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STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
DELAWARE GROUP ADVISER FUNDS, INC.
U.S. GROWTH FUND
OVERSEAS EQUITY FUND
NEW PACIFIC FUND
1818 Market Street
Philadelphia, PA 19103
For more information about
the Institutional Classes:
800-510-4015
For Prospectus, Performance and Information on
Existing Accounts of Class A Shares, Class B
Shares and Class C Shares:
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY) Nationwide 800-362-7500
Delaware Group Adviser Funds, Inc. ("Adviser Funds, Inc.") is a
professionally-managed mutual fund of the series type which currently offers
three series of shares: U.S. Growth Fund, Overseas Equity Fund and New Pacific
Fund (individually, a "Fund", and collectively, the "Funds").
Each Fund of Adviser Funds, Inc. offers three retail classes: Class A
Shares, Class B Shares and Class C Shares (together referred to as the "Fund
Classes"). Each Fund also offers an institutional class: (collectively, the
"Institutional Classes"). Each class may be referred to individually as a
"Class" and collectively as the "Classes."
This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectuses for
the Fund Classes dated March 1, 1999 and the current Prospectuses for the
Institutional Classes dated March 1, 1999, as they may be amended from time to
time. Part B should be read in conjunction with the respective Class'
Prospectus. Part B is not itself a prospectus but is, in its entirety,
incorporated by reference into each Class' Prospectus. A prospectus relating to
the Fund Classes and a prospectus relating to the Institutional Classes may be
obtained by writing or calling your investment dealer or by contacting each
Fund's national distributor, Delaware Distributors, L.P. (the "Distributor"), at
the above address or by calling the above phone numbers. The Funds' financial
statements, the notes relating thereto, the financial highlights and the report
of independent auditors are incorporated by reference from the Annual Report
into this Part B. The Annual Report will accompany any request for Part B. The
Annual Report can be obtained, without charge, by calling 800-523-1918.
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TABLE OF CONTENTS
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Cover Page
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Investment Restrictions and Policies
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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 Exchange
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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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General Information
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Appendix A--Description of Ratings
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Appendix B--Investment Objectives of the Other Funds in the
Delaware Investments Family
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Financial Statements
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INVESTMENT RESTRICTIONS 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.
Lower-Rated Debt Securities
U.S. Growth 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 Appendix A -
Description of Ratings in this Part B.
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 the 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 the Fund. In considering
investments for the 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.
The 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.
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
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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.
Foreign Investments
Overseas Equity Fund and New Pacific Fund may invest substantially all
of their assets in foreign investments, and U.S. Growth Fund may invest 20% of
its assets in foreign securities. 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.
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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.
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 Depositary Receipts and European Depositary 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
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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
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.
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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.
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
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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.
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, each Fund 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
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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, below.
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
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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.
Foreign Currency Transactions. U.S. Growth Fund, Overseas Equity Fund
and New Pacific 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.
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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.
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, U.S. Growth
Fund, Overseas Equity Fund and New Pacific 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
U.S. Growth Fund, Overseas Equity Fund and New Pacific 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.
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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
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 U.S. Growth Fund, Overseas Equity
Fund or New Pacific 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
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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 Investment Company Act of 1940 (the "1940 Act") and,
accordingly, will not treat them as 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
102% cash collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market
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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.
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
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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
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
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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.
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 available from Delaware Investments have obtained an
exemption (the "Order") from the joint-transaction prohibitions of Section 17(d)
of the 1940 Act to allow Delaware Investments 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 102%
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 (the "1933 Act"). 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).
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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
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.
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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 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 (the "1934
Act").
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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 Adviser Funds, Inc. to be considered an underwriter as that term is
defined under the 1933 Act, 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;
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
-19-
<PAGE>
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 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;
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.
-20-
<PAGE>
PERFORMANCE INFORMATION
From time to time, each Fund may state total return for its Classes 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 periods, as applicable. Each
Fund may also advertise aggregate and average compounded rate of return
information of each Class over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the Fund
Classes for a description of the Limited CDSC and the limited instances in which
it applies. All references to a CDSC in this Performance Information section
will apply to Class B Shares or Class C Shares.
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.
-21-
<PAGE>
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, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
Each Fund may also state total return performance for its Classes in
the form of an average annual return. This average annual return figure will be
computed by taking the sum of a Class' annual returns, then dividing that figure
by the number of years in the overall period indicated. The computation will
reflect the impact of the maximum front-end sales charge or CDSC, if any, paid
on the illustrated investment amount against the first year's return. From time
to time, each Fund may quote actual total return performance for its Classes 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
generally-accepted 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.
The average annual total return quotations through October 31, 1998 are
shown below for each Class and are computed as described above. Returns for
Class A Shares at offer reflects the maximum front-end sales charge of 5.75%
paid on the purchase of shares; returns for Class A Shares at net asset value
(NAV) does not reflect the payment of any front-end sales charge. Returns 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, 1998; returns for Class B Shares and Class C Shares excluding
deferred sales charge assumes the shares were not redeemed on October 31, 1998
and therefore does not reflect the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
-22-
<PAGE>
Average Annual Total Return(1)
<TABLE>
<CAPTION>
===================================================================================================================================
Class A (2)(3) Class A (2) Class B Class B Class C Class C Institutional
U.S. at offer at NAV including excluding including excluding Class
Growth (Inception (Inception CDSC CDSC (4) CDSC CDSC (Inception
Fund 12/3/93) 12/3/93) (Inception (Inception (Inception (Inception 2/3/94)
3/29/94) 3/29/94) 5/23/94) 5/23/94)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
10/31/98 4.14% 10.52% 6.25% 9.62% 9.35% 10.04% 10.80%
- -----------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 15.53% 17.84% 16.33% 16.98% 17.11% 17.11% 18.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Life of Fund 14.19% 15.58% 15.69% 15.95% 17.71% 17.71% 15.26%
===================================================================================================================================
<CAPTION>
===================================================================================================================================
Overseas Class A (2)(3) Class A (2) Class B Class B Class C Class C Institutional
Equity Fund at offer at NAV including excluding including excluding Class
(Inception (Inception CDSC CDSC (4) CDSC CDSC (Inception
12/3/93) 12/3/93) (Inception (Inception (Inception (Inception 2/3/94)
3/29/94) 3/29/94) 5/10/94) 5/10/94)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
10/31/98 -17.93% -12.95% -17.14% -13.66% -14.36% -13.67% -12.82%
- -----------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 -1.28% 0.71% -0.80% -0.04% -0.80% -0.80% 0.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Life of Fund 1.98% 3.22% 1.24% 1.58% 1.63% 1.63% 2.31%
===================================================================================================================================
<CAPTION>
===================================================================================================================================
New Pacific Class A (2)(3) Class A (2) Class B Class B Class C Class C Institutional
Fund at offer at NAV including excluding including excluding Class
(Inception (Inception CDSC CDSC (4) CDSC CDSC (Inception
12/3/93) 12/3/93) (Inception (Inception (Inception (Inception 2/3/94)
3/29/94) 3/29/94) 7/7/94) 7/7/94)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year ended
10/31/98 -40.51% -36.85% -40.17% -37.05% -37.80% -37.18% -36.39%
- -----------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 -20.20% -18.61% -19.88% -19.08% -19.16% -19.16% -18.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Life of Fund -14.75% 13.71% -14.67% -14.32% -15.60% -15.60% -15.70%
===================================================================================================================================
</TABLE>
(1) The Manager has committed to waive a portion of its annual compensation or
pay expenses to limit the operating expenses of the Funds. See Investment
Management Agreements. In the absence of such waivers or payments,
performance would have been affected negatively.
(2) The 12b-1 fees payable by each Fund for Class A Shares were at a rate equal
to 0.35% of the average daily net assets. Beginning May 6, 1996, the
payments were set at 0.30%. Performance calculations for periods after May
6, 1996 reflect the lower 12b-1 fee rate.
(3) Effective November 2, 1998, the maximum front-end sales charge was
increased from 4.75% to 5.75%. The above performance figures are calculated
using 5.75% as the applicable sales charge for all time periods.
(4) Effective November 2, 1998, the CDSC schedule for Class B Shares is as
follows: (i) 5% if shares are redeemed within one year of purchase (ii) 4%
if shares are redeemed during the second year of purchase; (iii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iv) 2% if shares are redeemed during the fifth year following purchase;
(v) 1% if shares are redeemed during the sixth year following purchase; and
(vi) 0% thereafter. The above performance figures are calculated using the
new applicable CDSC schedule.
-23-
<PAGE>
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.
From time to time, each Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of a Fund (or Fund Class) may be compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc., or to the
S&P 500 Index, the Dow Jones Industrial Average, the Morgan Stanley Capital
International (MSCI), Europe, Australia and Far East (EAFE) Index, the MSCI
Emerging Markets Free Index, or the Salomon Brothers World Government Bond
Index.
Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare a Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500 and
the Dow Jones Industrial Average are industry-accepted unmanaged indices of
generally-conservative securities used for measuring general market performance.
Similarly, the MSCI EAFE Index, the MSCI Emerging Markets Free Index, and the
Salomon Brothers World Government Bond Index are industry-accepted unmanaged
indices of equity securities in developed countries and global debt securities,
respectively, used for measuring general market performance. The total return
performance reported for these indices will reflect the reinvestment of all
distributions on a quarterly basis and market price fluctuations. The indices do
not take into account any sales charges or other fees. A direct investment in an
unmanaged index is not possible.
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 industry rate and yield
information on all industry available fixed-income securities, as reported
weekly by The Bond Buyer, may also be used in preparing comparative
illustrations.
Each Fund may also promote its Classes' yield and/or total return
performance and use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc., IBC/Donoghue's Money Market Report and
Morningstar, Inc.
-24-
<PAGE>
The performance of multiple indices compiled and maintained by
statistical research firms, such as Morgan Stanley, Salomon Brothers and Lehman
Brothers, may be combined to create a blended performance result for comparative
purposes. Generally, the indices selected will be representative of the types of
securities in which the Funds may invest and the assumptions that were used in
calculating the blended performance will be described.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Funds may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Funds. The Funds may also compare performance to that of other
compilations or indices that may be developed and made available in the future.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments or global or international investments), economic and
political conditions, the relationship between sectors of the economy and the
economy as a whole, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills. From time to time advertisements, sales literature, communications to
shareholders or other materials may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. In
addition, selected indices may be used to illustrate historic performance of
selected asset classes. The Funds may also include in advertisements, sales
literature, communications to shareholders or other materials, charts, graphs or
drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to, domestic and
international stocks, and/or bonds, treasury bills and shares of a Fund. In
addition, advertisements, sales literature, communications to shareholders or
other materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning (such as information on Roth IRAs and
Educational IRAs) and investment alternatives to certificates of deposit and
other financial instruments. Such sales literature, communications to
shareholders or other materials may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and periodicals.
Materials may also include discussions of other Funds, products, and services.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare
-25-
<PAGE>
the historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may be. Measures of volatility and correlation may be calculated using
averages of historical data. A Fund may advertise its current interest rate
sensitivity, duration, weighted average maturity or similar maturity
characteristics. Advertisements and sales materials relating to a Fund may
include information regarding the background and experience of its portfolio
managers.
The following tables present examples, for purposes of illustration
only, of cumulative total return performance for each Class through October 31,
1998. For these purposes, the calculations reflect maximum sales charges, if
any, and assume the reinvestment of any capital gains distributions and income
dividends paid during the indicated periods. The performance does not reflect
any income taxes payable by shareholders on the reinvested distributions
included in the calculations. The performance of Class A Shares reflects the
maximum front-end sales charge paid on the purchase of shares but may also be
shown without reflecting the impact of any front-end sales charge. The
performance of Class B Shares and Class C Shares is calculated both with the
applicable CDSC included and excluded.
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.
Cumulative Total Return(1)
<TABLE>
<CAPTION>
=================================================================================================================================
U.S. Growth Class A (2)(3) Class B Class B Class C Class C Institutional
Fund at offer including CDSC excluding including excluding Class
(Inception (Inception CDSC (4) CDSC CDSC (Inception
12/3/93) 3/29/94) (Inception (Inception (Inception 2/3/94)
3/29/94) 5/23/94) 5/23/94)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
10/31/98 -12.69% -12.21% -7.59% -3.22% -7.29% -7.34%
- ---------------------------------------------------------------------------------------------------------------------------------
6 months ended
10/31/98 -14.19%(5) -13.88% -9.35% -9.91% -9.00% -8.84%
- ---------------------------------------------------------------------------------------------------------------------------------
9 months ended
10/31/98 -0.86% -0.42% -4.58% 3.97% -4.97% 5.48%
- ---------------------------------------------------------------------------------------------------------------------------------
1 year ended
10/31/98 4.14% 6.25% 9.62% 9.35% 10.04% 10.80%
- ---------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 54.22% 57.42% 60.08% 60.61% 60.61% 65.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Life of Fund 91.91% 95.38% 97.38% 106.38% 106.38% 96.10%
=================================================================================================================================
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Overseas Equity Class A (2)(3) Class B Class B Class C Class C Institutional
Fund at offer including CDSC excluding including excluding Class
(Inception (Inception CDSC (4) CDSC CDSC (Inception
12/3/93) 3/29/94) (Inception (Inception (Inception 2/3/94)
3/29/94) 5/10/94) 5/10/94)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
10/31/98 -13.36% -12.82% -8.23% -9.24% -8.32% -8.03%
- --------------------------------------------------------------------------------------------------------------------------------
6 months ended
10/31/98 -20.80%(5) -20.54% -16.35% -17.26% -16.42% -15.99%
- --------------------------------------------------------------------------------------------------------------------------------
9 months ended
10/31/98 -12.77% -12.62% -8.02% -9.03% -8.11% -7.37%
- --------------------------------------------------------------------------------------------------------------------------------
1 year ended
10/31/98 -17.93% -17.14% -13.66% -14.36% -13.67% -12.82%
- --------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 -3.78% -2.37% -0.12% -0.24% -0.24% 1.64%
- --------------------------------------------------------------------------------------------------------------------------------
Life of Fund 10.13% 5.85% 7.45% 7.50% 7.50% 11.45%
================================================================================================================================
<CAPTION>
================================================================================================================================
New Pacific Fund Class A (2)(3) Class B Class B Class C Class C Institutional
at offer including CDSC excluding including excluding Class
(Inception (Inception CDSC (4) CDSC CDSC (Inception
12/3/93) 3/29/94) (Inception (Inception (Inception 2/3/94)
3/29/94) 7/7/94) 7/7/94)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 months ended
10/31/98 -6.91% -6.21% -1.27% -2.29% -1.30% -1.06%
- --------------------------------------------------------------------------------------------------------------------------------
6 months ended
10/31/98 -27.65%(5) 27.19% -23.36% -24.17% -23.40% -22.99%
- --------------------------------------------------------------------------------------------------------------------------------
9 months ended
10/31/98 -20.01% 25.60% -21.68% -22.47% -21.69 -21.04%
- --------------------------------------------------------------------------------------------------------------------------------
1 year ended
10/31/98 -40.51% -40.17% -37.05% -37.80% -37.18% -36.39%
- --------------------------------------------------------------------------------------------------------------------------------
3 years ended
10/31/98 -49.18% -48.56% -47.01% -47.18% -47.18% -45.19%
- --------------------------------------------------------------------------------------------------------------------------------
Life of Fund -54.33% -51.76% -14.32% -51.94% -51.94% -55.52%
================================================================================================================================
</TABLE>
(1) The Manager has committed to waive a portion of its annual compensation or
pay expenses to limit the operating expenses of the Funds. See Investment
Management Agreements. In the absence of such waivers or payments,
performance would have been affected negatively.
(2) The 12b-1 fees payable by each Fund for Class A Shares were at a rate equal
to 0.35% of the average daily net assets. Beginning May 6, 1996, the
payments were set at 0.30%. Performance calculations for periods after May
6, 1996 reflect the lower 12b-1 fee rate.
(3) The maximum front-end sales charge was increased from 4.75% to 5.75%
effective November 2, 1998. The above performance figures are calculated
using 5.75% as the applicable sales charge for all time periods.
<PAGE>
(4) Effective November 2, 1998, the CDSC schedule for Class B Shares is as
follows: (i) 5% if shares are redeemed within one year of purchase; (ii) 4%
if shares are redeemed during the second years of purchase; (iii) 3% if
shares are redeemed during the third or fourth year following purchase;
(iv) 2% if shares are redeemed during the fifth year following purchase;
(v) 1% if shares are redeemed during the sixth year following purchase; and
(vi) 0% thereafter. The above performance figures are calculated using the
new applicable CDSC schedule.
(5) For the six months ended October 31, 1998, cumulative total return at net
asset value for U.S. Growth Fund A Class was -8.95%, Overseas Equity Fund A
Class was -15.96% and New Pacific Fund A Class was -23.28%.
-27-
<PAGE>
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds available from
Delaware Investments, 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 and
Sub-Adviser's overriding investment philosophy and how that philosophy impacts
the Funds', and other Delaware Investments 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
affiliates of the Manager, including the number of such clients serviced by such
affiliates.
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. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Investments 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 Investment Plans for a complete description of these
services, including restrictions or limitations.
-28-
<PAGE>
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.
Investment Price Per Number of
Amount 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 stock or bond fund available from
Delaware Investments.
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding. Each Fund may include illustrations showing the power
of compounding in advertisements and other types of literature.
-29-
<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.
During the past three fiscal years, the aggregate dollar amounts of
brokerage commissions paid by U.S. Growth Fund, Overseas Equity Fund and New
Pacific Fund were as follows:
October 31,
1998 1997 1996
---- ---- ----
U.S. Growth Fund $120,741 $ 85,141 $ 55,744
Overseas Equity Fund $ 58,354 $ 30,918 $ 31,960
New Pacific Fund $155,362 $264,369 $236,538
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.
During the fiscal year ended October 31, 1998, portfolio
transactions of U.S. Growth Fund, Overseas Equity Fund and New Pacific Fund in
the amounts of $116,941,879,$16,830,762 and $32,736,585, respectively, resulting
in brokerage commissions of $120,741, $58,354 and $155,362, respectively, were
directed to brokers for brokerage and research services provided.
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As provided in the 1934 Act 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 available from Delaware Investments. 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.
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 Conduct Rules 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 expenses of the funds available from Delaware Investments such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of shares of such 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 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 1934 Act, an affiliate of the Manager may not retain compensation for
effecting transactions on a national securities exchange for the Funds unless
Adviser Funds, Inc. has expressly authorized the retention of
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such compensation in a written contract executed by 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.
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 the particular fiscal year by the monthly average of
the value of the portfolio securities owned by the Fund, during the particular
fiscal year, exclusive of securities whose maturities at the time of acquisition
are one year or less. 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 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.
During the past two fiscal years, the portfolio turnover rates of
the Funds were as follows:
October 31,
1998 1997
---- ----
U.S. Growth Fund 135% 144%
Overseas Equity Fund 87% 18%
New Pacific Fund 188% 178%
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PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's shares
and has agreed to use its best efforts to sell shares of each Fund. See the
Prospectuses for information on how to invest. Shares of each Fund are offered
on a continuous basis and may be purchased through authorized investment dealers
or directly by contacting Adviser Funds, Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such Classes
generally must be at least $100. The initial and subsequent investment minimums
for Class A Shares will be waived for purchases by officers, directors and
employees of any Delaware Investments fund, the Manager or any of the Manager's
affiliates if the purchases are made pursuant to a payroll deduction program.
Shares purchased pursuant to the Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act and shares purchased in connection with an Automatic
Investing Plan are subject to a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Accounts opened under the Delaware Investments Asset
Planner service are subject to a minimum initial investment of $2,000 per Asset
Planner Strategy selected. There are no minimum purchase requirements for 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 purchase
order for 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 $50,000 or more in
Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a CDSC.
Selling dealers are responsible for transmitting orders promptly. Adviser
Funds, Inc. reserves the right to reject any order for the purchase of its
shares of either Fund if in the opinion of management such rejection is in such
Fund's best interest. If a purchase is canceled because your check is returned
unpaid, you are responsible for any loss incurred. A Fund can redeem shares from
your account(s) to reimburse itself for any loss, and you may be restricted from
making future purchases in any of the funds in the Delaware Investments family.
Each Fund reserves the right to reject purchase orders paid by third-party
checks or checks that are not drawn on a domestic branch of a United States
financial institution. If a check drawn on a foreign financial institution is
accepted, you may be subject to additional bank charges for clearance and
currency conversion.
Each Fund also reserves the right, following shareholder notification, to
charge a service fee on non- retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the
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minimum initial investment may be subject to involuntary redemption without the
imposition of a CDSC or Limited CDSC if he or she redeems any portion of his or
her account.
The NASD has adopted amendments to its Conduct Rules, as amended,
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 5.75%; however, lower front-end sales charges
apply for larger purchases. See the table in the Fund Classes' Prospectus. Class
A Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment.
Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 5% if shares are redeemed within one year of purchase; (ii) 4% if shares
are redeemed during the second year of purchase; (iii) 3% if shares are redeemed
during the third or fourth year following purchase; (iv) 2% if shares are
redeemed during the fifth year following purchase; and (v) 1% if shares are
redeemed during the sixth year following purchase. 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. See Automatic Conversion of Class B Shares, below.
Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C Shares
are also subject to annual 12b-1 Plan expenses for the life of the investment
which are equal to those to which Class B Shares are subject.
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. See Plans Under Rule 12b-1 for the Fund Classes under
Purchasing Shares, and Determining Offering Price and Net Asset Value in this
Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares or in the case of any retirement plan
account including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Adviser Funds, Inc. for any certificate issued. A shareholder may be subject
to fees for replacement of a lost or stolen certificate, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact a Fund for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.
Alternative Purchase Arrangements
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
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should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of 0.35% (currently no more than
0.30%) 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% (0.25% of
which are service fees to be paid to the Distributor, dealers or others for
providing personal service and/or maintaining shareholder accounts) of average
daily net assets of the respective Class. Class B Shares will automatically
convert to Class A Shares at the end of approximately eight years after purchase
and, thereafter, be subject to annual 12b-1 Plan expenses of up to a maximum of
0.35% (currently no more than 0.30%) of average daily net assets of such shares.
Unlike Class B Shares, Class C Shares do not convert to another Class.
The higher 12b-1 Plan expenses on Class B Shares and Class C Shares will
be offset to the extent a return is realized on the additional money initially
invested upon the purchase of such shares. However, there can be no assurance as
to the return, if any, that will be realized on such additional money. In
addition, the effect of any return earned on such additional money will diminish
over time. In comparing Class B Shares to Class C Shares, investors should also
consider the duration of the annual 12b-1 Plan expenses to which each of the
classes is subject and the desirability of an automatic conversion feature,
which is available only for Class B Shares.
For the distribution and related services provided to, and the expenses
borne on behalf of, the Funds, the Distributor and others will be paid, in the
case of Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and Class C Shares, from the
proceeds of the 12b- 1 Plan fees and, if applicable, the CDSC incurred upon
redemption. Financial advisers may receive different compensation for selling
Class A Shares, Class B Shares and Class C Shares. Investors should understand
that the purpose and function of the respective 12b-1 Plans and the CDSCs
applicable to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A Shares in that
such fees and charges are used to finance the distribution of the respective
Classes. See Plans Under Rule 12b-1 for the Fund Classes.
Dividends, if any, paid on Class A Shares, Class B Shares and Class C
Shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except that the additional amount of 12b-1
Plan expenses relating to Class B Shares and Class C Shares will be borne
exclusively by such shares. See Determining Offering Price and Net Asset Value.
Class A Shares
Purchases of $50,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the table in the Fund Classes'
Prospectuses, and may include a series of purchases over a 13-month period under
a Letter of Intention signed by the purchaser. See Special Purchase Features -
Class A Shares, below for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.
From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may reallow to dealers up to the full amount of the front-end sales.
In addition, certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services and who
increase sales of Delaware Investments funds may receive
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an additional commission of up to 0.15% of the offering price in connection with
sales of Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws. Dealers who receive 90% or more of
the sales charge may be deemed to be underwriters under the 1933 Act.
Dealer's Commission
As described in the Prospectuses, 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.
For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other Delaware Investments
funds as to which a Limited CDSC applies (see Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange) may be aggregated with those of the Class A Shares of 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 Investments funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth above, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of Class B Shares or Class C
Shares of a Fund, even if those shares are later exchanged for shares of another
Delaware Investments fund. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange. See Waiver of Contingent
Deferred Sales Charge--Class B Shares and Class C Shares under Redemption and
Exchange for a list of the instances in which the CDSC is waived.
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 same
Fund. See Automatic Conversion of Class B Shares below. Such conversion will
constitute a tax-free exchange for federal income tax purposes. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1
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Plan expenses of up to a maximum of 0.35% (currently no more than 0.30%) of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 5% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, Class B
Shares are subject to annual 12b-1 Plan expenses and, if redeemed within six
years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Part B, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
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All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, Class C Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within 12 months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Part B. See Redemption and Exchange.
Plans Under Rule 12b-1 for the Fund Classes
Pursuant to Rule 12b-1 under the 1940 Act, 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 Classes of shares 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 Shares 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
Shares, Class B Shares 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 0.35% of average
daily net assets of Class A Shares, and up to 1% (0.25% of which are service
fees to be paid to the Distributor, dealers and others for providing personal
service and/or maintaining shareholder accounts) of each of 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.
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Effective at the close of business on May 3, 1996, the annual fee
payable on a monthly basis under Class A Shares' Plan is equal to 0.30% 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 Shares, Class B Shares and Class C Shares would be borne by such persons
without any payment 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.
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 of each Fund 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 relevant
Class' outstanding voting securities. Any amendment materially increasing the
percentage payable under the Plans must likewise be approved by a majority vote
of the relevant Class' outstanding voting securities, 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
securities of the respective Fund's B Class. 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.
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For the fiscal year ended October 31, 1998, payments from Class A
Shares, Class B Shares and Class C Shares of U.S. Growth Fund amounted to
$29,903, $32,123 and $8,495, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
U.S. Growth Fund U.S. Growth Fund U.S. Growth Fund
A Class B Class C Class
------- ------- -------
<S> <C> <C> <C>
Advertising $258 $0 $0
Annual/Semi-Annual Reports $1,114 $0 $0
Broker Trails $22,297 $7,983 $814
Broker Sales Charges $0 $12,181 $4,586
Dealer Service Expenses $0 $0 $81
Interest on Broker Sales Charges $0 $10,303 $351
Commissions to Wholesalers $1,400 $1,628 $2,367
Promotional-Broker Meetings $51 $13 $3
Promotional-Other $2,295 $15 $14
Prospectus Printing $2,429 $0 $0
Telephone $14 $0 $0
Wholesaler Expenses $45 $0 $279
</TABLE>
For the fiscal year ended October 31, 1998, payments from Class A
Shares, Class B Shares and Class C Shares of Overseas Equity Fund amounted to
$12,771, $14,000 and $1,626, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
Overseas Equity Overseas Equity Overseas Equity
Fund Fund Fund
A Class B Class C Class
------- ------- -------
<S> <C> <C> <C>
Advertising $359 $0 $0
Annual/Semi-Annual Reports $1,197 $0 $0
Broker Trails $5,748 $3,499 $497
Broker Sales Charges $0 $4,158 $838
Dealer Service Expenses $55 $7 $11
Interest on Broker Sales Charges $0 $5,642 $58
Commissions to Wholesalers $586 $566 $179
Promotional-Broker Meetings $344 $10 $1
Promotional-Other $1,485 $14 $15
Prospectus Printing $1,404 $0 $0
Telephone $20 $3 $0
Wholesaler Expenses $1,573 $101 $27
</TABLE>
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For the fiscal year ended October 31, 1998, payments from Class A
Shares, Class B Shares and Class C Shares of New Pacific Fund amounted to
$19,917, $22,596 and $1,186, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>
New Pacific Fund New Pacific Fund New Pacific Fund
A Class B Class C Class
------- ------- -------
<S> <C> <C> <C>
Advertising $342 $0 $0
Annual/Semi-Annual Reports $297 $0 $0
Broker Trails $15,291 $5,641 $331
Broker Sales Charges $0 $9,720 $616
Dealer Service Expenses $115 $0 $13
Interest on Broker Sales Charges $0 $6,097 $70
Commissions to Wholesalers $738 $1,012 $109
Promotional-Broker Meetings $17 $51 $1
Promotional-Other $1,037 $15 $14
Prospectus Printing $1,450 $0 $0
Telephone $13 $60 $0
Wholesaler Expenses $617 $0 $32
</TABLE>
Other Payments to Dealers - Class A Shares, Class B Shares and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of Fund Classes exceed certain limits as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Investments family of funds. In some instances, these
incentives or payments may be offered only to certain dealers who maintain, have
sold or may sell certain amounts of shares. The Distributor may also pay a
portion of the expense of preapproved dealer advertisements promoting the sale
of Delaware Investments fund shares.
Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of Delaware Investments fund shares, the
Distributor may, from time to time, pay to participate in dealer- sponsored
seminars and conferences, reimburse dealers for expenses incurred in connection
with preapproved seminars, conferences and advertising and may, from time to
time, pay or allow additional promotional incentives to dealers, which shall
include non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Conduct Rules will be amended such that the ability
of the Distributor to pay non-cash compensation as described above will be
restricted in some fashion. The Distributor intends to comply with the NASD's
Conduct Rules as they may be amended.
Special Purchase Features - Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under
the Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized
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investment dealers and by employee benefit plans for such entities. Individual
purchases, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member. Class A Shares may also be
purchased at net asset value by current and former officers, directors and
employees (and members of their families) of the Dougherty Financial Group LLC.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, directors and key employees of
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. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special investment products.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of a Fund; any group retirement plan (excluding defined benefit pension plans),
or such plans of the same employer, for which plan participant records are
maintained on the Retirement Financial Services, Inc. (formerly known as
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of funds in the Delaware Investments family and any stable value account
available to investment advisory clients of the Manager or its affiliates; or
(ii) is sponsored by an employer that has at any point after May 1, 1997 had
more than 100 employees while such plan has held Class A Shares of a fund in the
Delaware Investments family and such employer has properly represented to, and
received written confirmation back from, Retirement Financial Services, Inc. in
writing that it has the requisite number of employees. See Group Investment
Plans for information regarding the applicability of the Limited CDSC.
Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class Shares or purchase interests in a collective trust as a result of a change
in distribution arrangements.
Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a fund account
in connection with loans originated from accounts previously maintained by
another investment firm will also be invested at net asset value.
Adviser Funds, Inc. must be notified in advance that the trade
qualifies for purchase at net asset value.
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Allied Plans
Class A Shares are available for purchase by participants in certain
401(k) Defined Contribution Plans ("Allied Plans") which are made available
under a joint venture agreement between the Distributor and another institution
through which mutual funds are marketed and which allow investments in Class A
Shares of designated Delaware Investments funds ("eligible Delaware Investments
fund shares"), as well as shares of designated classes of non-Delaware
Investments funds ("eligible non-Delaware Investments fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied Plans.
With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares. See Combined
Purchases Privilege, below.
Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends.
See Investing by Exchange.
A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See Class A Shares.
The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non-Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or 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-
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<PAGE>
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 Delaware Investments (except shares of any
Delaware Investments fund which do not carry a front-end sales charge, CDSC or
Limited CDSC other than shares of Delaware Group Premium Fund, Inc. beneficially
owned in connection with the ownership of variable insurance products, unless
they were acquired through an exchange from a Delaware Investments fund which
carried a front-end sales charge, CDSC or Limited CDSC) previously purchased and
still held as of the date of their Letter of Intention toward the completion of
such Letter.
Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in Delaware Investments funds that are offered with a front-end
sales charge, CDSC or Limited CDSC for a 13-month period. The Transfer Agent
reserves the right to adjust the signed Letter of Intention based on this
acceptance criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments exceed the
anticipated level and equal an amount that would qualify the plan for further
discounts, any front-end sales charges will be automatically adjusted. In the
event this Letter of Intention is not 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 a Fund and other Delaware Investments funds which offer
corresponding classes of shares may also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
Delaware Investments funds (except shares of any Delaware Investments fund which
do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares
of Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Investments fund which carried a front-end sales
charge, CDSC or Limited CDSC). In addition, assets held by investment advisory
clients of the Manager or its affiliates in a stable value account may be
combined with other Delaware Investments fund holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to the Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other Delaware Investments funds
which offer such classes (except shares of any Delaware Investments fund which
do not carry a front-end sales charge, CDSC or Limited CDSC, other than shares
of Delaware Group Premium Fund, Inc. beneficially owned in connection
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with the ownership of variable insurance products, unless they were acquired
through an exchange from a Delaware Investments fund which carried a front-end
sales charge, CDSC or Limited CDSC). If, for example, any such purchaser has
previously purchased and still holds Class A Shares and/or shares of any other
of the classes described in the previous sentence with a value of $40,000 and
subsequently purchases $10,000 at offering price of additional shares of Class A
Shares, the charge applicable to the $10,000 purchase would currently be 4.75%.
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.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in Delaware Investments 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 that Fund or in Class A
Shares of any of the other funds in the Delaware Investments family, 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 Investments family offered without a front-end sales charge will be
required to pay the applicable sales charge when purchasing Class A Shares. The
reinvestment privilege does not extend to a redemption of either Class B Shares
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 intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial 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 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, based on total plan assets. If a company has
more than one plan investing in the Delaware Investments family of funds, then
the total amount invested in all plans would be used in determining the
applicable front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement Delaware Investments investment accounts if they so notify the
Fund in which they are investing in connection with each purchase. See
Retirement Plans for the Fund Classes under Investment Plans for information
about Retirement Plans.
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<PAGE>
The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from a fund in the Delaware Investments family.
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.
Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager or its affiliates and securities dealer firms with
a selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, an affiliate of the Manager, or its other
affiliates and their corporate sponsors, as well as subsidiaries and related
employee benefit plans and rollover individual retirement accounts from such
institutional advisory accounts; (d) a bank, trust company and similar financial
institution investing for its own account or for the account of its trust
customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment of the financial institution of a Rule
12b-1 Plan fee; 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 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.
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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 Institutional Classes
are reinvested in the accounts of the holders of such shares (based on the net
asset value in effect on the reinvestment date). A confirmation of each dividend
payment from net investment income will be mailed to shareholders quarterly. A
confirmation of any distributions from realized securities profits will be
mailed to shareholders in the first quarter of the 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 specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Classes at the net asset
value, at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against depreciation
in a declining market.
Reinvestment of Dividends in Other Delaware Investments Family of Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A Shares,
Class B Shares and Class C Shares may automatically reinvest dividends and/or
distributions in any of the mutual funds in the Delaware Investments, including
the Funds, in states where their shares may be sold. Such investments will be at
net asset value at the close of business on the reinvestment date without any
front-end sales charge or service fee. The shareholder must notify the Transfer
Agent in writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses.
Subject to the following limitations, dividends and/or distributions
from other funds in Delaware Investments may be invested in shares of the Funds,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. 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.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, or 403(b)(7) or 457 Deferred Compensation Plans.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all of
your investment into shares of a Fund. If you wish to open an account by
exchange, call the Shareholder Service Center for more information. All
exchanges are subject to
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the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See Redemption and Exchange for more complete information concerning
your exchange privileges.
Holders of Class A Shares of a Fund may exchange all or part of their
shares for certain of the shares of other funds in the Delaware Investments
family, including other Class A Shares, but may not exchange their Class A
Shares for Class B Shares or Class C Shares of the Fund or of any other fund in
the Delaware Investments family. Holders of Class B Shares of a Fund are
permitted to exchange all or part of their Class B Shares only into Class B
Shares of other Delaware Investments funds. Similarly, holders of Class C Shares
of a Fund are permitted to exchange all or part of their Class C Shares only
into Class C Shares of other Delaware Investments funds. Class B Shares of a
Fund and Class C Shares of a Fund acquired by exchange will continue to carry
the CDSC and, in the case of Class B Shares, the automatic conversion schedule
of the fund from which the exchange is made. The holding period of Class B
Shares of a Fund acquired by exchange will be added to that of the shares that
were exchanged for purposes of determining the time of the automatic conversion
into Class A Shares of that Fund.
Permissible exchanges into Class A Shares of a Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.
Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for either Fund to
accept for investment in Class A Shares, Class B Shares or Class C Shares,
through an agent bank, preauthorized government or private recurring payments.
This method of investment assures the timely credit to the shareholder's account
of payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.
Automatic Investing Plan--Shareholders of Class A Shares, Class B
Shares and Class C Shares may make automatic investments by authorizing, in
advance, monthly payments directly from their checking account for deposit into
their Fund account. This type of investment will be handled in either of the
following ways. (1) If the shareholder's bank is a member of the National
Automated Clearing House Association ("NACHA"), the amount of the investment
will be electronically deducted from his or her account by Electronic Fund
Transfer ("EFT"). The shareholder's checking account will reflect a debit each
month at a specified date although no check is required to initiate the
transaction. (2) If the shareholder's bank is not a member of NACHA, deductions
will be made by preauthorized checks, known as Depository Transfer Checks.
Should the shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such plans must be for $25 or more. An investor wishing to
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take advantage of either service must complete an authorization form. Either
service can be discontinued by the shareholder at any time without penalty by
giving written notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. Either Fund will accept
these investments, such as bank-by-phone, annuity payments and payroll
allotments, by mail directly from the third party. Investors should contact
their employers or financial institutions who in turn should contact Adviser
Funds, Inc. for proper instructions.
MoneyLine (SM) On Demand
You or your investment dealer may request purchases of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept such
requests from you or your investment dealer, funds will be withdrawn from (for
share purchases) your predesignated bank account. Your request will be processed
the same day if you call prior to 4 p.m., Eastern time. There is a $25 minimum
and $50,000 maximum limit for MoneyLine (SM) On Demand transactions.
It may take up to four business days for the transactions to be
completed. You can initiate this service by completing an Account Services form.
If your name and address are not identical to the name and address on your Fund
account, you must have your signature guaranteed. The Funds do not charge a fee
for this service; however, your bank may charge a fee.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in Delaware Investments
family through the Wealth Builder Option. If in connection with the election of
the Wealth Builder Option, you wish to open a new account to receive the
automatic investment, such new account must meet the minimum initial purchase
requirements described in the prospectus of the fund that you select. All
investments under this option are exchanges and are therefore subject to the
same conditions and limitations as other exchanges noted above.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectus. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.
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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 terminate their participation in Wealth Builder at
any time by giving written notice to the fund from which exchanges are made.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans. This option also is not available to shareholders of the
Institutional Classes.
Asset Planner
To invest in Delaware Investments funds using the Asset Planner asset
allocation service, you should complete an Asset Planner Account Registration
Form, which is available only from a financial adviser or investment dealer.
Effective September 1, 1997, the Asset Planner Service is only available to
financial advisers or investment dealers who have previously used this service.
The Asset Planner service offers a choice of four predesigned asset allocation
strategies (each with a different risk/reward profile) in predetermined
percentages in Delaware Investments funds. With the help of a financial adviser,
you may also design a customized asset allocation strategy.
The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange. Also see
Buying Class A Shares at Net Asset Value. The minimum initial investment per
Strategy is $2,000; subsequent investments must be at least $100. Individual
fund minimums do not apply to investments made using the Asset Planner service.
Class A, Class B and Class C Shares are available through the Asset Planner
service. Generally, only shares within the same class may be used within the
same Strategy. However, Class A Shares of a Fund and of other funds in the
Delaware Investments family may be used in the same Strategy with consultant
class shares that are offered by certain other Delaware Investments funds.
An annual maintenance fee, currently $35 per Strategy, is due at the
time of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA will continue
to pay an annual IRA fee of $15 per Social Security number. Investors will
receive a customized quarterly Strategy Report summarizing all Asset Planner
investment performance and account activity during the prior period.
Confirmation statements will be sent following all transactions other than those
involving a reinvestment of distributions.
Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.
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Retirement Plans for the Fund Classes
An investment in the Funds may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) Defined Contribution Plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.
Among the retirement plans that Delaware Investments offers, Class B
Shares are available only by Individual Retirement Accounts, SIMPLE IRAs, Roth
IRAs, Education IRAs, Simplified Employee Pension Plans, Salary Reduction
Simplified Employee Pension Plans, and 403(b)(7) and 457 Deferred Compensation
Plans. The CDSC may be waived on certain redemptions of Class B Shares and Class
C Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange for a list of the instances in
which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such Plans.
Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Class
shares. See Institutional 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, corporations and other eligible forms of organizations. These
plans can be maintained as Section 401(k), profit sharing or money purchase
pension plans. Contributions may be invested only in Class A Shares and Class C
Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In
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addition, an individual may make contributions on behalf of a spouse who has no
compensation for the year; however, participation may be restricted based on
certain income limits.
IRA Disclosures
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that can be
utilized depending on the individual's circumstances. A new Roth IRA and
Education IRA are available in addition to the existing deductible IRA and
non-deductible IRA.
Deductible and Non-deductible IRAs
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.
Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.
Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.
Conduit (Rollover) IRAs
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.
A distribution qualifies as an "eligible rollover distribution" if it
is made from a qualified retirement plan, a 403(b) plan or another IRA and does
not constitute one of the following:
(1) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the employee and
his/her designated beneficiary;
(2) Substantially equal installment payments for a period certain of 10
or more years;
(3) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;
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(4) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and
(5) A distribution of after-tax contributions which is not includable
in income.
Roth IRAs
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), the $2,000 annual limit will not be reduced by any contributions to
a deductible or nondeductible IRA for the same year. The maximum contribution
that can be made to a Roth IRA is phased out for single filers with AGI between
$95,000 and $110,000, and for couples filing jointly with AGI between $150,000
and $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).
Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.
Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.
Education IRAs
For taxable years beginning after December 31, 1997, an Education IRA
has been created exclusively for the purpose of paying qualified higher
education expenses. Taxpayers can make non-deductible contributions up to $500
per year per beneficiary. The $500 annual limit is in addition to the $2,000
annual contribution limit applicable to IRAs and Roth IRAs. Eligible
contributions must be in cash and made prior to the date the beneficiary reaches
age 18. Similar to the Roth IRA, earnings would accumulate tax-free. There is no
requirement that the contributor be related to the beneficiary, and there is no
limit on the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for the same
beneficiaries, however, the contribution limit of all contributions for a single
beneficiary cannot exceed $500 annually.
This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between $150,000 and
$160,000. Individuals with modified AGI above the phase-out range are not
allowed to make contributions to an Education IRA established on behalf of any
other individual.
Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.
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Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
educations expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.
A company or association may establish a Group IRA or Group Roth IRA
for employees or members who want to purchase shares of the Fund.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions 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. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31,
1996, existing plans may continue to be maintained by employers having 25 or
fewer employees. An employer may elect to make additional contributions to such
existing plans.
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Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table the Prospectus for the Fund Classes.
Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Purchases under
the Plan may be combined for purposes of computing the reduced front-end sales
charge applicable to Class A Shares as set forth in the table the Prospectus for
the Fund Classes.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Purchases under the Plan may be combined
for purposes of computing the reduced front-end sales charge applicable to Class
A Shares as set forth in the table in the Prospectus for the Fund Classes.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan
but is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that it is available
only to plan sponsors 100 or fewer employees and, in exchange for mandatory plan
sponsor contributions, discrimination testing is no longer required. Class B
Shares are not available for purchase by such plans.
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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 Fund in which shares are being purchased after
receipt of the order by the Fund or its agent. Orders for purchases of Class B
Shares, Class C Shares and the Institutional Classes are effected at the net
asset value per share next calculated after receipt of the order by the Fund in
which shares are being purchased or its agent. See Distribution and Service
under Investment Management Agreements. 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 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 days when the following holidays are observed: New Year's Day,
Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. When the New York Stock
Exchange is closed, the Funds 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 each
Fund's financial statements which are incorporated by reference into this Part
B.
Each Fund's 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. Foreign
securities and the prices of foreign securities denominated in foreign
currencies are translated to U.S. dollars at the mean between the bid and offer
quotations of such currencies based on rates in effect as of the close of the
London Stock Exchange. 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 Shares, Class B Shares 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 EXCHANGE
You can redeem or exchange your shares in a number of different ways.
Exchanges are subject to the requirements of each fund and all exchanges of
shares constitute taxable events. Further, in order for an exchange to be
processed, shares of the fund being acquired must be registered in the state
where the acquiring shareholder resides. You may want to consult your financial
adviser or investment dealer to discuss which funds in Delaware Investments will
best meet your changing objectives, and the consequences of any exchange
transaction. You may also call the Delaware Investments directly for fund
information.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. A shareholder submitting a redemption
request may indicate that he or she wishes to receive redemption proceeds of a
specific dollar amount. In the case of such a request, and in the case of
certain redemptions from retirement plan accounts, a Fund will redeem the number
of shares necessary to deduct the applicable CDSC in the case of Class B Shares
and Class C Shares, and, if applicable, the Limited CDSC in the case of Class A
Shares and tender to the shareholder the requested amount, assuming the
shareholder holds enough shares in his or her account for the redemption to be
processed in this manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC or Limited CDSC.
Redemption proceeds will be distributed promptly, as described below, but not
later than seven days after receipt of a redemption request.
Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
In addition to redemption of Fund shares, 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 respective Fund,
its agent, or certain authorized persons, subject to 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.
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Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order by the Fund or certain other authorized persons (see Distribution
and Service under Investment Management Agreements); provided, however, that
each commitment to mail or wire redemption proceeds by a certain time, as
described below, is modified by the qualifications described in the next
paragraph.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.
If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to a 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 a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund 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 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. However, Adviser
Funds, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which each Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of such Fund during any 90-day period
for any one shareholder.
The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.
Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value, below.
Class B Shares are subject to a CDSC of: (i) 5% if shares are redeemed within
one year after purchase; (ii) 4% if shares are redeemed during the second year
of purchase; (iii) 3% if shares are redeemed during the third or fourth year
following purchase; (iv) 2% if shares are redeemed during the fifth year
following purchase; and (v) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Purchasing Shares. Except for
the applicable CDSC or Limited CDSC and, with respect to the expedited payment
by wire described below for which, in the case of the Fund Classes, there is
currently a $7.50 bank wiring cost, neither the Funds nor the
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Distributor charges a fee for redemptions or repurchases, but such fees could be
charged at any time in the future.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments (in
each case, "New Shares") in a permitted exchange, will not be subject to a CDSC
that might otherwise be due upon redemption of the Original Shares. However,
such shareholders will continue to be subject to the CDSC and, in the case of
Class B Shares, the automatic conversion schedule of the Original Shares as
described in this Part B and any CDSC assessed upon redemption will be charged
by the fund from which the Original Shares were exchanged. In an exchange of
Class B Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in New
Shares were made directly.
Written Redemption
You can write to each Fund at 1818 Market Street, Philadelphia, PA
19103 to redeem some or all of your shares. The request must be signed by all
owners of the account or your investment dealer of record. For redemptions of
more than $50,000, or when the proceeds are not sent to the shareholder(s) at
the address of record, the Funds require a signature by all owners of the
account and a signature guarantee for each owner. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a Securities
Transfer Association Medallion Program ("STAMP"). Each Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.
Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia,
PA 19103) to request an exchange of any or all of your shares into another
mutual fund in Delaware Investments, subject to the same conditions and
limitations as other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption - Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
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Neither the Funds nor their 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, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by the
Fund Classes are generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone. By exchanging shares by telephone, you are acknowledging prior
receipt of a prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day. If the
proceeds are wired to the shareholder's account at a bank which is not a member
of the Federal Reserve System, there could be a delay in the crediting of the
funds to the shareholder's bank account. First Union National Bank's fee
(currently $7.50) will be deducted from Fund Class redemption proceeds. If you
ask for a check, it will normally be mailed the next business day after receipt
of your redemption request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may delay getting
funds into your bank account. Simply call the Shareholder Service Center prior
to the time the offering price and net asset value are determined, as noted
above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in Delaware Investments under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or frequency. The Transfer Agent and each Fund reserve
the right to record exchange instructions received by telephone and to reject
exchange requests at any time in the future.
MoneyLine (SM) On Demand
You or your investment dealer may request redemptions of Fund shares by
phone using MoneyLine (SM) On Demand. When you authorize a Fund to accept such
requests from you or your investment dealer, funds will be deposited to (for
share redemptions) your predesignated bank account. Your request will be
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processed the same day if you call prior to 4 p.m., Eastern time. There is a $25
minimum and $50,000 maximum limit for MoneyLine (SM) On Demand transactions. See
MoneyLine (SM) On Demand under Investment Plans.
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
Investments funds from Timing Firms. A Fund reserves 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 the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the 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 Investments funds: (1)
Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Balanced Fund,
(4) Limited-Term Government Fund, (5) USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware
Investments funds are available for timed exchanges. Assets redeemed or
exchanged out of Timing Accounts in Delaware Investments funds not listed above
may not be reinvested back into that Timing Account. Each Fund reserves 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).
Each Fund also reserves 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 Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's 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.
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 Funds do not recommend any
specific amount of withdrawal. This is particularly useful to shareholders
living on fixed incomes, since it can provide them with a stable supplemental
amount. This $5,000 minimum does not apply for a 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.
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Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital, and the share
balance may in time be depleted, particularly in a declining market.
Shareholders should not purchase additional shares while participating in a
Systematic Withdrawal Plan.
The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in 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 Delaware Investments funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase. The
applicable CDSC for Class B Shares and Class C Shares redeemed via a Systematic
Withdrawal Plan will be waived if, on the date that the Plan is established, the
annual amount selected to be withdrawn is less than 12% of the account balance.
If the annual amount selected to be withdrawn exceeds 12% of the account balance
on the date that the Systematic Withdrawal Plan is established, all redemptions
under the Plan will be subject to the applicable CDSC. Whether a waiver of the
CDSC is available or not, the first shares to be redeemed for each Systematic
Withdrawal Plan payment will be those not subject to a CDSC because they have
either satisfied the required holding period or were acquired through the
reinvestment of distributions. The 12% annual limit will be reset on the date
that any Systematic Withdrawal Plan is modified (for example, a change in the
amount selected to be withdrawn or the frequency or date of withdrawals), based
on the balance in the account on that date. See Waiver of Contingent Deferred
Sales Charge - Class B Shares and Class C Shares, below.
An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Funds reserve the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
Systematic Withdrawal Plan payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine (SM) Direct
Deposit Service. Your funds will normally be credited to your bank account up to
four business days after the payment date. There are no separate fees for this
redemption method. It may take up to four business days for the transactions to
be completed. You can initiate this service by completing an Account Services
form. If your name and address are not identical to the name and address on your
Fund account, you must have your signature guaranteed. The Funds do not charge a
fee for any this service; however, your bank may charge a fee. This service is
not available for retirement plans.
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The Systematic Withdrawal Plan is not available for Institutional
Classes. Shareholders should consult with their financial advisers to determine
whether a Systematic Withdrawal Plan would be suitable for them.
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value
For purchases of $1,000,000 or more made on or after July 1, 1998, a
Limited CDSC will be imposed on certain redemptions of Class A Shares (or shares
into which such Class A Shares are exchanged) according to the following
schedule: (1) 1.00% if shares are redeemed during the first year after the
purchase; and (2) 0.50% if such shares are redeemed during the second year after
the purchase, if such purchases were made at net asset value and triggered the
payment by the Distributor of the dealer's commission described above.
The Limited CDSC will be paid to the Distributor and will be assessed
on an amount equal to the lesser of : (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
the Class A Shares even if those shares are later exchanged for shares of
another Delaware Investments fund and, in the event of an exchange of Class A
Shares, the "net asset value of such shares at the time of redemption" will be
the net asset value of the shares acquired in the exchange.
Redemptions of such Class A Shares held for more than two years will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of a Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee benefit plans to pay benefits; (vii)
distributions described in (ii), (iv), and (vi) above pursuant to a systematic
withdrawal plan; and (viii) redemptions by the classes of shareholders who are
permitted to purchase shares at net asset value, regardless of the size of the
purchase (see Buying Class A Shares at Net Asset Value under Purchasing Shares).
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Waiver of Contingent Deferred Sales Charge - Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, or 403(b)(7) or 457
Deferred Compensation Plan due to death, disability or attainment of age 59 1/2,
and IRA distributions qualifying under Section 72(t) of the Internal Revenue
Code; and (iv) distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of accounts
established under the Uniform Gifts to Minors or Uniform Transfers to Minors
Acts or trust accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in Section 72 of the
Code) of all registered owners occurring after the purchase of the shares being
redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Plan, 401(k) Defined Contribution Plan upon attainment of age 70
1/2, and IRA distributions qualifying under Section 72(t) of the Internal
Revenue Code; (iv) distributions from a 403(b)(7) or 457 Deferred Compensation
Plan, Profit Sharing Plan, or 401(k) Defined Contribution Plan, under hardship
provisions of the plan; (v) distributions from a 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or a 401(k)
Defined Contribution Plan upon attainment of normal retirement age under the
plan or upon separation from service; (vi) periodic distributions from an IRA or
SIMPLE IRA on or after attainment of age 59 1/2; and (vii) distributions from an
account if the redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform Gifts to Minors
or Uniform Transfers to Minors Acts or trust accounts, the waiver applies upon
the death of all beneficial owners) or a total and permanent disability (as
defined in Section 72 of the Code) of all registered owners occurring after the
purchase of the shares being redeemed.
In addition, the CDSC will be waived on Class B Shares and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan if the annual
amount selected to be withdrawn under the Plan does not exceed 12% of the value
of the account on the date that the Systematic Withdrawal Plan was established
or modified.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The following supplements the information in each Prospectus under the
heading Dividends, Distributions and Taxes.
Under the 1997 Act, as revised by the 1998 Act and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, a Fund is required
to track its sales of portfolio securities and to report its capital gain
distributions to you according to the following categories of holding periods:
"Mid-term capital gains" or "28 percent rate gain": securities sold by
a Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual
investors at a maximum rate of 28%. This category of gains applied only
to gains and distributions in 1997.
"1997 Act long-term capital gains" or "20 percent rate gain":
securities sold between May 7, 1997 and July 28, 1997 that were held
for more than 12 months, and securities sold by the Fund after July 28,
1997 that were held for more than 18 months. As revised by the 1998
Act, this rate applies to securities held for more than 12 months and
sold in tax years beginning after December 1, 1997. These gains will be
taxable to individual investors at a maximum rate of 20% for investors
in the 28% or higher federal income tax brackets, and at a maximum rate
of 10% for investors in the 15% federal income tax bracket. The Omnibus
Consolidated and Emergency Supplemental Appropriations Act passed in
October of 1998 included technical corrections to the 1998 Act. The
effect of this correction is that essentially all capital gain
distributions paid to shareholders during 1998 will be taxed at a
maximum rate of 20%.
"Qualified 5-year gains": For individuals in the 15% bracket, qualified
five-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individual who are subject
to tax at higher rate brackets, qualified five-year gains are net gains
on securities which are purchased after December 31, 2000 and are held
for more than five years. Taxpayers subject to tax at a higher rate
brackets may also make an election for shares held on January 1, 2001
to recognize gain on their shares in order to qualify such shares as
qualified five-year property. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the five-year
holding period.
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
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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 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 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.
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.
Each Fund intends to pay out substantially all of its net investment
income and net realized capital gains. Such payments, if any, will be made once
a year. 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
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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 Class A Shares, Class B Shares and
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.
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 Fund 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
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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 a Fund 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.
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, below.
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 Overseas Equity and New Pacific
Funds are included in following sections of this Part B. No attempt is made to
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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 Overseas
Equity Fund and New Pacific Fund 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 Overseas Equity Fund and New Pacific Fund
Gain or loss on the sale or other disposition of foreign currency by
Overseas Equity Fund and New Pacific Fund 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).
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 Overseas Equity Fund and New Pacific Fund 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
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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
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.
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<PAGE>
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
Delaware Investments since 1938. On October 31, 1998, the Manager and its
affiliates within Delaware Investments, including the Delaware International
Advisers Ltd., were managing in the aggregate more than $42 billion in assets in
the various institutional or separately managed (approximately $24,854,600,000)
and investment company (approximately $17,780,970,000) accounts.
Separate Investment Management Agreements for U.S. Growth Fund and New
Pacific Fund are dated May 4, 1996. An Amended and Restated Investment
Management Agreement for Overseas Equity Fund is dated September 15, 1997. 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
U.S. Growth Fund 0.70%
Overseas Equity Fund 1.00%
New Pacific Fund 0.80%
On October 31, 1998 each Fund's total net assets were as follows:
U.S. Growth Fund $49,811,082
Overseas Equity Fund $ 3,437,521
New Pacific Fund $ 8,471,934
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<PAGE>
The total investment management fees incurred by each Fund during the
fiscal years ended October 31, 1998, October 31, 1997 and October 31, 1996 were
as follows below. Beginning May 6, 1996, the fees were paid to the Manager,
Delaware Management Company, Inc. Fees paid prior to May 6, 1996 were paid to
the previous investment manager, Lincoln Investment Management, Inc.
<TABLE>
<CAPTION>
Management Fees Incurred
Fund 1998 1997 1996
<S> <C> <C> <C>
U.S. Growth Fund $277,028 earned $230,497 earned $154,309 earned
$276,361 paid $230,497 paid $137,359 paid
$667 waived -$0- waived $16,950 waived
Overseas Equity Fund $46,051 earned $176,619 earned $167,584 earned
$-0- paid $176,619 paid $47,994 paid
$46,051 waived -$0- waived $119,590 waived
New Pacific Fund $50,696 earned $118,010 earned $116,131 earned
$-0- paid $109,011 paid $203 paid
$50,696 waived $8,999 waived $115,928 waived
</TABLE>
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 on
behalf of U.S. Growth Fund and New Pacific Fund dated May 4, 1996 and on behalf
of Overseas Equity Fund dated November 18, 1997. 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.
Beginning May 1, 1998, the Manager elected voluntarily to waive that
portion, if any, of the annual management fees payable by each Fund and to pay a
Fund for its expenses to the extent necessary to ensure that the total operating
expenses of the Fund do not exceed on an annualized basis 1.50% for U.S. Growth
Fund, 1.55% for Overseas Equity Fund and 1.70% for New Pacific Fund, in each
case as a percentage of average net assets (exclusive of 12b-1 Plan expenses,
taxes, interest, brokerage commissions and extraordinary expenses) through
October 31, 1998. These voluntary waivers and payments of expenses have been
extended through April 30, 1999 for Overseas Equity Fund and New Pacific Fund
but have not been extended for U.S. Growth Fund.
The Manager had voluntarily committed to waive its fees or pay expenses
for the Funds beginning as of the close of business May 3, 1996 through April
30, 1998, as reflected below. The cap for each Fund was lowered from that
maintained by the previous investment manager by 0.05%, reflecting the reduction
from 0.35% to 0.30% of the 12b-1 fees payable by the Funds with respect to Class
A Shares. The expense waivers and/or payments will be reevaluated by the Manager
periodically.
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<TABLE>
<CAPTION>
U.S. Growth Fund Overseas Equity Fund New Pacific Fund
---------------- -------------------- ----------------
<S> <C> <C> <C>
Class A Shares 1.44% 1.80% 1.80%
Class B Shares 2.14% 2.50% 2.50%
Class C Shares 2.14% 2.50% 2.50%
Institutional Class Shares 1.14% 1.50% 1.50%
</TABLE>
Sub-Advisers
The following registered investment advisers serve as sub-advisers to
the Funds indicated: Lynch & Mayer, Inc. serves as sub-adviser of U.S. Growth
Fund; Delaware International Advisers Ltd. serves as sub-adviser of Overseas
Equity Fund; and AIB Govett, Inc. serves as sub-adviser of New Pacific Fund.
During the past three fiscal years, the Sub-Adviser received fees from
the Manager in the following amounts:
<TABLE>
<CAPTION>
October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Lynch & Mayer, Inc. $158,302 $131,858 $88,177
Delaware International Advisers Ltd. 36,840 132,730 121,879
AIB Govett, Inc. 31,685 73,483 72,581
</TABLE>
Lynch & Mayer, Inc. Dennis Lynch and Eldon Mayer established Lynch &
Mayer, Inc. in 1976. Lynch & Mayer, Inc. provides investment advice to 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 October 31, 1998,
Lynch & Mayer, Inc. had total assets under management in excess of $4.5 billion.
Delaware International Adviser Ltd. was established in 1990 and began
serving as Sub-Adviser to Overseas Equity Fund on September 15, 1997. Delaware
International Advisers Ltd. provides investment advisory services to certain
other funds available from Delaware Investments and to institutional clients. As
of October 31, 1998, Delaware International Advisers Ltd. had total assets under
management in excess of $8 billion.
AIB Govett, Inc. is a unit of AIB Asset Management Holdings Limited, a
majority owned subsidiary of Allied Irish Bank plc ("AIB"), Ireland's largest
bank. AIB Govett, Inc. coordinates with its offices and affiliates worldwide,
including AIB Govett Asset Management Limited in London to provide asset
management, client service, marketing and business development for AIB's North
American asset management business. AIB Govett, Inc. has been an investment
adviser to clients such as investment trusts, investment companies, mutual funds
and pension funds since its inception in the 1920s. As of November 30, 1998, AIB
Govett, Inc. had assets under management in excess of $13.9 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
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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 also provides accounting services to the Funds pursuant to the
terms of a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. and,
therefore, Lincoln National Corporation.
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Funds. For purposes of pricing, the Funds
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order.
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<PAGE>
OFFICERS AND DIRECTORS
The business and affairs of Adviser Funds, Inc. are managed under the
direction of its Board of Directors.
Certain officers and directors of Adviser Funds, Inc. hold identical
positions in each of the other funds in Delaware Investments. As of January 31,
1999, Adviser Funds, Inc.'s officers and directors 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.
As of January 31, 1999, management believes the following accounts held
5% or more of the outstanding shares of Class A Shares, Class B Shares, Class C
Shares and the Institutional Class of each Fund:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
U.S. Growth Fund RS Money Purchase Pension Plan FBO 71,293.230 5.15%
A Class Windermere Retirement Plan
c/o Delpac 16th Floor
1818 Market Street.
Philadelphia, PA 19103-3638
U.S. Growth Fund Merrill Lynch, Pierce, Fenner & Smith 69,787.270 11.57%
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
U.S. Growth Fund Merrill Lynch, Pierce, Fenner & Smith 27,541.730 14.89%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive, 2nd Floor
Jacksonville, FL 32246-6484
RS DMCT 401(k) Plan 16,830.820 9.10%
Bruce S. Morrison DO 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103-3638
RS DMCT 401(k) Plan 15,411.440 8.33%
CIMM's Inc.
Attn: Retirement Department
1818 Market Street
Philadelphia, PA 19103-3638
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
U.S. Growth Fund Federated Life Insurance Co. 2,332,912.670 75.32%
Institutional Class Separate Account A
Attn: Debbie Miller
P.O. Box 328
Owatonna, MN 55060-0328
Chase Manhattan Bank C/F 294,935.410 9.52%
Delaware Group Foundation Fund
Balanced Portfolio
Attn: Marisol Gordon - Global Inv. Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
Chase Manhattan Bank C/F 225,605.790 7.28%
Delaware Group Foundation Fund
Growth Portfolio
Attn: Marisol Gordon - Global Inv. Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
Chase Manhattan Bank C/F 188,312.460 6.07%
Delaware Group Foundation Fund
Income Portfolio
Attn: Marisol Gordon - Global Inv. Services
3 Metrotech Center 8th Floor
Brooklyn, NY 11201-3800
Overseas Equity Fund DMTC C/F The Rollover IRA of 12,079.210 7.26%
B Class Carl W. Niederwimmer
301 NW 73rd Terrace
Gladstone, MO 64118-1675
Merrill Lynch, Pierce, Fenner & Smith 11,407.310 6.85%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Overseas Equity Fund Dain Rauscher Inc. FBO 9,502.000 24.94%
C Class Thomas L. Rourke TTEE
The Thomas L. Rourke Trust
U/A dtd 04/13/1992
9 Westover Rd.
Troy, NY 12180-4730
NFSC FEBO 5,896.470 15.48%
Haus Geborgenheit Ltd.
A Partnership
2305 Versailles Ct
Heath, TX 75032-7670
Merrill Lynch, Pierce, Fenner & Smith 2,362.940 6.20%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Overseas Equity Fund RS DMC Employee Profit Sharing Plan 7,802.490 90.36%
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
C/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
Lincoln National Investment Management 747.680 8.65%
Attn: David Humes 3RO3
200 East Berry Street
Fort Wayne, IN 46802-2706
New Pacific Fund Merrill Lynch, Pierce, Fenner & Smith 8,142.450 18.24%
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Dain Rauscher Inc. FBO 3,984.060 8.92%
Leann Purtill
4805 E. Gleneagle
Spokane, WA 99223-1577
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
New Pacific Fund DMTC C/F The Rollover IRA of 2,279.200 5.10%
C Class Kathleen L. Eckman
1629 Michigan Ave.
Orofino, ID 83544-9007
New Pacific Fund RS DMC Employee Profit Sharing Plan 44,590.350 98.68%
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103-3682
</TABLE>
DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc., Delaware Investment Advisers (a series of Delaware
Management Business Trust), 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 Retirement
Financial 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 ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, 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. After Lincoln National's
acquisition of DMH and the Manager, Lincoln National was operating two mutual
fund complexes, Delaware Investments 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 Delaware
Investments warranted the consolidation of Lincoln Funds into Delaware
Investments. 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 Delaware
Investments. See Restructuring of the Funds in this Part B.
Directors and principal officers 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.
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*Jeffrey J. Nick (46) Chairman of the Board, President, Chief Executive Officer and
Director and/or Trustee of Adviser Funds, Inc., each of the other
33 investment companies in the Delaware Investments family,
Delaware Management Business Trust, Delvoy, Inc., DMH Corp.
Delaware Management Company, Inc. and Founders Holdings,
Inc.
Chairman of the Board, Chief Executive Officer and Director of
Delaware Distributors, Inc., Delaware International Holdings Ltd.,
Delaware International Advisers Ltd.
Chairman of the Board and Chief Executive Officer of Delaware
Management Company (a series of Delaware Management
Business Trust) Chairman of the Board and Director of
Delaware Capital Management, Inc. and Retirement Financial
Services, Inc.
Chairman of Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware
Distributors, L.P.
President, Chief Executive Officer and Director of Delaware
Management Holdings, Inc. and Lincoln National Investment
Companies, Inc.
Director of Delaware Service Company, Inc.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln
National UK plc and from 1989 to 1992, he was Senior Vice
President responsible for corporate planning and development for
Lincoln National Corporation.
</TABLE>
- ----------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-80-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*Wayne A. Stork (61) Director and/or Trustee of Adviser Funds, Inc. and each of the
other 33 investment companies in the Delaware Investments
family.
Chairman and Director of Delaware Management Holdings, Inc.
Prior to January 1, 1999, Mr. Stork was Chairman and Director
and/or Trustee of Adviser Funds, Inc. and each of the other 33
investment companies in the Delaware Investments family and
Delaware Capital Management, Inc.; Chairman, President, Chief
Executive Officer and Director of DMH Corp., Delaware
Distributors, Inc. and Founders Holdings, Inc.; Chairman,
President, Chief Executive Officer, Chief Investment Officer and
Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust; Chairman, President, Chief Executive
Officer and Chief Investment Officer of Delaware Management
Company (a series of Delaware Management Business Trust);
Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management
Business Trust); Chairman, Chief Executive Officer and Director of
Delaware International Advisers Ltd., Delaware International
Holdings Ltd. and Delaware Management Holdings, Inc.; President
and Chief Executive Officer of Delvoy, Inc.; Chairman of Delaware
Distributors, L.P.; Director of Delaware Service Company, Inc. and
Retirement Financial Services, Inc.
In addition, during the five years prior to January 1, 1999, Mr.
Stork has served in various executive capacities at different
times within the Delaware organization.
</TABLE>
- ----------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-81-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Richard G. Unruh, Jr. (59) Executive Vice President and Chief
Investment Officer, Equities of Adviser Funds, Inc., each of the
other 33 investment companies in the Delaware Investments family
and Delaware Management Company (a series of Delaware Management
Business Trust)
Executive Vice President of Delaware Management Holdings,
Inc. and Delaware Capital Management, Inc. and Delaware
Management Business Trust
Executive Vice President/Chief Investment Officer, Equities and
Director of Delaware Management Company, Inc.
Chief Executive Officer/Chief Investment Officer, Equities of
Delaware Investment Advisers (a series of Delaware
Management Business Trust);
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.
Paul E. Suckow (51) Executive Vice President/Chief Investment Officer, Fixed Income
of Adviser Funds, Inc. and each of the other 33 investment
companies in the Delaware Investments family; Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business
Trust)
Executive Vice President and Director of Founders Holdings,
Inc.
Executive Vice President of Delaware Management Holdings,
Inc., Delaware Capital Management, Inc. and Delaware
Management Business Trust; and Director of Founders CBO
Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for Delaware Investments.
</TABLE>
-82-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
David K. Downes (59) Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Adviser Funds, Inc. and each of the other 33
investment companies in the Delaware Investments family,
Delaware Management Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc., Delaware
Management Company (a series of Delaware Management
Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware
Distributors, L.P.
Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Director of Delaware Management
Company, Inc., DMH Corp, Delaware Distributors, Inc.,
Founders Holdings, Inc. and Delvoy, Inc.; Executive Vice
President, Chief Financial Officer, Chief Administrative Officer
and Trustee of Delaware Management Business Trust
President, Chief Executive Officer, Chief Financial Officer and
Director of Delaware Service Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware International Holdings Ltd.
Chairman, Chief Executive Officer and Director of Retirement
Financial Services, Inc.
Chairman and Director of Delaware Management Trust
Company
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Downes has served in various
executive capacities at different times within the Delaware
organization.
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Richard J. Flannery (41) Executive Vice President of Adviser Funds, Inc. and each of the
other 33 investment companies in the Delaware Investments
family
Executive Vice President and General Counsel of Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware
Management Trust Company, Delaware Capital Management, Inc.,
Delaware Service Company, Inc., Delaware Management Company (a
series of Delaware Management Business Trust), Delaware Investment
Advisers (a series of Delaware Management Business Trust) and
Founders CBO Corporation
Executive Vice President/General Counsel and Director of DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware International Holdings Ltd.,
Founders Holdings, Inc., Delvoy, Inc. and Retirement Financial
Services, Inc.
Director of Delaware International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
During the past five years, Mr. Flannery has served in various
executive capacities at different times within the Delaware
organization.
Walter P. Babich (71) Director and/or Trustee of Adviser Funds, Inc. and each of the
other 33 investment companies in the Delaware Investments
family
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.
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
John H. Durham (61) Director and/or Trustee of Adviser Funds, Inc. and 18 other
investment companies in the Delaware Investments family.
Partner, Complete Care Services.
120 Gibraltar Road, Horsham, PA 19044.
Mr. Durham served as Chairman of the Board of each fund in the
Delaware Investments family from 1986 to 1991; President of each
fund from 1977 to 1990; and Chief Executive Officer of each fund
from 1984 to 1990. Prior to 1992, with respect to Delaware
Management Holdings, Inc., Delaware Management Company, Delaware
Distributors, Inc. and Delaware Service Company, Inc., Mr. Durham
served as a director and in various executive capacities at
different times.
Anthony D. Knerr (60) Director and/or Trustee of Adviser Funds, Inc. and each of the
33 other investment companies in the Delaware Investments
family
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 (58) Director and/or Trustee of Adviser Funds, Inc. and each of the
other 33 other investment companies in the Delaware
Investments family
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.
</TABLE>
-85-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
W. Thacher Longstreth (78) Director and/or Trustee of Adviser Funds, Inc. each of the other
33 other investment companies in the Delaware Investments
family
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman
Thomas F. Madison (62) Director and/or Trustee of Adviser Funds, Inc. and each of the
other 33 investment companies in the Delaware Investments
family
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota
55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of
Communications Holdings, Inc. since 1996. From February to
September 1994, Mr. Madison served as Vice Chairman--Office
of the CEO of The Minnesota Mutual Life Insurance Company
and from 1988 to 1993, he was President of U.S. WEST
Communications--Markets.
Charles E. Peck (73) Director and/or Trustee of Adviser Funds, Inc. and each of the
other 33 investment companies in the Delaware Investments
family
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.
</TABLE>
-86-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
George M. Chamberlain, Jr. (52) Senior Vice President, Secretary and General Counsel of
Adviser Funds, Inc. and each of the other 33 investment
companies in the Delaware Investments family
Senior Vice President and Secretary of Delaware Distributors,
L.P., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Investment Advisers (a
series of Delaware Management Business Trust), Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, Inc., Delaware Service
Company, Inc., Retirement Financial Services, Inc., Delaware
Capital Management, Inc., Delvoy, Inc. and Delaware
Management Business Trust
Senior Vice President, Secretary and Director of Founders
Holdings, Inc.
Executive Vice President, Secretary and Director of Delaware
Management Trust Company
Senior Vice President of Delaware International Holdings Ltd.
During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware
organization.
</TABLE>
-87-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Joseph H. Hastings (49) Senior Vice President/Corporate Controller of Adviser Funds,
Inc. and each of the other 33 investment companies in the
Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of
Delaware Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc., Delaware International Holdings Ltd.,
Delvoy, Inc. and Delaware Management Business Trust.
Chief Financial Officer/Treasurer of Retirement Financial
Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of
Delaware Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO
Corporation
During the past five years, Mr. Hastings has served in various
executive capacities at different times within the Delaware
organization.
</TABLE>
-88-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Michael P. Bishof (36) Senior Vice President and Treasurer of Adviser Funds, Inc. and
each of the other 33 investment companies in the Delaware
Investments family and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware
Management Company, Inc., Delaware Management Company
(a series of Delaware Management Business Trust) and Delaware
Service Company, Inc.;
Senior Vice President and Treasurer/Manager, Investment
Accounting of Delaware Distributors, L.P. and Delaware
Investment Advisers (a series of Delaware Management Business
Trust)
Senior Vice President and Assistant Treasurer of Founders CBO
Corporation
Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
Before joining Delaware Investments 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.
</TABLE>
-89-
<PAGE>
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received from the
Fund and the total compensation received from all investment companies in the
Delaware Investments family for which he or she serves as a director or trustee
for the fiscal year ended October 31, 1998 and an estimate of annual benefits to
be received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of October 31, 1998. Only the independent directors of the
Fund receive compensation from the Fund.
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total
Accrued Estimated Compensation
Aggregate as Part of Annual from
Compensation Equity Benefits Delaware
from Adviser Funds I, Inc. Upon Investments
Name Funds, Inc. Expenses Retirement(1) Companies(2)
<S> <C> <C> <C> <C>
John H. Durham(3) $453 None $31,180 $31,453
W. Thacher Longstreth $773 None $38,500 $39,273
Ann R. Leven $788 None $38,500 $39,288
Walter P. Babich $786 None $38,500 $39,286
Anthony D. Knerr $786 None $38,500 $39,286
Charles E. Peck $773 None $38,500 $39,273
Thomas F. Madison $778 None $38,500 $39,278
</TABLE>
(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time of
his or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each investment company in the Delaware Investments family for
which he or she serves as a director or trustee for a period equal to the
lesser of the number of years that such person served as a director or
trustee 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/trustees of each investment company at the time of such
person's retirement. If an eligible director/trustee retired as of October
31, 1998, he or she would be entitled to annual payments totaling the amount
noted above, in the aggregate, from all of the investment companies in the
Delaware Investments family for which he or she served as director or
trustee, based on the number of investment companies in the Delaware
Investments family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a director or
trustee for all 34 investment companies in Delaware Investments, plus $3,145
for each Board Meeting attended. John H. Durham currently receives a total
annual retainer fee of $31,180 for serving as a director or trustee for 19
investment companies in Delaware Investments, plus $1,757.50 for each Board
Meeting attended. Ann R. Leven, Walter P. Babich, Anthony D. Knerr and
Thomas F. Madison serve on the Fund's audit committee; Ms. Leven is the
chairperson. Members of the audit committee currently receive additional
annual compensation of $5,000 from all investment companies, in the
aggregate, with the exception of the chairperson, who receives $6,000.
(3) John H. Durham joined the Board of Directors of the Fund and 18 other
investment companies in Delaware Investments on April 16, 1998.
-90-
<PAGE>
GENERAL INFORMATION
Adviser Funds, Inc. is an open-end management investment company. Each
Fund's portfolio of assets is diversified as defined by the 1940 Act. Adviser
Funds, Inc. was organized as a Maryland corporation on August 10, 1993.
The Manager is the investment manager of the Funds. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. An affiliate of the Manager 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.
The Manager also manages the investment options for Delaware Medallion
[SM] III Variable Annuity. Medallion is issued by Allmerica Financial Life
Insurance and Annuity Company (First Allmerica Financial Life Insurance Company
in New York and Hawaii). Delaware Medallion offers various investment series
ranging from domestic equity funds, international equity and bond funds and
domestic fixed income funds. Each investment series available through Medallion
utilizes an investment strategy and discipline the same as or similar to one of
the Delaware Investments mutual funds available outside the annuity. See
Delaware Group Premium Fund, Inc. in Appendix B.
Access persons and advisory persons of the Delaware Investments family
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 is 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 each Fund and for the
other mutual funds in the Delaware Investments family. The Distributor received
net commissions from each Fund on behalf of Class A Shares, after reallowances
to dealers, as follows:
U.S. Growth Fund
Class A Shares
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to DDLP
----- ----------- ---------- -------
10/31/98 $121,399 $101,827 $19,572
10/31/97 32,142 7,034 25,108
10/31/96 2,551 2,141 410
-91-
<PAGE>
Overseas Equity Fund
Class A Shares
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to DDLP
----- ----------- ---------- -------
10/31/98 $8,093 $6,838 $1,255
10/31/97 15,657 3,194 12,463
10/31/96 4,626 3,880 746
Total
Fiscal Amount of Amounts Net
Year Underwriting Reallowed Commission
Ended Commissions to Dealers to DDLP
----- ----------- ---------- -------
10/31/98 $53,408 $44,672 $8,736
10/31/97 28,375 5,847 22,528
10/31/96 4,740 3,912 828
The Distributor received in the aggregate Limited CDSC payments with
respect to Class A Shares of each Fund as follows:
Limited CDSC Payments
Fiscal
Year U.S. Growth Overseas Equity New Pacific
Ended Fund A Class Fund A Class Fund A Class
----- ------------- ------------- ------------
10/31/98 none none none
10/31/97 none none none
10/31/96 none none none
The Distributor received in the aggregate CDSC payments with respect to
Class B Shares of each Fund as follows:
CDSC Payments
Fiscal
Year U.S. Growth Overseas Equity New Pacific
Ended Fund B Class Fund B Class Fund B Class
----- ------------ ------------- ------------
10/31/98 $5,189 $1,541 $4,704
10/31/97 3,339 2,815 4,476
10/31/96 643 3,542 742
-92-
<PAGE>
The Distributor received in the aggregate CDSC payments with respect to
Class C Shares of each Fund as follows:
CDSC Payments
Fiscal
Year U.S. Growth Overseas Equity New Pacific
Ended Fund C Class Fund C Class Fund C Class
----- ------------ ------------- ------------
10/31/98 $552 $60 $325
10/31/97 108 24 33
10/31/96 36 20 4
The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for each Fund and for the
other mutual funds in the Delaware Investments family. The Transfer Agent is
paid a fee by each Fund 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 disinterested directors. The
Transfer Agent also provides accounting services to each Fund. Those services
include performing all functions related to calculating each Fund's net asset
value and providing all financial reporting services, regulatory compliance
testing and the related accounting services. For its services, the Transfer
Agent is paid a fee based on total assets of all funds in the Delaware
Investments family for which it provides such accounting services. Such fee is
equal to 0.25% multiplied by the total amount of assets in the complex for which
the Transfer Agent furnishes accounting services, where such aggregate complex
assets are $10 billion or less, and 0.20% of assets if such aggregate complex
assets exceed $10 billion. The fees are charged to each fund, including each
Fund, on an aggregate pro-rata basis. The asset-based fee payable to the
Transfer Agent is subject to a minimum fee calculated by determining the total
number of investment portfolios and associated classes.
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 ("Chase"), 4 Chase Metrotech Center, Brooklyn,
NY 11245 is custodian of each Fund's securities and cash. As custodian for a
Fund, Chase maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; receives and
disburses money on behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.
EURO
Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. If a Fund is invested in securities of
participating countries, it could be adversely affected if the computer systems
used by its major service providers are not properly prepared to handle the
implementation of this single currency or the adoption of the Euro by additional
countries in the future. The Funds are taking steps to obtain satisfactory
assurances that their major service providers are taking steps reasonably
designed to address these matters on the computer systems that the service
providers use. However, there can be no assurances that these steps will be
sufficient to avoid any adverse impact on the business of the Fund.
-93-
<PAGE>
Restructuring of the Funds
Until April 26, 1996, Adviser Funds, Inc. consisted of nine series of
shares (U.S. Growth Fund, World Growth Fund (now named Overseas Equity Fund) and
New Pacific Fund, as well as six other funds) and was named Lincoln Advisor
Funds, Inc. ("LAF"). On February 23, 1996, LAF's Board of Directors approved a
restructuring to integrate fully LAF into the Delaware Investments family of
funds. The restructuring provided, among other things, for the liquidation of
three funds; the appointment of Delaware Management Company, Inc. as the
investment manager of each of the Funds; the appointment of certain
sub-advisers; changes in certain names, including: Lincoln U.S. Growth Portfolio
to U.S. Growth Fund; Lincoln World Growth Portfolio to World Growth Fund; and
Lincoln New Pacific Portfolio to New Pacific Fund; and the change of the LAF to
Delaware Group Adviser Funds, Inc. The liquidations were completed on April 26,
1996 and following required shareholder approval of the investment management
and sub-advisory arrangements at a meeting of shareholders held on May 3, 1996,
the restructuring was consummated.
In accordance with the restructuring, beginning May 6, 1996, the former
Class D shares have been redesignated as the Institutional Class shares.
On July 17, 1997, the Board of Directors approved the liquidations of
three additional funds. These liquidations were completed on September 19, 1997.
Effective September 15, 1997, the name of World Growth Fund changed to Overseas
Equity Fund.
In accordance with the restructuring, the front-end sales charges for
and 12b-1 Plan distribution fees assessable against Class A Shares and the
contingent deferred sales charge schedule for Class B Shares, as well as its
feature for conversion to Class A Shares, have been modified to be made
consistent with the charges, fees and features that generally apply to all other
Delaware Investments funds. The charges and fees previously applicable to the
Class C Shares have not been changed.
Beginning May 6, 1996, the charges, fees and features described in this
Part B have been applied to the respective shares, except for Class B Shares
purchased before that date. Class B Shares purchased prior to May 6, 1996
continue to be subject to the following contingent deferred sales charge
schedule if redemptions are made during the time periods described: within the
first year after purchase (5.0%); within the second year after purchase (4.0%);
within the third year after purchase (4.0%); within the fourth year after
purchase (3.0%); within the fifth year after purchase (2.0%); within the sixth
year after purchase (1.0%); and thereafter, none. In addition, Class B Shares
purchased prior to May 6, 1996 still will convert to Class A Shares after the
expiration of approximately six years after purchase. Class B Shares purchased
with reinvested dividends, whether effected before or after May 6, 1996, will be
aggregated and converted pro-rata with other Class B Shares.
Capitalization
Adviser Funds, Inc. was incorporated under the laws of Maryland on
August 12, 1993 under the name Lincoln Renaissance Funds, Inc. On November 29,
1993, the name Lincoln Renaissance Funds, Inc. was changed to 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
-94-
<PAGE>
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.
All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable and, except as described above, have
equal voting rights. All shares of the Advisers Funds, Inc.
participate equally in dividends, and upon liquidation would share equally.
Each Class of each Fund represents a proportionate interest in the
assets of each Fund of Adviser Funds, Inc. and has the same voting and other
rights and preferences, except that shares of 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
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allocated on a pro-rata basis to the Classes according to asset size, except
that expenses of the 12b-1 Plans of Class A Shares, Class B Shares 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 U.S. Growth Portfolio to U.S. Growth Fund;
Lincoln World Growth Portfolio to World Growth Fund; and Lincoln New Pacific
Portfolio to New Pacific Fund. In addition, as of the close of business May 3,
1996, the name of Lincoln Advisor Funds, Inc. was changed to Delaware Group
Adviser Funds, Inc. As of December 18, 1997, the name of Word Growth Fund
changed to Overseas Equity Fund.
Noncumulative Voting
Adviser Funds, Inc.'s 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 SEC.
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APPENDIX A--DESCRIPTION OF RATINGS
U.S. Growth Fund has the ability to invest up to 10% of its net assets
in high yield, high risk fixed-income securities. The following paragraphs
contain excerpts from Moody's and S&P's rating descriptions. These credit
ratings evaluate only the safety of principal and interest and do not consider
the market value risk associated with high yield securities.
General Rating Information
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
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C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior obligations which have an original maturity not
exceeding one year.
P-1: Issuers rated "PRIME-1" or "P-1" (or supporting institutions) have
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "PRIME-2" or "P-2" (or supporting institutions) have
a strong ability for repayment of senior short-term debt obligations.
P-3: Issuers rated "PRIME-3" or "P-3" (or supporting institutions) have
an acceptable ability for repayment of senior short-term debt obligations.
MUNICIPAL NOTE RATINGS
Issuers or the features associated with Moody's MIG or VMIG ratings are
identified by date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.
MIG 1/VMIG 1: This designation denotes best quality.
There is present strong protection by established
cash flows, superior liquidity support, or
demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2: This designation denotes high quality.
Margins of protection are ample although not so large
as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality.
All security elements are accounted for but there is
lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to
be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality.
Protection commonly regarded as required of an
investment security is present and although not
distinctly or predominantly speculative, there is
specific risk.
STANDARD & POOR'S RATINGS GROUP
BOND RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
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A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest an repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC and CC: Debt rated BB, B, CCC or CC is regarded, on balance,
as predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C: This rating is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. A plus (+) designation is
applied only to those issues rated A-1 which possess an overwhelming degree of
safety.
A-2: Capacity for timely payment on issues with the designation A-2 is
strong. However, the relative degree of safely is not as high as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
MUNICIPAL NOTE RATINGS
An S&P municipal note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
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Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
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APPENDIX B--INVESTMENT OBJECTIVES OF THE OTHER FUNDS IN THE DELAWARE
INVESTMENTS FAMILY
Following is a summary of the investment objectives of the other funds
in the Delaware Investments family:
Delaware Balanced 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.
Small Cap 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 Equity 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. Growth and Income Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Social Awareness Fund seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.
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. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. High-Yield Opportunities Fund seeks to provide
investors with total return and, as a secondary objective, high current income.
Corporate Bond Fund seeks to provide investors with total return by investing
primarily in corporate bonds. Extended Duration Bond Fund seeks to provide
investors with total return by investing primarily in corporate bonds
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.
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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.
REIT Fund seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.
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 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 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. Tax- Free
New Jersey Fund seeks a high level of current interest income exempt from
federal income tax and New Jersey state and local taxes, consistent with
preservation of capital. Tax-Free Ohio Fund seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital.
Foundation Funds are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). Foundation
Funds Income Portfolio seeks a combination of current income and preservation of
capital with capital appreciation by investing primarily in a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. Foundation Funds Balanced Portfolio seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. Foundation Funds Growth Portfolio seeks long-term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.
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 Equity Fund seeks to achieve
long-term total return by investing in global securities that provide the
potential for capital appreciation and income. 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, Inc. offers various funds available
exclusively as funding vehicles for certain insurance company separate accounts.
Decatur Total Return 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. Delchester 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
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by investing in a diversified portfolio of short- and intermediate-term
securities. Cash Reserve Series seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware 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. Small Cap Value Series seeks
capital appreciation by investing primarily in small-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. Trend 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. Strategic Income Series seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
Devon Series seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. Emerging Markets Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. Convertible Securities Series seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. Social Awareness Series seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT Series seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry.
Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide
a high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.
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Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level
of current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware-Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital. Delaware-
Voyageur Tax-Free Idaho Fund seeks to provide a high level of current income
exempt from federal income tax and the Idaho personal income tax, consistent
with the preservation of capital. Delaware-Voyageur Minnesota High Yield
Municipal Bond Fund seeks to provide a high level of current income exempt from
federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level
of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
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individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.
For more complete information about any of the funds in the Delaware
Investments family, 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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FINANCIAL STATEMENTS
Ernst & Young LLP serves as the independent auditors for Delaware
Group Adviser Funds, Inc. and, in its capacity as such, audits the financial
statements contained in the Funds' Annual Report. The Funds' Statements of Net
Assets, Statements of Assets and Liabilities, Statements of Operations,
Statements of Changes in Net Assets, Financial Highlights and Notes to Financial
Statements, as well as the report of Ernst & Young LLP, independent auditors,
for the fiscal year ended October 31, 1998 are included in the Funds' Annual
Report to shareholders. The financial statements and financial highlights, the
notes relating thereto and the report of Ernst & Young LLP are incorporated by
reference from the Annual Report into this Part B. The Fund's previous auditors
audited the financial highlights of the Funds for the fiscal periods ending on
or before October 31, 1996.
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<TABLE>
<CAPTION>
<S> <C>
Delaware Investments includes funds with a wide range of investment ---------------------------------------------------
objectives. Stock funds, income funds, national and state-specific tax-exempt DELAWARE GROUP ADVISER FUNDS, INC.
funds, money market funds, global and international funds and closed-end funds ---------------------------------------------------
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, shareholders of the Fund Classes should ---------------------------------------------------
contact their financial adviser or call Delaware Investments at 800-523- 1918 U.S. GROWTH FUND
and shareholders of the Institutional Classes should contact Delaware OVERSEAS EQUITY FUND
Investments at 800-510-4015. NEW PACIFIC FUND
---------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103
INVESTMENT SUB-ADVISERS
Lynch & Mayer, Inc.
520 Madison Avenue
New York, NY 10022
Delaware International Advisers Ltd.
Third Floor, 80 Cheapside
London, England EC 2V 6EE
AIB Govett, Inc.
250 Montgomery Street, Suite 1200 PART B
San Francisco, CA 94104
STATEMENT OF
NATIONAL DISTRIBUTOR ADDITIONAL INFORMATION
Delaware Distributors, L.P.
1818 Market Street ---------------------------------------------------
Philadelphia, PA 19103
March 1, 1999
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
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
Ernst & Young LLP
Two Commerce Square DELAWARE
Philadelphia, PA 19103 INVESTMENTS
===========
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
</TABLE>
