fund will be required to include as part of its
current income the imputed interest on such obligations even though a Fund has
not received any interest payments on such obligations during that period.
Because a Fund distributes all of its net investment income to its shareholders
(including such imputed interest), a Fund may have to sell securities in order
to generate the cash necessary for the required distributions. Such sales may
occur at a time when the Manager or sub-adviser would not have chosen to sell
such securities and which may result in a taxable gain or loss.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of shares of each Fund of Adviser
Funds, Inc. Further tax information regarding the World Growth and the New
Pacific Funds are included in following sections of this Part B. No attempt is
made to present a detailed explanation of the federal income tax treatment of
each Fund or its shareholders, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, prospective purchasers of
shares of a Fund are urged to consult their tax advisors with specific reference
to their own tax situation, including the potential application of state and
local taxes.
The foregoing discussion and the discussion below regarding the World
Growth and the New Pacific Funds are based on tax laws and regulations which are
in effect on the date of this Part B; such laws and regulations may be changed
by legislative or administrative action, and such changes may be retroactive.
Additional Tax Information Concerning the World Growth and the New Pacific Funds
Gain or loss on the sale or other disposition of foreign currency by
the World Growth and the New Pacific Funds on a spot (or cash) basis will result
in ordinary gain or loss for federal income tax purposes.
Gains from foreign currencies (including foreign currency options,
foreign currency futures and foreign currency forward contracts) will constitute
qualifying income for purposes of the 90% test. However, future Treasury
regulations may exclude from qualifying income foreign currency gains not
directly related to a Fund's business of investing in stock or securities (and
may further define those foreign currency transactions that are not directly
related).
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Investment by a Fund in certain "passive foreign investment companies"
could subject a Fund to U.S. federal income tax or other charge on distributions
received from, or the sale of its investment in, such a company, which tax
cannot be eliminated by making distributions to shareholders. If the Funds elect
to treat a passive foreign investment company as a "qualified electing fund,"
different rules would apply, although the Funds do not expect to be in the
position to make such elections.
Foreign Tax Credit
Shareholders of the World Growth and the New Pacific Funds who are U.S.
citizens may be able to claim a foreign tax credit or deduction on their U.S.
income tax returns with respect to foreign taxes paid by the Funds. Generally, a
credit for foreign taxes is subject to the limitation that it may not exceed the
shareholder's U.S. tax attributable to his or her total foreign source taxable
income. For this purpose, the source of a Fund's income flows through to its
shareholders. A Fund's gains from the sale of securities generally will be
treated as derived from U.S. sources and certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. With limited exceptions, the foreign tax credit is allowed to offset
only 90% of the alternative minimum tax imposed on corporations and individuals.
Because of these limitations, shareholders may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by a
Fund.
The foregoing is only a general description of the treatment of foreign
withholding or other foreign taxes under the U.S. federal income tax laws.
Because the availability of a credit or deduction depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
Options Transactions
When a Fund writes a call option, an amount equal to the premium
received by it is included in the Fund's assets and liabilities as an asset and
as an equivalent liability. The amount of the liability is subsequently "marked
to market" to reflect the current market value of the option written. The
current market value of a written option is the last sale price on the principal
Exchange on which such option is traded or, in the absence of a sale, the mean
between the last bid and asked prices. If an option which a Fund has written
expires on its stipulated expiration date, or if a Fund enters into a closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. Any such gain or loss is a
short-term capital gain or loss for federal income tax purposes. If a call
option which a Fund has written is exercised, the Fund realizes a capital gain
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or loss (long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security, and the proceeds
from such sale are increased by the premium originally received.
The premium paid by a Fund for the purchase of a put option is recorded
in the section of the Fund's assets and liabilities as an investment and
subsequently adjusted daily to the current market value of the option. For
example, if the current market value of the option exceeds the premium paid, the
excess would be unrealized appreciation and, conversely, if the premium exceeds
the current market value, such excess would be unrealized depreciation. If a put
option which a Fund has purchased expires on the stipulated expiration date,
that Fund realizes a long- or short-term capital loss for federal income tax
purposes in the amount of the cost of the option. If the Fund sells the put
option, it realizes a long- or short-term capital gain or loss, depending on
whether the proceeds from the sale are greater or less than the cost of the
option. If the Fund exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. However, since the
purchase of a put option is treated as a short sale for federal income tax
purposes, the holding period of the underlying security will be affected by such
a purchase.
Futures Contracts
The initial margin deposits made when entering into futures contracts
are recognized as assets due from the broker. During the period the futures
contract is open, changes in the value of the contract will be reflected at the
end of each day.
Regulated futures contracts held by the Fund at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes.
Any unrealized gain or loss on futures contracts will therefore be recognized
and deemed to consist of 60% long-term capital gain or loss and 40% short-term
capital gain or loss. Therefore, adjustments are made to the tax basis in the
futures contract to reflect the gain or loss recognized at year end.
Straddles
The Code contains rules applicable to "straddles," that is, "offsetting
positions in actively traded personal property." Such personal property includes
offsetting puts of the same class, section 1256 contracts or other investment
contracts. Where applicable, the straddle rules generally override the other
provisions of the Code. In general, investment positions will be offsetting if
there is a substantial diminution in the risk of loss from holding one position
by reason of holding one or more other positions (although certain covered call
options would not be treated as part of a straddle). The Funds are authorized to
enter into covered call and covered put positions. Depending on what other
investments are held by a Fund, at the time it enters into one of the above
transactions, the Fund may create a straddle for purposes of the Code.
Wash Sales
"Wash sale" rules will apply to prevent the recognition of loss with
respect to a position where an identical or substantially identical position has
been acquired 30 days prior to or 30 days after the date of the loss.
The foregoing is only a summary of certain federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisers with specific reference to their own tax situations, including their
state and local tax liabilities.
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INVESTMENT MANAGEMENT AGREEMENTS
The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of the Board of Directors of Adviser Funds, Inc.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. The aggregate assets of these funds on December 31,
1995 were approximately $10,522,726,000. Investment advisory services are also
provided to institutional accounts with assets on December 31, 1995 of
approximately $17,606,321,000.
Separate Investment Management Agreements for each Fund are dated May
4, 1996 and were approved by shareholders on May 3, 1996. The Agreements have an
initial term of two years and may be further renewed only so long as such
renewals and continuance are specifically approved at least annually by the
Board of Directors or by vote of a majority of the outstanding voting securities
of the relevant Fund, and only if the terms and renewal thereof have been
approved by the vote of a majority of the directors of Adviser Funds, Inc. who
are not parties thereto or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Agreements
are terminable without penalty on 60 days' notice by the directors of Adviser
Funds, Inc. or by the Manager. An Agreement will terminate automatically in the
event of its assignment.
The Investment Management Agreements provide that each Fund shall pay
the Manager an annual management fee payable monthly and computed on the average
daily net assets of each Fund at the following annual rates:
Management
Fund Fee Rate
---- --------
Enterprise Fund 0.80%
U.S. Growth Fund 0.70%
World Growth Fund 1.10%
New Pacific Fund 0.80%
Federal Bond Fund 0.30%
Corporate Income Fund 0.30%
On October 31, 1995, each Fund's total net assets were as follows:
Enterprise Fund $20,043,205
U.S. Growth Fund $18,987,288
World Growth Fund $14,404,149
New Pacific Fund $11,006,416
Federal Bond Fund $12,354,977
Corporate Income Fund $15,587,858
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The total investment management fees paid by each Fund during the
fiscal year ended October 31, 1995 and the period ended October 31, 1994 were
paid to the previous investment manager, Lincoln Investment Management, Inc.,
and were as follows:
Management
Fees Incurred
-------------
Fund 1995 1994
---- ---- ----
Enterprise Fund $116,353 $75,244
U.S. Growth Fund $105,965 $68,168
World Growth Fund $142,529 $111,392
New Pacific Fund $119,820 $108,975
Federal Bond Fund $33,749 $27,383
Corporate Income Fund $40,247 $28,095
As authorized by the Investment Management Agreements relating to each
Fund, the Investment Manager, under the general supervision of the Board of
Directors, has selected and contracted with various sub-advisers to assist with
the management of the Fund's portfolios in accordance with each Fund's stated
objectives and policies. The Manager is responsible for compensating such
sub-advisers. The Manager has entered into separate Sub-Advisory Agreements in
respect of each of the Funds dated May 4, 1996. The terms of the Sub-Advisory
Agreements and requirements for Board approval and termination are the same for
these agreements as they are for the Investment Management Agreements described
above.
Each Fund pays all of its other expenses, including its proportionate
share of rent and certain other administrative expenses. The ratios of expenses
to average daily net assets for Class A Shares, Class B Shares, Class C Shares
and the Institutional Class for each Fund for the fiscal year ended October 31,
1995 were as follows with and without giving effect to any expense waivers or
reimbursements, as more fully described below:
Ratio (With Ratio (Without
Giving Effect Giving Effect
Fund To Waiver) To Waiver)
---- ---------- ----------
Enterprise Fund
Class A Shares 1.85% 2.42%
Class B Shares 2.50% 3.07%
Class C Shares 2.50% 3.07%
Institutional Class 1.53% 2.07%
U.S. Growth Fund
Class A Shares 1.85% 2.18%
Class B Shares 2.50% 2.83%
Class C Shares 2.50% 2.82%
Institutional Class 1.50% 1.83%
World Growth Fund
Class A Shares 1.85% 2.96%
Class B Shares 2.50% 3.61%
Class C Shares 2.50% 3.61%
Institutional Class 1.50% 2.61%
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Ratio (With Ratio (Without
Giving Effect Giving Effect
Fund To Waiver) To Waiver)
---- ---------- ----------
New Pacific Fund
Class A Shares 1.85% 3.73%
Class B Shares 2.50% 4.38%
Class C Shares 2.50% 4.38%
Institutional Class 1.50% 3.38%
Federal Bond Fund
Class A Shares 1.25% 2.06%
Class B Shares 1.90% 2.71%
Class C Shares 1.85% 2.70%
Institutional Class 0.90% 1.71%
Corporate Income Fund
Class A Shares 1.25% 1.87%
Class B Shares 1.90% 2.52%
Class C Shares 1.90% 2.52%
Institutional Class 0.90% 1.52%
By California regulation, the Manager is required to waive certain fees
and reimburse the Funds for certain expenses to the extent that a Fund's annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, exceed 2 1/2% of its first $30 million of average daily
net assets, 2% of the next $70 million of average daily net assets and 1 1/2% of
any additional average daily net assets. The Manager has voluntarily committed
to waive its fees or reimburse expenses for the Funds for the first six months
after May 3, 1996, as reflected below. The cap for each Fund has been lowered
from that maintained by the previous investment manager by .05%, reflecting the
reduction from .35% to .30% of the 12b-1 fees payable by the Funds with respect
to Class A Shares pursuant to Board action. The expense waivers and/or
reimbursements will be reevaluated by the Manager periodically. The expense
ratios presently being maintained are as follows:
<TABLE>
<CAPTION>
U.S. World New Federal Corporate
Enterprise Growth Growth Pacific Bond Income
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 1.80% 1.80% 1.80% 1.80% 1.20% 1.20%
Class B Shares 2.50% 2.50% 2.50% 2.50% 1.90% 1.90%
Class C Shares 2.50% 2.50% 2.50% 2.50% 1.90% 1.90%
Institutional Class 1.50% 1.50% 1.50% 1.50% 0.90% 0.90%
</TABLE>
Sub-Advisers
The following registered investment advisers serve as sub-advisers to
the Funds indicated: Lincoln Investment Management, Inc. serves as sub-adviser
of the Federal Bond Fund and the Corporate Income Fund; Lynch & Mayer, Inc.
serves as sub-adviser of the U.S. Growth Fund and Enterprise Fund; Walter Scott
& Partners Limited serves as sub-adviser of the World Growth Fund; and John
Govett & Company Limited serves as sub-adviser of the New Pacific Fund.
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Lincoln Investment Management, Inc. Lincoln Investment Management, Inc.
provides investment services to Lincoln National Corporation and its principal
subsidiaries and acts as investment adviser to other clients in addition to the
funds. As of December 31, 1995, Lincoln Investment Management, Inc. had total
assets under management in excess of $37 billion.
Lynch & Mayer, Inc. Dennis Lynch and Eldon Mayer established Lynch &
Mayer, Inc. in 1976. Currently the firm manages $6.6 billion in assets for
pension funds, foundations, endowments, trusts and high net worth individuals
and families. The firm also manages a closed-end convertible security fund which
is traded on the New York Stock Exchange. Lynch & Mayer, Inc.'s investment
expertise is in equities and convertible securities. As of December 31, 1995,
Lynch & Mayer, Inc. had total assets under management in excess of $6.6 billion.
Walter Scott & Partners Limited. Walter Scott & Partners Limited was
founded in 1983. The firm is an investment adviser registered with the
Securities and Exchange Commission. The firm's area of expertise is in providing
both international and global management of equity securities. The firm manages
money for pension funds and foundations of over $2.0 billion for investors in
the United Kingdom and United States. As of December 31, 1995, Walter Scott &
Partners Limited had assets under management in excess of $2.0 billion.
John Govett & Company Limited. The London-based investment management
firm of John Govett & Company Limited was established in 1920. In December 1995,
John Govett & Company Limited was acquired by John Govett Holdings Limited, a
majority-owned subsidiary of the AIB Group of Companies. John Govett & Company
Limited manages assets of over $5.1 billion for investment trusts, investment
companies, mutual funds and pension funds. The firm has other investment offices
in Singapore and San Francisco. As of December 31, 1995, John Govett & Company
Limited had assets under management in excess of $5.1 billion.
Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor of the Funds' shares
under separate Distribution Agreements dated September 25, 1995. The Distributor
is an affiliate of the Manager and bears all of the costs of promotion and
distribution, except for payments by Class A Shares, Class B Shares and Class C
Shares of the Funds under their respective 12b-1 Plans. Prior to September 25,
1995, LNC Equity Sales, Inc. served as the national distributor of the Fund's
shares. Delaware Distributors Inc. ("DDI") is the corporate general partner of
Delaware Distributors, L.P. and both DDI and Delaware Distributors, L.P. are
indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.
which, in turn, is a wholly-owned subsidiary of Lincoln National Corporation.
The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
the shareholder servicing, dividend disbursing and transfer agent for each Fund
pursuant to a Shareholders Services Agreement dated September 25, 1995. The
Transfer Agent is also an indirect, wholly-owned subsidiary of Delaware
Management Holdings, Inc. and, therefore, Lincoln National Corporation.
-68-
<PAGE>
OFFICERS AND DIRECTORS
DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware International Holdings Ltd., Founders
Holdings, Inc., Delaware International Advisers Ltd., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc. are direct
or indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a wholly-owned subsidiary of
Lincoln National Corporation was completed. Lincoln National Corporation, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. DMH and the Manager are now wholly-owned
subsidiaries, and subject to the ultimate control, of Lincoln National
Corporation. After Lincoln National's acquisition of DMH and the Manager,
Lincoln National was operating two mutual fund complexes, the Delaware Group and
Lincoln Advisor Funds, Inc. (the "Lincoln Funds"). The directors and management
of both mutual fund complexes concluded that the extensive mutual fund
experience and resources of the Delaware Group of funds warranted the
consolidation of Lincoln Funds into the Delaware Group of funds. On May 3, 1996,
the shareholders of the Lincoln Funds approved the Investment Management and
Sub-Advisory Agreements and other matters giving effect to the restructuring of
the Funds to integrate them into the Delaware Group. See Restructuring of the
Funds under Management of the Funds in the Prospectuses.
DIRECTORS
The business and affairs of Adviser Funds, Inc. are managed under the
direction of its Board of Directors.
Directors of Adviser Funds, Inc. are noted below along with their ages
and their business experience for the past five years. Unless otherwise noted,
the address of each officer and director is One Commerce Square, Philadelphia,
PA 19103.
*Wayne A. Stork (58)
Chairman,President, Chief Executive Officer, Director and/or Trustee
of Adviser Funds, Inc. and 16 other investment companies in
the Delaware Group (which excludes Delaware Pooled Trust,
Inc.), Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Pooled Trust, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Chairman,President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman,Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
- -----------
*Director affiliated with each Fund's investment manager and considered an
"interested person" as defined in the Investment Company Act of 1940.
-69-
<PAGE>
Walter P. Babich (68)
Director and/or Trustee of Adviser Funds, Inc. and each of the other 17
investment companies in the Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.
Anthony D. Knerr (57)
Director and/or Trustee of Adviser Funds, Inc. and each of the other 17
investment companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (55)
Director and/or Trustee of Adviser Funds, Inc. and each of the other 17
investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.
W. Thacher Longstreth (75)
Director and/or Trustee of Adviser Funds, Inc. and each of the other 17
investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Charles E. Peck (70)
Director and/or Trustee of Adviser Funds, Inc. and each of the other 17
investment companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive
Officer of The Ryland Group, Inc., Columbia, MD.
-70-
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation. The present directors were elected on May 3,
1996 and, therefore, did not previously receive compensation from the Funds.
However, the previous directors entitled to receive compensation each received
annual fees of $13,000 for their services to Adviser Funds, Inc., while it
operated as Lincoln Advisor Funds, Inc. The following table shows the total
compensation received from all Delaware Group funds for the year ended December
31, 1995 and an estimate of annual benefits to be received upon retirement under
the Delaware Group Retirement Plan.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Aggregate Accrued as Estimated Total
Compensation Part of Annual Compensation
from Adviser Benefits from all 17
Adviser Funds, Inc. Upon Delaware
Name Funds, Inc. Expenses Retirement* Group Funds
- ---- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
W. Thacher Longstreth N/A None $30,000 $61,324
Ann R. Leven N/A None $30,000 $66,324
Walter P. Babich N/A None $30,000 $64,188
Anthony D. Knerr N/A None $30,000 $65,324
Charles E. Peck N/A None $30,000 $58,188
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of his or
her retirement from the Board, has attained the age of 70 and served on the
Board for at least five continuous years, is entitled to receive payments
from each fund in the Delaware Group for a period equal to the lesser of
the number of years that such person served as a director or the remainder
of such person's life. The amount of such payments will be equal, on an
annual basis, to the amount of the annual retainer that is paid to
directors of each fund at the time of such person's retirement. If an
eligible director retired as of April 18, 1996, he or she would be entitled
to annual payments totaling $30,000, in the aggregate, from all of the
funds in the Delaware Group, based on the number of funds in the Delaware
Group as of that date.
OFFICERS
The day to day business operations of Adviser Funds, Inc. are managed
under the direction of the officers of Adviser Funds, Inc., who are listed
below:
Winthrop S. Jessup (50)
Executive Vice President of Adviser Funds, Inc. and 16 other investment
companies in the Delaware Group (which excludes Delaware
Pooled Trust, Inc.) and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Capital Management, Inc.
Executive Vice President and Director of DMH Corp., Delaware Management
Company, Inc., Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc., Delaware International
Advisers Ltd., Delaware Management Trust Company and Delaware
Investment & Retirement Services, Inc.
During the past five years, Mr. Jessup has served in various
executive capacities at different times within the Delaware
organization.
-71-
<PAGE>
Richard G. Unruh, Jr. (56)
Executive Vice President of Adviser Funds, Inc. and each of the other
17 investment companies in the Delaware Group.
Executive Vice President and Director of Delaware Management Company,
Inc.
Senior Vice President of Delaware Management Holdings, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.
David K. Downes (56)
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer of Adviser Funds, Inc., each of the other 17
investment companies in the Delaware Group and Delaware
Management Company, Inc.
Chairman and Director of Delaware Management Trust Company.
Chief Executive Officer and Director of Delaware Investment
& Retirement Services, Inc.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director
of DMH Corp.
Senior Vice President/Chief Administrative Officer and Director of
Delaware Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware
Distributors, L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International
Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware
Capital Management, Inc.
Senior Vice President and Director of Founders Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer
of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President
from December 1985 through March 1992 and Vice Chairman from
March 1992 through August 1992.
George M. Chamberlain, Jr. (49)
Senior Vice President and Secretary of Adviser Funds, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc. and Delaware Distributors,
L.P.
Executive Vice President, Secretary and Director of Delaware Management
Trust Company.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Investment &
Retirement Services, Inc. and Delaware Capital Management,
Inc.
Corporate Vice President, Secretary and Director of Founders Holdings,
Inc.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware
organization.
-72-
<PAGE>
Joseph H. Hastings (46)
Vice President/Corporate Controller of Adviser Funds, Inc., each of
the other 17 investment companies in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P.,
Delaware Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Founders Holdings, Inc.
and Delaware International Holdings Ltd.
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings
served as Controller and Treasurer for Fine Homes
International, L.P., Stamford, CT from 1987 to 1989.
Michael P. Bishof (33)
Vice President/Treasurer of Adviser Funds, Inc., each of the other
17 investment companies in the Delaware Group, Delaware
Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Service Company, Inc.,
Founders Holdings, Inc. and Founders CBO Corporation.
Vice President/Manager of Investment Accounting of Delaware
International Holdings Ltd.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.
Principal Holders of Securities
As of February 1, 1996, the officers and directors of Adviser Funds,
Inc., as a group, owned less than 1% of the outstanding shares of each of the
Class A Shares, Class B Shares, Class C Shares and the Institutional Class, of
each Fund, respectively.
Listed below are the shareholders of record who held 25% or more of the
outstanding shares of each Class as of February 1, 1996.
Listed below are the shareholders of record who management believes
held 25% or more of the outstanding shares of each Class as of March 31, 1996.
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
Enterprise Fund American States Insurance Co. 74.55
(Class A) Attn: Corporate Accounting P/C
David Rogers
500 North Meridian St.
Indianapolis, IN 46207
Enterprise Fund None
(Class B)
-73-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- --------------
Enterprise Fund NFSC FBO John Robertson Trust 48.02
(Class C) John Robertson Plumbing Inc.
P.O. Box 118
Burlington, KY 41005
Enterprise Fund NBD Bank 100.00
(Institutional Trst Motor Wheel Corp.
Class) 415819602
P.O. Box 771072
Detroit, MI 48277
U.S. Growth Fund American States Insurance Co. 90.15
(Class A) Attn: Corporate Accounting P/C
David Rogers
500 North Meridian St.
Indianapolis, IN 46207
U.S. Growth Fund None
(Class B)
U.S. Growth Fund None
(Class C)
U.S. Growth Fund Federated Life Insurance Co. 100.00
(Institutional Separate Account A
Class) Attn: Tom Koch
121 E. Park Sq.
Owatonna, MN 55060
World Growth Fund Lincoln National Life Insurance Co. 85.95
(Class A) 1300 S. Clinton St.
Fort Wayne, IN 46801
World Growth Fund None
(Class B)
World Growth Fund None
(Class C)
World Growth Fund Lincoln National Investment Management 100.00
(Institutional 1300 South Clinton St.
Class) P.O. Box 1110
Fort Wayne, IN 46801
-74-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
New Pacific Fund Lincoln National Life Insurance Co. 77.43
(Class A) 1300 S. Clinton St.
Fort Wayne, IN 46801
New Pacific Fund None
(Class B)
New Pacific Fund None
(Class C)
New Pacific Fund Lincoln National Investment Management 100.00
(Institutional 1300 South Clinton St.
Class) P.O. Box 1110
Fort Wayne, IN 46801
Federal Bond Fund Lincoln National Life Insurance Co. 98.58
(Class A) 1300 S. Clinton St.
Fort Wayne, IN 46801
Federal Bond Fund NFSC FBO Lawrence B Silver 68.88
(Class B) NFSC/FMTC IRA R/O BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
Federal Bond Fund Willard L. Shively and 67.84
(Class C) Carolyn R. Shively JTWROS
6649 E. 150 N
Columbia City, IN 46725
Federal Bond Fund Lincoln National Investment Management 100.00
(Institutional 1300 Clinton St.
Class) P.O. Box 1110
Fort Wayne, IN 46801
Corporate Income Fund Lincoln National Life Insurance Co. 95.57
(Class A) 1300 S. Clinton St.
Fort Wayne, IN 46801
Corporate Income Fund NFSC FBO Lawrence B. Silver 77.52
(Class B) NFSC/FMTC IRA R/O BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
-75-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
Corporate Income Fund Willard L. Shively and 97.42
(Class C) Carolyn R. Shively JTWROS
6649 E. 150 N
Columbia City, IN 46725
Corporate Income Fund Federated Life Insurance Co. 100.00
(Institutional Separate Account A
Class) Attn: Tom Koch
121 E. Park Sq.
Owatonna, MN 55060
Listed below are the shareholders who management believes held at least
5% but less than 25% of the outstanding shares of each Class as of March 31,
1996.
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
Enterprise Fund None
(Class A)
Enterprise Fund Marlin Drake and Jeanne Drake 16.01
(Class B) Trst Unitrust
Dtd 11-28-89
11595 N. Meridian St. Ste. 250
Carmel, IN 46032
NFSC FBO Lawrence B. Silver 6.84
NFSC/FMTC IRA R/0 BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
Enterprise Fund NFSC FBO Garold A. Nest 12.09
(Class C) 6225 Shilo Road
Alpharetta, GA 30202
Enterprise Fund None
(Institutional
Class)
U.S. Growth Fund None
(Class A)
-76-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
U.S. Growth Fund NFSC FBO Lawrence B. Silver 18.95
(Class B) NFSC/FMTC IRA R/O BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
Marlin Drake and Jeanne Drake 16.72
Trst Unitrust
Dtd 11-28-89
11595 N. Meridian St. Ste. 250
Carmel, IN 46032
NFSC FBO Marlene M. Clark 8.17
BT9-312363
1536 Kensington Ln.
Lancaster, OH 43130
L. R. Brown 5.60
1201 Winner Ave.
Huntsville, AL 35805
U.S. Growth Fund NFSC FBO Garold A. Nest 16.58
(Class C) 6225 Shilo Road
Alpharetta, GA 30202
Fred Farah and Teresa Farah 12.98
1204 Chamberlain 10
Memphis, TN 38119
NFSC FBO Precision Aviation 12.93
Design Inc.
C/O Patricia Godfrey
1822 6th Ave. W.
Bradenton, FL 34205
NFSC FBO Leonel R. Felteau 11.59
and Anne L. Felteau
1578 Greyson Ridge
Marietta, GA 30062
Senen S. Santos Cust. 10.23
Imelda May Cardona
UTMA/CA
2109 Charlemagne Ave.
Long Beach, CA 90815
-77-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
U.S. Growth Fund Paul E. Moberg 9.92
(Class C) 62 Hall Rd.
Hampton, VA 23664
Susan W. Horne 7.94
2412 Catherine Dr.
Virginia Beach, VA 23454
U.S. Growth Fund None
(Institutional
Class)
World Growth Fund None
(Class A)
World Growth Fund NFSC FBO Lawrence B. Silver 12.22
(Class B) NFSC/FMTC IRA R/O BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
Carl W. Niederwimmer 6.89
301 N.W. 73rd Terrace
Gladstone, MO 64118
NFSC FBO Joan Miller 5.05
BRD-165050
4917 Waterfowl Way
Rockville, MD 20853
World Growth Fund NFSC FBO John Robertson Trst 24.21
(Class C) John Robertson Plumbing Inc.
BTJ-241857
P.O. Box 118
Burlington, KY 41005
NFSC FBO Chester M. Boltwood 22.98
and Karen A. Boltwood
BNW-302864
828 Cobblestone Cir.
Modesto, CA 95355
NFSC FBO Garold A. Nest 10.12
BRE-136204
6225 Shilo Road
Alpharetta, GA 30202
-78-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
World Growth Fund Paul E. Moberg 7.74
(Class C) 62 Hall Rd.
Hampton, VA 23664
Susan W. Horne 6.59
2412 Catherine Dr.
Burlington NC 27215
Eileen Shiman 6.32
3625 Yale Dr.
Santa Rosa, CA 95405
World Growth Fund None
(Institutional
Class)
New Pacific Fund None
(Class A)
New Pacific Fund NFSC FBO Lawrence B. Silver 22.82
(Class B) NFSC/FMTC IRA R/O BRD-983756
1800 Linglestown Rd. Ste. 404
Harrisburg, PA 17110
Kenneth D. Willis M.D. 8.76
1506 Olive Dr.
Huntsville, AL 35801
New Pacific Fund NFSC FBO Chester M. Boltwood 26.24
(Class C) and Karen A. Boltwood
BNW-302864
828 Cobblestone Cir.
Modesto, CA 95355
NFSC FBO Garold A. Nest 19.55
BRE-136204
6225 Shilo Road
Alpharetta, GA 30202
Paul E. Moberg 19.50
62 Hall Rd.
Hampton, VA 23664
-79-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
New Pacific Fund Timothy H. Keyes and 6.56
(Class C) Gwendolyn C. Campbell JTWROS
C/O Expatriate Timothy H. Keyes
P.O. Box 4381
Houston, TX 77210
Charles H. Stephens 6.37
2413 Jenan Rd.
Virginia Beach, VA 23454
Edward K. Robinson and 5.22
Dianne McKenzie JTWROS
11999 W. Florida
Boise, ID 83709
New Pacific Fund None
(Institutional
Class)
Federal Bond Fund None
(Class A)
Federal Bond Fund Irene E. Hall 7.75
(Class B) 5503 Monticello Ave.
Dallas, TX 75206
Federal Bond Fund William H. Lambert 16.53
(Class C) 7775 Chaple Ridge
Memphis, TN 38018
Eileen Shiman 16.00
3625 Yale Dr.
Santa Rosa, CA 95405
Federal Bond Fund None
(Institutional
Class)
Corporate Income Fund None
(Class A)
-80-
<PAGE>
Fund Name and Address of Shareholder Percentage Held
- ---- ------------------------------- ---------------
Corporate Income Fund None
(Class B)
Corporate Income Fund None
(Class C)
Corporate Income Fund None
(Institutional
Class)
-81-
<PAGE>
EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes and
for shareholders of classes of other funds in the Delaware Group are set forth
in the relevant prospectuses for such classes. The following supplements that
information. The Funds may modify, terminate or suspend the exchange privilege
upon 60 days' notice to shareholders.
All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds in the Delaware
Group. Exchange instructions must be signed by the record owner(s) exactly as
the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.
Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued
or their investment dealers of record may exchange shares by telephone for
shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800- 523-1918 or, in the case of shareholders of
the Institutional Class, their Client Services Representative at 800- 828-5052
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and the Funds reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
-82-
<PAGE>
As described in the Funds' Prospectuses, neither the Funds nor the
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares
which are reasonably believed to be genuine.
Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Funds will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group funds from Timing Firms. The Funds reserve the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of a Fund within two weeks of an earlier exchange
request out of such Fund, or (ii) makes more than two exchanges out of a Fund
per calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1/4 of 1% of a Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1) Decatur
Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Group
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Group funds not listed above may not be reinvested
back into that Timing Account. The Funds reserve the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
time pattern (as described above).
The Funds also reserve the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Funds would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Funds receive or anticipate simultaneous orders affecting significant portions
of the Funds' assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized brokers
of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks issued
by emerging growth companies exhibiting strong capital appreciation potential.
-83-
<PAGE>
Value Fund seeks capital appreciation by investing primarily in common
stocks whose market values appear low relative to their underlying value or
future potential.
DelCap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
Government securities and commercial paper.
U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.
Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax-Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from federal
income tax, by investing in short-term municipal obligations, while maintaining
a stable net asset value.
Tax-Free Pennsylvania Fund seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth without
undue risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
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securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.
Delaware Group Premium Fund offers nine funds available exclusively as
funding vehicles for certain insurance company separate accounts. Equity/Income
Series seeks the highest possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while providing higher than
average dividend income. High Yield Series seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. Government
securities and commercial paper. Capital Reserves Series seeks a high stable
level of current income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term securities. Money
Market Series seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. Growth Series seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. Multiple Strategy Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed income securities that may also
provide the potential for capital appreciation.
For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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<PAGE>
GENERAL INFORMATION
The Manager is the investment manager of Adviser Funds, Inc. The
Manager or its affiliate, Delaware International Advisers Ltd., also manages the
other funds in the Delaware Group. The Manager, through a separate division,
also manages private investment accounts. While investment decisions of the
Funds are made independently from those of the other funds and accounts,
investment decisions for such other funds and accounts may be made at the same
time as investment decisions for the Funds.
Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance was received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for the Funds and for the
other mutual funds in the Delaware Group. As previously described, prior to
September 25, 1995, LNC Equity Sales, Inc. ("LNC Equity") served as the national
distributor for the Funds.
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by the
Funds for providing these services consisting of an annual per account charge of
$5.50 plus transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the directors who are not "interested persons."
The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Adviser Funds, Inc.'s
advisory relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Adviser Funds, Inc. to
delete the words "Delaware Group" from Adviser Funds, Inc.'s name.
The Chase Manhattan Bank, N.A., 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of Adviser Funds, Inc.'s securities and cash. As custodian,
Chase maintains a separate account for each Fund; receives, holds and releases
portfolio securities on account of the Funds; receives and disburses money on
behalf of each Fund; and collects and receives income and other payments and
distributions on account of each Fund's portfolio securities.
The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for Adviser
Funds, Inc. by Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania.
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Capitalization
Adviser Funds, Inc. was incorporated under the laws of Maryland on
August 12, 1993 under the name Lincoln Advisor Funds, Inc. Adviser Funds, Inc.
and all of its series (the Funds) shall continue perpetually subject to the
provisions in the Articles of Incorporation concerning termination by action of
the shareholders or by the directors by written notice to the shareholders.
The authorized capital of Adviser Funds, Inc. consists of 810,000,000
shares of Common Stock, $.01 par value, issued in separate series. Each Fund,
for federal income tax purposes, will constitute a separate entity which will be
governed by the provisions of the Articles of Incorporation. All shares of any
Fund issued and outstanding will be fully paid and non-assessable by Adviser
Funds, Inc. The assets of Adviser Funds, Inc. received for the issue or sale of
the shares of each Fund and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors of such Fund, are specially allocated to
such Fund and constitute the underlying assets of such Fund. The underlying
assets of each Fund are segregated on the books of account, and are to be
charged with the liabilities in respect to such Fund and with a share of the
general liabilities incurred by each Fund of Adviser Funds, Inc. General
liabilities of the Fund include, without limitation, director's fees,
professional expenses and printing expenses. Under no circumstances would the
assets of a Fund be used to meet liabilities which are not otherwise properly
chargeable to it. Expenses with respect to any two or more Funds are to be
allocated in proportion to the net asset value of the respective Fund except
where allocations of direct expenses can otherwise be fairly made. The officers
of Adviser Funds, Inc., subject to the general supervision of the Board of
Directors, have the power to determine which liabilities are allocable to a
given Fund or which are general or allocable to two or more Funds. Upon
redemption of shares of a Fund, the shareholder will receive proceeds solely of
the assets of such Fund. In the event of the dissolution or liquidation of
Adviser Funds, Inc., the holders of the shares of any Fund are entitled to
receive as a class the underlying assets of such Fund available for distribution
to shareholders.
Pursuant to the Articles of Incorporation, the directors may authorize
the creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) and additional classes of shares within any Fund (which would be
used to distinguish among the rights of different categories of shareholders as
might be required by future regulations or other unforeseen circumstances) with
such preferences, privileges, limitations and voting and dividend rights as the
directors may determine. All consideration received by Adviser Funds, Inc. for
shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class (subject only to
the rights of creditors of such series or class) and would be subject to the
liabilities related thereto. Pursuant to the 1940 Act, shareholders of any
additional series or class of shares would normally have to approve the adoption
of any advisory contract relating to such series or class and of any changes in
the investment policies related thereto.
Adviser Funds, Inc. does not intend to hold shareholders' meetings
unless otherwise required by law. Adviser Funds, Inc. will not be required to
hold meetings of shareholders unless the election of directors is required to be
acted on by shareholders under the 1940 Act. Shareholders have certain rights,
including the right to call a meeting upon a vote of 10% of a Fund's outstanding
shares for the purpose of voting on the removal of one or more directors or to
transact any other business.
Identifiable expenses to each Fund will be paid by that Fund. General
expenses of all Funds will be allocated on a pro-rata basis according to asset
size. Where matters must be submitted to a vote of shareholders, the holders of
a majority of shares of each Fund affected must vote affirmatively for that
class to be affected.
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All shares have equal voting rights, except as noted, no preemptive
rights, are fully transferable and, when issued, are fully paid. All shares of
the Advisers Funds, Inc. participate equally in dividends, and upon liquidation
would share equally.
The Class A Shares, Class B Shares, Class C Shares and Institutional
Class (formerly, Class D Shares) represent a proportionate interest in the
assets of each Fund of Adviser Funds, Inc. and have the same voting and other
rights and preferences, except that shares of the Institutional Classes may not
vote on matters affecting the Funds' Distribution Plans under Rule 12b-1.
Similarly, as a general matter, shareholders of Class A Shares, Class B Shares
and Class C Shares may vote only on matters affecting the 12b-1 Plan that
relates to the class of shares that they hold. However, shareholders of Class B
Shares must be given a vote on any material increase in the 12b-1 fees payable
by Class A Shares under the Plans for the Funds. General expenses of each Fund
will be allocated on a pro-rata basis to the Classes according to asset size,
except that expenses of the 12b-1 Plans of Class A, Class B and Class C Shares
will be allocated solely to those classes.
As of the close of business on May 3, 1996, the changes of the names of
the Funds were as follows: Lincoln Enterprise Portfolio to Enterprise Fund;
Lincoln U.S. Growth Portfolio to U.S. Growth Fund; Lincoln World Growth
Portfolio to World Growth Fund; Lincoln New Pacific Portfolio to New Pacific
Fund; Lincoln Government Income Portfolio to Federal Bond Fund; and Lincoln
Corporate Income Portfolio to Corporate Income Fund.
Noncumulative Voting
Fund shares have noncumulative voting rights which means that the
holders of more than 50% of the shares of Adviser Funds, Inc. voting for the
election of directors can elect all the directors if they choose to do so, and,
in such event, the holders of the remaining shares will not be able to elect any
directors.
This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.
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<PAGE>
FINANCIAL STATEMENTS
Coopers & Lybrand, L.L.P. serves as the independent auditors for
Adviser Funds, Inc. and, in its capacity as such, audits the financial
statements contained in the Annual Report. The Portfolio of Investments,
Statements of Net Assets, Statements of Operations, Statements of Changes in Net
Assets and Notes to Financial Statements, as well as the report of Coopers &
Lybrand, L.L.P., independent auditors, for the fiscal year ended October 31,
1995 are included in the Annual Report to shareholders. The financial
statements, the notes relating thereto and the report of Coopers & Lybrand,
L.L.P. listed above are incorporated by reference from the Annual Report into
this Part B.
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APPENDIX A - IRA INFORMATION
The Tax Reform Act of 1986 restructured, and in some cases eliminated,
the tax deductibility of IRA contributions. Under the Act, the full deduction
for IRAs ($2,000 for each working spouse and $2,250 for one- income couples) was
retained for all taxpayers who are not covered by an employer-sponsored
retirement plan. Even if a taxpayer (or his or her spouse) is covered by an
employer-sponsored retirement plan, the full deduction is still available if the
taxpayer's adjusted gross income is below $25,000 ($40,000 for taxpayers filing
joint returns). A partial deduction is allowed for married couples with incomes
between $40,000 and $50,000, and for single individuals with incomes between
$25,000 and $35,000. The Act does not permit deductions for contributions to
IRAs by taxpayers whose adjusted gross income before IRA deductions exceeds
$50,000 ($35,000 for singles) and who are active participants in an
employer-sponsored retirement plan. Taxpayers who were not allowed deductions on
IRA contributions still can make nondeductible IRA contributions of as much as
$2,000 for each working spouse ($2,250 for one-income couples), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for determining
the deductibility of contributions made by married individuals filing separate
returns.
As illustrated in the following tables, maintaining an IRA remains a
valuable opportunity.
For many, an IRA will continue to offer both an up-front tax break with
its tax deduction each year and the real benefit that comes with tax-deferred
compounding. For others, losing the tax deduction will impact their taxable
income status each year. Over the long term, however, being able to defer taxes
on earnings still provides an impressive investment opportunity--a way to have
money grow faster due to tax-deferred compounding.
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<PAGE>
Even if your IRA contribution is no longer deductible, the benefits of
saving on a tax-deferred basis can be substantial. The following tables
illustrate the benefits of tax-deferred versus taxable compounding. One table
reflects a constant 10% rate of return, and one table reflects a constant 7%
rate of return compounded annually, with the reinvestment of all proceeds. The
tables do not take into account any fees. Of course, earnings accumulated in
your IRA will be subject to tax upon withdrawal. If you choose a mutual fund
with a fluctuating net asset value, like any Fund, your bottom line at
retirement could be lower--it could also be much higher.
$2,000 Invested Annually Assuming a 10% Annualized Return
15% Tax Bracket Single - $0-$24,000
---------------
Joint - $0-$40,100
How Much You
End of Cumulative How Much You Have With Full
Year Investment Amount Have Without IRA IRA Deduction
---- ----------------- ---------------- -------------
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704
[Without IRA--investment of $1,700 ($2,000 less 15%) earning 8.5%
(10% less 15%)]
28% Tax Bracket Single - $24,001-$58,150
---------------
Joint - $40,101-$96,900
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 7.2% (10% less
28%)] [With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning
10%]
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31% Tax Bracket Single - $58,151-$121,300
--------------- Joint - $96,901-$147,700
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.9% (10% less
31%)] [With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning
10%]
36% Tax Bracket* Single - $121,301-$263,750
---------------
Joint - $147,701-$263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 6.4% (10% less
36%)] [With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning
10%]
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39.6% Tax Bracket* Single - over $263,750
-----------------
Joint - over $263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 6.04% (10% less
39.6%)] [With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%)
earning 10%]
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
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$2,000 Invested Annually Assuming a 7% Annualized Return
15% Tax Bracket Single - $0-$24,000
---------------
Joint - $0-$40,100
How Much You
End of Cumulative How Much You Have With Full
Year Investment Amount Have Without IRA IRA Deduction
---- ----------------- ---------------- -------------
1 $ 2,000 $ 1,801 $ 2,140
5 10,000 10,143 12,307
10 20,000 23,685 29,567
15 30,000 41,764 53,776
20 40,000 65,901 87,730
25 50,000 98,126 135,353
30 60,000 141,149 202,146
35 70,000 198,587 295,827
40 80,000 275,271 427,219
[Without IRA--investment of $1,700 ($2,000 less 15%) earning 5.95% (7% less
15%)]
28% Tax Bracket Single - $24,001-$58,150
---------------
Joint - $40,101-$96,900
End of Cumulative How Much You How Much You Have with Full
Year Investment Amount Have Without IRA No Deduction IRA Deduction
---- ----------------- ---------------- ------------ -------------
1 $ 2,000 $ 1,513 $ 1,541 $ 2,140
5 10,000 8,365 8,861 12,307
10 20,000 19,061 21,288 29,567
15 30,000 32,738 38,719 53,776
20 40,000 50,227 63,166 87,730
25 50,000 72,590 97,454 135,353
30 60,000 101,187 145,545 202,146
35 70,000 137,754 212,995 295,827
40 80,000 184,512 307,598 427,219
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 5.04% (7% less
28%)] [With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning
7%]
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31% Tax Bracket Single - $58,151-$121,300
--------------- Joint - $96,901-$147,700
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,447 $ 1,477 $ 2,140
5 10,000 7,967 8,492 12,307
10 20,000 18,052 20,401 29,567
15 30,000 30,820 37,106 53,776
20 40,000 46,985 60,534 87,730
25 50,000 67,448 93,394 135,353
30 60,000 93,355 139,481 202,146
35 70,000 126,152 204,121 295,827
40 80,000 167,673 294,781 427,219
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 4.83% (7% less
31%)] [With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning
7%]
36% Tax Bracket* Single - $121,301-$263,750
---------------
Joint - $147,701-$263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,337 $ 1,370 $ 2,140
5 10,000 7,313 7,876 12,307
10 20,000 16,418 18,923 29,567
15 30,000 27,754 34,417 53,776
20 40,000 41,867 56,147 87,730
25 50,000 59,437 86,626 135,353
30 60,000 81,312 129,373 202,146
35 70,000 108,545 189,329 295,827
40 80,000 142,451 273,420 427,219
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 4.48% (7% less
36%)] [With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning
7%]
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<PAGE>
39.6% Tax Bracket* Single - over $263,750
-----------------
Joint - over $263,750
End of Cumulative How Much You How Much You Have with Full IRA
Year Investment Amount Have Without IRA No Deduction Deduction
---- ----------------- ---------------- ------------ ---------
1 $ 2,000 $ 1,259 $ 1,293 $ 2,140
5 10,000 6,851 7,433 12,307
10 20,000 15,277 17,859 29,567
15 30,000 25,643 32,481 53,776
20 40,000 38,392 52,989 87,730
25 50,000 54,075 81,753 135,353
30 60,000 73,366 122,096 202,146
35 70,000 97,094 178,679 295,827
40 80,000 126,281 258,040 427,219
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 4.23% (7% less
39.6%)] [With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%)
earning 7%]
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
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<PAGE>
<TABLE>
<CAPTION>
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED ANNUALLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,595 $ 3,719 $ 3,898 $ 4,008 $ 4,522 $ 5,187
15 4,820 5,072 5,441 5,675 6,799 8,354
20 6,463 6,916 7,596 8,034 10,224 13,455
30 11,618 12,861 14,803 16,102 23,117 34,899
40 20,884 23,916 28,849 32,272 52,266 90,519
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED ANNUALLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
10 $ 28,006 $ 28,581 $ 29,400 $ 29,904 $ 32,192 $ 35,062
15 49,514 51,067 53,314 54,714 61,264 69,899
20 78,351 81,731 86,697 89,838 104,978 126,005
30 168,852 180,566 198,360 209,960 269,546 361,887
40 331,537 364,360 415,973 450,711 641,631 973,704
</TABLE>
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
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<PAGE>
<TABLE>
<CAPTION>
$2,000 SINGLE INVESTMENT AT A RETURN OF 7% COMPOUNDED MONTHLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,050 $ 3,128 $ 3,239 $ 3,307 $ 3,621 $ 4,019
15 3,767 3,911 4,121 4,253 4,872 5,698
20 4,652 4,891 5,245 5,469 6,555 8,077
30 7,094 7,650 8,493 9,043 11,867 16,233
40 10,820 11,963 13,753 14,953 21,483 32,623
$2,000 INVESTED ANNUALLY AT A RETURN OF 7% COMPOUNDED MONTHLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
10 $ 25,411 $ 25,788 $ 26,322 $ 26,649 $ 28,125 $ 29,953
15 42,752 43,708 45,079 45,927 49,833 54,851
20 64,166 66,117 68,947 70,716 79,042 90,148
30 123,271 129,187 137,973 143,581 171,220 211,120
40 213,412 227,820 249,750 264,078 338,096 454,233
</TABLE>
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $250,000. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
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<PAGE>
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing
$2,000 each January--the earliest opportunity--compared to contributing on April
15th of the following year--the latest, for each tax year.
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
Compounded returns for the longest period of time is the key. The above
illustration assumes a 10% rate of return and the reinvestment of all proceeds.
And it pays to shop around. If you get just 2% more per year, it can
make a big difference when you retire. A constant 8% versus 10% return,
compounded monthly, illustrates the point. This chart is based on a yearly
investment of $2,000 on January 1. After 30 years the difference can mean as
much as 50% more!
8% Return 10% Return
--------- ----------
10 years $31,291 $35,602
30 years $244,692 $361,887
The statistical exhibits above are for illustration purposes only and
do not reflect the actual performance for any Fund either in the past or in the
future.
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<PAGE>
APPENDIX B - THE EQUITY MARKET
The Company Life Cycle
Traditional business theory contends that a typical company progresses
through basically four stages of development, keyed closely to a firm's sales.
Often an equity mutual fund will focus on companies in a certain development
phase.
1. Emerging Growth--a period of
experimentation in which the company builds
awareness of a new product or firm.
2. Accelerated Development--a period
of rapid growth with potentially high profitability
and acceptance of the product.
3. Maturing Phase--a period of
diminished real growth due to dependence on
replacement or sustained product demand.
4. Cyclical Stage--a period in which a
company faces a potential saturation of demand for
its product. At this point, a firm either diversifies
or becomes obsolete.
Hypothetical Corporate Life Cycle
Hypothetical Corporate Life Cycle Chart shows in a line illustration,
the stages that a typical company would go through, beginning with the emerging
state where sales growth continues at a steep pace to the mature phase where
growth levels off to the cyclical stage where sales show more definitive highs
and lows.
The above chart illustrates the path traditionally followed by
companies that successfully survive the growth sequence.
