AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
Registration Nos.
33-64667
811-07439
==================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [X]
(Check appropriate box or boxes.)
MANNING & NAPIER INSURANCE FUND, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
1100 Chase Square
Rochester, New York 14604
___________________________________________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (716) 325-6880
B. Reuben Auspitz
c/o Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
(Name and Address of Agent For Service)
Copies to:
Judith A. Hasenauer, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
====================================================================
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/X / on May 1, 1999 pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered: Investment Company Shares
====================================================================
<PAGE>
[Logo]
Prospectus
Manning & Napier Insurance Fund, Inc.
May 1, 1999
Moderate Growth Portfolio
Growth Portfolio
Maximum Horizon Portfolio
Small Cap Portfolio
Equity Portfolio
Bond Portfolio
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
[this page intentionally blank]
<PAGE>
Contents
Page
Goals, strategies, and risks
Moderate Growth Portfolio 4
Growth Portfolio 6
Maximum Horizon Portfolio 8
Small Cap Portfolio 10
Equity Portfolio 12
Bond Portfolio 14
More about the portfolios' investments 16
Management 17
Purchases and Redemptions 18
Valuation of shares 18
Year 2000 Issue 18
Dividends, distributions and taxes 18
Financial Highlights 19
Shares of the fund are offered to life insurance companies for allocation to
certain of their variable annuity contracts and variable life insurance
policies.
<PAGE>
Goals, Strategies, and Risks
Moderate Growth Portfolio
Investment goals
Equal emphasis on long-term growth of capital and preservation of capital.
Key investments and strategies
The Moderate Growth Portfolio is one of three asset allocation portfolios in the
fund, and it is managed more conservatively than the Growth Portfolio and the
Maximum Horizon Portfolio. From time-to-time the advisor will vary the
proportions invested in common stocks, fixed income securities, and cash. This
decision will be based on the advisor's view of the relative attractiveness of
each asset class in light of market and economic conditions and the investment
goals of the portfolio. Decisions on the specific securities within the stock
and bond portions of the portfolio are based on valuations and expected returns
of the sectors within each category.
The portfolio invests primarily in stocks and intermediate to long-term, fixed
income securities of the U.S. government and U.S. companies. The portfolio may
also invest in American Depository Receipts (ADRs) and other U.S. dollar
denominated securities of foreign issuers, including those in emerging markets.
The advisor typically focuses on fixed income securities with maturities of 5 to
10 years but may invest in securities of any maturity. The advisor seeks to
balance conflicting goals of growth of capital and preservation of capital in
order to generate a more stable rate of growth for this portfolio relative to an
investment in the general stock market.
Summary of past performance
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to those of the Lehman Brothers Intermediate Bond Index
and a blended index, 30% of which is the Standard & Poor's 500 Composite Stock
Price Index and 70% of which is the Lehman Brothers Intermediate Bond Index.
Since the portfolio's' asset allocation may vary over time, the portfolio's'
composition may not match the benchmarks' composition at any given time.
The Lehman Brothers Intermediate Bond Index is an unmanaged index of corporate
and government bonds with maturities ranging from one to ten years. The S&P
500 Composite Stock Price Index is an unmanaged index of common stocks.
[Bar chart showing the percent total return for the Moderate Growth Portfolio
for 1997 and 1998, with calendar years ended December 31st. The results are
12.73% for 1997 and 6.25% for 1998.]
<TABLE>
<CAPTION>
Avg. Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ---------------------------- ---------------------------
<S> <C> <C>
Moderate Growth Portfolio. . 6.25% 9.23%
----- -----
Indices:
Lehman Brothers
Intermed. Bond Index . . 8.44% 7.83%
----- ------
30%-70% Blended Index. . . 14.75% 14.86%
- ---------------------------- ------ ------
Quarterly returns
Highest: . . . . . . . . . . 6.46% in 2nd quarter 1997
- ---------------------------- ---------------------------
Lowest:. . . . . . . . . . . -2.90% in 3rd quarter 1998
- ---------------------------- ---------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, Strategies, and Risks
Moderate Growth Portfolio
Principal risks of investing in the portfolio
Because the portfolio invests in both stocks and bonds, the value of your
investment may fluctuate in response to stock market movements and changes in
interest rates. This means that you could lose money on your investment in the
portfolio or the portfolio could underperform if any of the following occurs:
U.S. and/or foreign stock or bond markets decline.
An adverse event, such as an unfavorable earnings report, depresses the
value of a particular company's stock.
Interest rates go up, which will make bond prices go down and reduce the
value of the portfolio's bond portfolio.
The issuer of a bond owned by the portfolio defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded. This risk is
higher for lower quality bonds.
Because the portfolio may invest in U.S. dollar denominated securities of
foreign issuers, the value of your investment may decline if prices of foreign
securities go down because of foreign government actions, political instability
or the more limited availability of accurate information about foreign
companies. These risks may be more severe for securities of issuers in emerging
markets.
The value of your investment may also decline if the advisor's judgments about
the attractiveness, relative value or potential appreciation of a particular
sector, security, country or hedging strategy prove to be incorrect.
<PAGE>
Goals, Strategies, and Risks
Growth Portfolio
Investment goals
Primary: Long-term growth of capital.
Secondary: Preservation of capital.
Key investments and strategies
The Growth Portfolio is one of three asset allocation portfolios in the fund; it
is managed more aggressively than the Moderate Growth Portfolio and more
conservatively than the Maximum Horizon Portfolio. From time-to-time the
advisor may vary the proportions invested in common stocks, fixed income
securities, and cash. This decision will be based on the advisor's view of the
relative attractiveness of each asset class in light of market and economic
conditions and the investment goals of the portfolio. Decisions on the specific
securities within the stock and bond portions of the portfolio are based on
valuations and expected returns of the sectors within each category.
The portfolio invests primarily in stocks and securities convertible into stock,
but may also invest a substantial portion of its assets in long-term, fixed
income securities of the U.S. government and U.S. companies. The portfolio may
also invest in American Depository Receipts (ADRs) and other U.S. dollar
denominated securities of foreign issuers, including those in emerging markets.
The advisor typically focuses on fixed income securities with maturities of 7 to
20 years but may invest in securities of any maturity. By focusing on growth of
capital and, to a lesser extent on preservation of capital, the advisor seeks to
participate, over the long term, in the growth of the stock market, but with
less volatility than is typically associated with an investment in the general
stock market.
Summary of past performance
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to those of the Merrill Lynch Corporate and Government
Master Bond Index and a blended index, 50% of which is the Standard & Poor's 500
Composite Stock Price Index and 50% of which is the Lehman Brothers Aggregate
Bond Index. Since the portfolio's asset allocation may vary over time, the
portfolio's composition may not match the benchmarks' composition at any given
time.
The Merrill Lynch Corporate and Government Master Bond Index is comprised of
investment grade securities with maturities greater than one year. The S&P 500
Composite Stock Price Index is an unmanaged index of common stocks. The Lehman
Brothers Aggregate Bond Index is an unmanaged index of investment grade bonds
and mortgage-backed securities with maturities of at least one year.
[Bar chart showing the percent total return for the Growth Portfolio for 1997
and 1998, with calendar years ended December 31st. The results are 19.23% for
1997 and 2.07% for 1998.
<TABLE>
<CAPTION>
Avg. Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ------------------------------------------------------
<S> <C> <C>
Growth Portfolio . . .. . . . 2.07% 10.74%
------ -----
Indices:
M. L. Corporate and
Government Master Bond Index 9.53% 9.26%
----- -----
50%-50% Blended Index. . . . 19.00% 20.11%
- --------------------------------- ----- -----
Quarterly returns
Highest: . . . . . . . . . . 11.18% in 2nd quarter 1997
- ---------------------------- ---------------------------
Lowest . . . .. . . . . . . -9.31% in 3rd quarter 1998
- --------------------------- ---------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, Strategies, and Risks
Growth Portfolio
Principal risks of investing in the portfolio
Because the portfolio invests in both stocks and bonds, the value of your
investment may fluctuate in response to stock market movements and changes in
interest rates. This means that you could lose money on your investment in the
portfolio or the portfolio could underperform if any of the following occurs:
U.S. and/or foreign stock or bond markets decline.
An adverse event, such as an unfavorable earnings report, depresses the
value of a particular company's stock.
Interest rates go up, which will make bond prices go down and reduce the
value of the portfolio's bond holdings.
The issuer of a bond owned by the portfolio defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded. This risk is
higher for lower quality bonds.
Because the portfolio may invest in U.S. dollar denominated securities of
foreign issuers, the value of your investment may decline if prices of foreign
securities go down because of foreign government actions, political instability
or the more limited availability of accurate information about foreign
companies. These risks may be more severe for securities of issuers in emerging
markets.
The value of your investment may also decline if the advisor's judgments about
the attractiveness, relative value or potential appreciation of a particular
sector, security, country or hedging strategy prove to be incorrect.
<PAGE>
Goals, Strategies, and Risks
Maximum Horizon Portfolio
Investment goals
Long-term growth of capital.
Key investments and strategies
The Maximum Horizon Portfolio is one of three asset allocation portfolios in the
fund, and it is managed more aggressively than the Moderate Growth Portfolio and
the Growth Portfolio. From time-to-time the advisor may vary the proportions
invested in common stocks, fixed income securities, and cash. This decision
will be based on the advisor's view of the relative attractiveness of each asset
class in light of market and economic conditions and the investment goals of the
portfolio. Decisions on the specific securities within the stock and bond
portions of the portfolio are based on valuations and expected returns of the
sectors within each category.
The portfolio invests primarily in common stocks, but may invest to a limited
extent in fixed income securities of the U.S. government and U.S. companies.
The portfolio may also invest in American Depository Receipts (ADRs) and other
U.S. dollar denominated securities of foreign issuers, including those in
emerging markets. The advisor seeks to generate the high level of long-term
capital growth typically associated with an investment in the general stock
market for this portfolio.
Summary of past performance
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to those of the Standard & Poor's 500 Composite Stock
Price Index. Since the portfolio's asset allocation may vary over time, the
portfolio's composition may not match the benchmark's composition at any given
time. The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks.
<PAGE>
[Bar chart showing the percent total return for the Maximum Horizon Portfolio
for 1997 and 1998, with calendar years ended December 31st. The results are
23.69% for 1997 and 3.91% for 1998.
<TABLE>
<CAPTION>
Avg. Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ---------------------------- ----------------------------
<S> <C> <C>
Maximum Horizon Portfolio. . 3.91% 14.53%
----- ------
S&P 500 Index. . . . . . . . 28.58% 31.46%
- ---------------------------- ------ ------
Quarterly returns
Highest: . . . . . . . . . . 20.05% in 4th quarter 1998
- ---------------------------- ----------------------------
Lowest:. . . . . . . . . . . -19.73% in 3rd quarter 1998
- ---------------------------- ----------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, Strategies, and Risks
Maximum Horizon Portfolio
Principal risks of investing in the portfolio
As with any growth fund, the value of your investment typically will fluctuate
in response to stock market movements. This means that you could lose money on
your investment in the portfolio or the portfolio could underperform if any of
the following occurs:
U.S. and/or foreign stock or bond markets decline.
An adverse event, such as an unfavorable earnings report, depresses the
value of a particular company's stock.
Because the portfolio may also invest in bonds and U.S. dollar denominated
securities of foreign issuers, the portfolio carries additional risks. If
interest rates go up, bond prices will generally go down and reduce the value of
the portfolio's bond portfolio. Prices of foreign securities may go down
because of foreign government actions, political instability or the more limited
availability of accurate information about foreign companies. These risks may
be more severe for securities of issuers in emerging markets.
The value of your investment may also decline if the advisor's judgments about
the attractiveness, relative value and potential appreciation of a particular
security or strategy prove to be incorrect.
<PAGE>
Small Cap Portfolio
Goals, strategies, and risks
Investment goal
Provide long-term growth of capital by investing principally in the common
stocks of small companies.
Key investments
The portfolio invests primarily in common stocks of small companies. The
portfolio defines a small company generally as one with a market capitalization
of less than $1.7 billion. The portfolio may also invest to a limited extent in
American Depository Receipts (ADRs) and common stocks of foreign companies. In
addition, the portfolio may hold sizable investments in cash and short-term
fixed income securities when the advisor is unable to find appropriate
investments.
Investment strategies
The advisor uses a "bottom-up" strategy, focusing on individual security
selection. The advisor analyzes factors such as the management, financial
condition, and market position of individual companies to select small companies
that it believes will make attractive long-term investments. The advisor looks
for one or more of the following characteristics:
Strong strategic profiles (e.g., strong market position, benefits from
technology, capital appreciation in a mature market and high barriers to entry).
Improving market share in consolidating industries.
Low price relative to fundamental or break-up value.
Summary of past performance
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to those of the Standard & Poor's 500 Composite Stock
Price Index, an unmanaged index of common stocks, and the Russell 2000 Index, an
unmanaged index of small company stocks.
<PAGE>
[Bar chart showing the percent total return for the Small Cap Portfolio for 1997
and 1998, with calendar years ended December 31st. The results are 13.23% for
1997, and -11.18% for 1998.]
<TABLE>
<CAPTION>
Average Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ----------------------------- ----------------------------
<S> <C> <C>
Small Cap Portfolio . . . . . -13.59% 3.53%
------- ------
S&P 500 Index . . . . . . . . 28.58% 31.46%
------- ------
Russell 2000 Index. . . . . . -2.55% 11.37%
- ----------------------------- ------ ------
Quarterly returns
- -----------------------------
Highest:. . . . . . . . . . . 22.40% in 2nd quarter 1997
- ----------------------------- ----------------------------
Lowest: . . . . . . . . . . . -26.90% in 3rd quarter 1998
- ----------------------------- ----------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, strategies, and risks
Small Cap Portfolio
Principal risks of investing in the portfolio
As with any stock portfolio, the value of your investment may fluctuate in
response to stock market movements. You could lose money on your investment in
the portfolio or the portfolio could underperform if any of the following
occurs:
The U.S. and/or foreign stock markets go down.
Small company stocks go down in value or underperform larger company
stocks.
An adverse event, such as an unfavorable earnings report, depresses the
value of a particular company's stock.
The advisor's judgments about the attractiveness, relative value or
potential appreciation of a security or strategy prove to be incorrect.
In addition to the general risks of stock funds, the portfolio has special risks
due to its concentration in small company stocks. These risks include the
following:
The stocks of small companies may be subject to more abrupt or erratic
market movements than the stocks of larger companies.
The stocks of small companies may be less marketable than the stocks of
larger companies.
Small companies may have limited product lines, markets, or financial
resources, and they may depend on a small management group. As a result, small
companies fail more often than larger companies.
At times the portfolio may hold a sizable cash position, which may reduce the
portfolio's performance during periods when small company stocks are increasing
in value.
<PAGE>
Goals, Strategies, and Risks
Equity Portfolio
Investment goals
Long-term growth of capital.
Key investments
The portfolio invests primarily in common stocks of U.S. companies. The
portfolio may also invest in American Depository Receipts (ADRs) and other U.S.
dollar denominated securities of foreign issuers, including those in emerging
markets. The advisor seeks to generate the high level of long-term capital
growth typically associated with an investment in the general stock market for
this portfolio.
Investment Strategies
The advisor uses a "bottom-up" strategy, focusing on individual security
selection. The advisor analyzes factors such as the management, financial
condition, and market position of individual companies to select companies that
it believes will make attractive long-term investments. The advisor looks for
one or more of the following characteristics:
Strong strategic profiles (e.g., strong market position, benefits from
technology, capital appreciation in a mature market and high barriers to entry).
Improving market share in consolidating industries.
Low price relative to fundamental or break-up value.
Summary of past performance
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to those of the Standard & Poor's 500 Composite Stock
Price Index. The S&P 500 Composite Stock Price Index is an unmanaged index of
common stocks.
[Bar chart showing the percent total return for the Equity Portfolio for 1997
and 1998, with calendar years ended December 31st. The results are 21.46% for
1997 and 3.69% for 1998.
<TABLE>
<CAPTION>
Avg. Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ---------------------------- ----------------------------
<S> <C> <C>
Equity Portfolio . . . . . . 3.69% 14.06%
------ ------
S&P 500 Index. . . . . . . . 28.58% 31.46%
- ---------------------------- ------ ------
Quarterly returns
Highest: . . . . . . . . . . 27.51% in 4th quarter 1998
- ---------------------------- ----------------------------
Lowest:. . . . . . . . . . . -21.57% in 3rd quarter 1998
- ---------------------------- ----------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, Strategies, and Risks
Equity Portfolio
Principal risks of investing in the portfolio
As with any growth fund, the value of your investment will typically fluctuate
in response to stock market movements. This means that you could lose money on
your investment in the portfolio or the portfolio could underperform if any of
the following occurs:
U.S. and/or foreign stock markets decline.
An adverse event, such as an unfavorable earnings report, depresses the
value of a particular company's stock.
Because the portfolio may also invest in U.S. dollar denominated securities of
foreign issuers, the portfolio carries additional risks. Prices of foreign
securities may go down because of foreign government actions, political
instability or the more limited availability of accurate information about
foreign companies. These risks may be more severe for securities of issuers in
emerging markets.
The value of your investment may also decline if the advisor's judgments about
the attractiveness, relative value and potential appreciation of a particular
security or strategy prove to be incorrect.
<PAGE>
Goals, Strategies, and Risks
Bond Portfolio Yield Series III
Investment goal
Maximize total return (e.g., a combination of income and capital appreciation)
consistent with preservation of capital.
Key investments and strategies
The portfolio invests primarily in fixed income securities of governmental and
corporate issuers located in the United States and foreign countries. These
include mortgage-backed securities.
Maturity
The fund is not subject to any maturity restrictions but may vary its average
dollar-weighted portfolio maturity depending on the advisor's outlook for
interest rates.
Credit quality
The fund invests primarily in investment grade securities but may invest up to
20% of assets in lower quality bonds, commonly known as "junk bonds."
Bond selection process
The advisor emphasizes those bond market sectors and selects for the portfolio
those securities that it believes offer yields sufficient to compensate the
investor for the risks specific to the sector or security. In analyzing the
relative attractiveness of sectors and individual securities, the advisor
considers:
Interest rate sensitivity of particular sectors and securities.
Narrowing or widening of interest rate spreads between sectors, securities
of different credit quality or securities of different maturities.
For mortgage-backed and asset-backed securities, anticipated changes in
average prepayment rates.
The bar chart and total return table provide some indication of the risks of
investing in the portfolio. The bar chart shows changes in the performance of
the portfolio for each full calendar year since its inception. The total return
table shows how the average annual total returns of the portfolio for different
calendar periods compare to that of the Merrill Lynch Corporate and Government
Master Bond Index.
The Merrill Lynch Corporate and Government Master Bond Index is comprised of
investment grade securities with maturities greater than one year.
<PAGE>
[Bar chart showing the percent total return for the Bond Portfolio for 1997 and
1998, with calendar years ended December 31st. The results are 9.81% for 1997
and 9.65% for 1998.
<TABLE>
<CAPTION>
Avg. Annual Total Returns Since Inception on
(for periods ended 12/31/98) 1 Year 11/1/96
- ----------------------------- ---------------------------
<S> <C> <C>
Bond Portfolio. . . . . . . . 9.65% 8.65%
------ -----
M.L. Corporate and
Government Master Bond Index. 9.53% 9.26%
- ----------------------------- ------- -----
Quarterly returns
Highest:. . . . . . . . . . . 5.56% in 3rd quarter 1998
- ----------------------------- ---------------------------
Lowest: . . . . . . . . . . . -1.71% in 1st quarter 1997
- ----------------------------- ---------------------------
</TABLE>
Past performance does not necessarily indicate how the portfolio will perform in
the future. In addition, the fees and expenses related to your variable annuity
contract or variable life policy have not been included in the calculation of
performance shown. Therefore, the actual performance you would have received
through your contract or policy would have been less than the results shown.
<PAGE>
Goals, strategies, and risks
Bond Portfolio
Principal risks of investing in the portfolio
As with most bond funds, the value of your investment will typically fluctuate
with changes in interest rates. This means that you could lose money on your
investment in the portfolio or the portfolio could underperform if any of the
following occurs:
Interest rates go up, which will make bond prices go down and reduce the
value of the portfolio's holdings.
The issuer of a bond owned by the portfolio defaults on its obligation to
pay principal and/or interest or has its credit rating downgraded. This risk is
higher for lower quality bonds.
As interest rates decline, the issuers of securities held by the portfolio
may prepay principal earlier than scheduled, forcing the portfolio to reinvest
in lower yielding securities (prepayment or call risk).
As interest rates increase, slower than expected principal payments may
extend the average life of fixed income securities, locking in below-market
interest rates and reducing the value of those securities (extension risk).
The advisor's judgments about the attractiveness, relative value or
potential appreciation of a particular sector, security or hedging strategy
prove to be incorrect.
Since the portfolio has no stated maturity target, the portfolio may experience
greater price volatility than a fund investing in shorter-term bonds in reaction
to changing interest rates.
<PAGE>
More about the portfolio's investments
Principal investments
EQUITY SECURITIES Each of the portfolios, with the exception of the Bond
Portfolio, may invest in equity securities. These equity securities may include
exchange-traded and over-the-counter (OTC) common and preferred stocks,
warrants, rights, convertible debt securities, trust certificates, partnership
interests and equity participations.
FOREIGN SECURITIES The Bond Portfolio may invest in foreign bonds. Each
of the other portfolios may also invest in foreign securities of the same types
and quality as the domestic securities in which it may invest. Foreign
securities may be denominated either in U.S. dollars or in foreign currencies.
Prices of foreign securities may go down because of foreign government actions,
political instability or the more limited availability of accurate information
about foreign companies.
FIXED INCOME SECURITIES The Bond Portfolio invests primarily in a variety
of fixed income investments. These securities may be issued by the U.S.
government or any of its agencies, foreign governments, supranational entities
such as the World Bank, and U.S. and foreign companies. Investments in fixed
income securities may be of any credit quality and have all types of interest
rate payment and reset terms, including fixed rate, adjustable rate, zero coupon
and pay in kind.
SHORT-TERM FIXED INCOME SECURITIES During periods when the advisor is
unable to identify appropriate investments, each portfolio may invest in fixed
income securities as a temporary investment. These securities will primarily
consist of short-term obligations of the U.S. government and its agencies and
money market instruments.
HIGH-YIELD BONDS Each portfolio may invest up to 20% of its assets in
high-yield bonds. High-yield bonds are lower-rated debt securities often
referred to as "junk bonds." These securities offer a higher yield than other
securities, but they carry a greater degree of risk and are considered
speculative by the major credit rating agencies. High-yield securities may be
issued by companies that are restructuring, are smaller and less creditworthy,
or are more highly indebted than other companies. This means that the issuer
may have more difficulty making scheduled payments of principal and interest.
Compared to investment grade securities, high-yield bonds are influenced more by
changes in the financial and business position of the issuing company than by
changes in interest rates.
Portfolio turnover
Portfolio turnover occurs when securities are sold in a portfolio and new
securities are purchased. High portfolio turnover may lead to higher expenses
for a portfolio due to increased brokerage fees and other related expenses.
Portfolio turnover of over 100% is considered high.
Defensive investing
The portfolios may depart from their principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. If a portfolio takes a temporary defensive position, it
may be unable to achieve its investment goal.
The Portfolios' investment goals
The portfolios' board of directors may change their investment goals (described
above under "Goals and strategies") without obtaining the approval of the
shareholders. The portfolios might not succeed in achieving their goals.
<PAGE>
Management
The fund's advisor is Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, New York 14604. Manning & Napier Advisors, Inc. was founded in 1970,
and manages over $7 billion for individual and institutional investors. The
advisor is responsible for the day-to-day operations of the fund and generally
is responsible for supervision of the fund's overall business affairs, service
providers and officers. A team made up of investment professionals and analysts
makes all of the portfolio's investment decisions.
In return for the services it provides to each portfolio, the advisor receives a
management fee, which is computed daily and payable monthly by the portfolios as
described below. The advisor has agreed to limit the portfolios' management
fees and other expenses. These limitations are temporary and may be changed at
any time.
<TABLE>
<CAPTION>
Annual Management Fees (as a percentage of daily net assets)
Actual
management
fee paid for Contractual Current
year ended management expense
12/31/98 fee limitation
Portfolio
<S> <C> <C> <C>
Moderate Growth Portfolio 0% 1.00% 1.20%
Growth Portfolio. . . . . 0% 1.00% 1.20%
Maximum Horizon Portfolio 0% 1.00% 1.20%
Small Cap Portfolio . . . 0% 1.00% 1.20%
Equity Portfolio. . . . . 0% 1.00% 1.20%
Bond Portfolio. . . . . . 0% 0.50% 0.85%
</TABLE>
The advisor may use its own resources to engage in activities that may promote
the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance.
Shares of the fund are offered to life insurance companies ("life companies")
for allocation to variable annuity contracts and variable life insurance
contracts ("variable contracts"). Shares of the fund are not offered or sold
directly to the public. Investors may only invest in the portfolios through
variable contracts purchased from a life company. The insurance company will be
a legal shareholder in the portfolio. Variable contract owners are not
shareholders in the fund, but have a beneficial interest in it. Although
variable contract owners do not have the same rights as direct shareholders,
they are given many similar rights, such as voting rights under the rules of the
Securities and Exchange Commission that apply to registered investment
companies. Within limitations described in their variable contract, owners may
allocate the amounts under the contracts for ultimate investment in the various
portfolios of the fund. See the prospectus for the variable contract for a
description of (a) the variable contract, (b) the portfolios of the fund that
are available under that contract, and (c) the relationship between increases or
decreases in the net asset value of fund shares (and any dividends or
distributions on such shares) and the benefits provided under the contract.
It is conceivable that in the future it may be disadvantageous for different
types of variable life insurance and variable annuity contracts to invest
simultaneously in the fund. However, the fund does not currently foresee any
such disadvantages. The fund's board of directors intends to monitor for the
existence of any material irreconcilable conflict between or among such owners,
and the life insurance companies will take whatever remedial action may be
necessary.
The distributor of the fund's shares is Manning & Napier Investor Services, Inc.
The distributor receives no fee from the fund and there are no additional costs
to shareholders for this service. The advisor may, from its own resources,
defray or absorb costs relating to distribution, including compensation of
employees who are involved in distribution.
<PAGE>
Purchases and Redemptions
The separate accounts of life insurance companies place orders to purchase and
redeem shares of each portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be
effected on that day pursuant to the variable contracts issued by life insurance
companies. Orders received in good order by the fund before the close of
trading on the New York Stock Exchange (NYSE) will be executed at that day's
share price. Orders received in good order after that day's close will be
executed at the next business day's price. The fund may suspend the sale of
shares at any time and may refuse any order to purchase shares.
Payment for redemptions will be made within three days after receipt of a
redemption request in good order. The fund may postpone payment of redemption
proceeds for up to seven days, or suspend redemptions to the extent permitted by
law. The fund may make payment for shares in part by giving the life insurance
company, as shareholder, portfolio securities. A shareholder that received a
redemption in kind might incur brokerage costs in converting the assets into
cash.
Valuation of shares
The portfolios offer their shares at the net asset value (NAV) per share of the
portfolios. The portfolios calculate their NAVs once daily as of the close of
regular trading on NYSE (generally at 4:00 p.m., New York time) on each day the
exchange is open. If the exchange closes early, the portfolios will accelerate
the calculation of NAV and transaction deadlines to that time.
The portfolios value the securities in their portfolios on the basis of market
quotations and valuations provided by independent pricing services. If
quotations are not readily available, or the value of a security has been
materially affected by events occurring after the closing of a foreign exchange,
the portfolios value their assets by a method that the directors believe
accurately reflects fair value. If a portfolio uses fair value to price
securities, it may value those securities higher or lower than another portfolio
that uses market quotations to price the same securities.
The foreign securities held by the portfolios may be listed on foreign exchanges
that trade on days when the NYSE is not open and the portfolios do not price
their shares. As a result, the net asset value of a portfolio may change at a
time when shareholders are not able to purchase or redeem shares.
Year 2000 issue
Information technology experts are concerned about computer systems' ability to
process date-related information on and after January 1, 2000. This situation,
commonly known as the "Year 2000" issue, could have an adverse impact on the
portfolio. The cost of addressing the Year 2000 issue, if substantial, could
adversely affect companies and governments that issue securities held by the
portfolios. The advisor and the distributor are addressing the Year 2000 issue
for their systems. Its other service providers have informed the fund that they
are taking similar measures. Although the fund does not expect the Year 2000
issue to adversely affect it, the fund cannot guarantee that the efforts of the
fund or its service providers to correct the problem will be successful.
Dividends, distributions and taxes
Dividends and distributions
Each portfolio generally pays dividends and makes capital gains distributions
once a year, in December. Each portfolio also may pay additional distributions
and dividends at other times if necessary for the portfolio to avoid a federal
tax. Capital gain distributions and dividends paid by each portfolio are
reinvested in additional shares of that portfolio unless an election has been
made on behalf of a life insurance company separate account to receive
distributions in cash.
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the
portfolios' financial performance for the period of the portfolios' operations.
Certain information reflects financial results for a single share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the portfolio (assuming reinvestment of all dividends and
distributions). Your total return would be less due to the fees and charges
under your variable annuity contract or variable life insurance policy. This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the portfolios' financial statements, are included in the annual report,
which is available upon request.
<PAGE>
Financial Highlights
MANNING & NAPIER INSURANCE FUND, INC.
<TABLE>
<CAPTION>
Moderate
Growth Growth
Portfolio Portfolio
- ---------- -----------
For the For the For the For the For the For the
year year period year year period
ended ended 11/1/96 1 to ended ended 11/1/96 1 to
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97 12/31/96
- ---------- ----------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD
$ 11.33 $ 10.11 $ 10.00 $12.17 $ 10.25 $ 10.00
- ---------- ----------- ------------- ---------- ----------- -------------
Income from investment operations:
Net investment income*
0.343 0.357 0.065 0.202 0.166 0.050
Net realized and unrealized gain (loss)
on investments
0.293 0.928 0.045 0.003 4 1.804 0.200
- ----------- ----------- ------------- ---------- ----------- -------------
Total from investment operations
0.636 1.285 0.110 0.205 1.970 0.250
- ----------- ----------- ------------- ---------- ----------- -------------
Less distributions to shareholders:
From net investment income
(0.357) (0.065) -- (0.087) (0.050) --
From net realized gain on investments
(0.659) -- -- (0.388) -- --
- ----------- ----------- ------------- ---------- ----------- -------------
Total distributions to shareholders
(1.016) (0.065) -- (0.475) (0.050) --
- ----------- ----------- ------------- ---------- ----------- -------------
NET ASSET VALUE - END OF PERIOD
$ 10.95 $ 11.33 $ 10.11 $ 11.90 $ 12.17 $ 10.25
=========== =========== ============= ========== =========== =============
Total return 2
6.25% 12.73% 1.10% 2.07% 19.23% 2.50%
Ratios to average net
assets / Supplemental Data:
Expenses *
1.20% 1.20% 1.20% 1.20% 1.20% 1.20%3
Net investment income *
3.25% 3.35% 4.08% 2.47% 2.42% 3.11%3
Portfolio turnover
69% 53% 0% 138% 90% 3%3
NET ASSETS - END OF PERIOD
$ 614,757 $ 318,228 $ 129,874 $ 153,324 $ 144,386 $ 128,104
=========== =========== ============= ========== =========== =============
<FN>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred
by the Fund, and had 1996 expenses been limited by state securities law,
the net investment income per share and the ratios would have been as follows:
Net investment income (loss) $(0.516) $(1.024) $ 0.044 $0.030 $(0.505)
$0.029
Ratios (to average net assets):
Expenses 9.34% 14.16% 2.50%3 3.30% 10.98%
2.50%3
Net investment income (loss) (4.89)% (9.61)% 2.78%3 0.37% (7.36)%
1.81%3
</TABLE>
1 Commencement of operations.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of
sales and repurchases of fund shares in relation to fluctuating market
values of the investments of the Fund.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Highlights - continued
MANNING & NAPIER INSURANCE FUND, INC.
<TABLE>
<CAPTION>
Maximum Horizon Portfolio Small Cap Portfolio
----------------- ---------------
For the For the For the For the For the For the
year year period year year period
ended ended 11/1/96 1 to ended ended 11/1/96 1 to
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97 12/31/96
<C> <C> <C> <C> <C> <C>
- ----------- -------- --------- ----------- --------- ------------
Per share data (for a share outstanding
throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD
$ 12.89 $ 10.44 $ 10.00 $ 12.13 $ 10.72 $ 10.00
- ----------- -------- --------- ----------- -------- ------------
Income from investment operations:
Net investment income (loss)*
0.127 0.093 0.023 0.031 (0.027) 0.009
Net realized and unrealized gain (loss)
on investments
(0.079)4 2.380 0.417 (1.666) 1.446 0.711
- ----------- -------- -------- -------- ---------- ---------
Total from investment operations
0.048 2.473 0.440 (1.635) 1.419 0.720
- --------- ----------- ----------- ---------- --------- --------
Less distributions to shareholders:
From net investment income
(0.163) (0.023) -- -- (0.009) --
From net realized gain on investments
(2.115) -- -- (2.125) -- --
- ----------- ------------ ------------ ---------- --------- ------------
Total distributions to shareholders
(2.278) (0.023) -- (2.125) (0.009) --
- ----------- ----------- ---------- --------- ---------- ------------
NET ASSET VALUE - END OF PERIOD
$ 10.66 $ 12.89 $ 10.44 $ 8.37 $ 12.13 $ 10.72
=========== ======== ======== ========== ========== ============
Total return 2
3.91% 23.69% 4.40% (11.18)% 13.23% 7.20%
Ratios of expenses (to average net
assets) / Supplemental Data:
Expenses *
1.20% 1.20% 1.20%3 1.20% 1.20% 1.20%3
Net investment income (loss)*
1.08% 0.78% 1.43%3 0.33% (0.23%) 0.55%3
Portfolio turnover
100% 120% 4% 155% 72% 9%
NET ASSETS - END OF PERIOD
$170,019 $163,538 $132,216 $139,197 $156,798 $138,374
========= ========= ========= ========= ========= =========
<FN>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred
by the Fund, and had 1996 expenses been limited by state securities law, the
net investment income per share and the ratios would have been as follows:
Net investment income (loss)
($0.723) $ (1.285) $ 0.002 $(0.705) $ (1.357) $(0.012)
Ratios (to average net assets):
Expenses
8.43% 12.76% 2.50%3 9.04% 12.53% 2.50%3
Net investment income (loss)
(6.15)% (10.78)% 0.13%3 (7.51)% (11.56%) (0.75%)3
</TABLE>
1 Commencement of operations.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of fund shares in relation to fluctuating market values of the
investments of the Fund.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Highlights - continued
MANNING & NAPIER INSURANCE FUND, INC.
<TABLE>
<CAPTION>
Equity Portfolio Bond Portfolio
------------------ ----------------
For the For the For the For the For the
year year period year year
ended ended 11/1/96 1 to ended ended
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97
<C> <C> <C> <C> <C>
--------------- ---------- ------------- --------- ----------
Per share data (for a share outstanding
throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD
$ 12.78 $ 10.56 $ 10.00 $10.85 $9.94
- ------------------ ---------- ------------- ---------- --------
Income from investment operations:
Net investment income*
0.115 0.048 0.047 0.552 0.538
Net realized and unrealized gain (loss)
on investments
0.133 2.219 0.513 0.486 0.434
--------------- ---------- ------------- ---------------- ----------
Total from investment operations
0.248 2.267 0.560 1.038 0.972
---------------- ---------- ---------- ---------------- ----------
Less distributions to shareholders:
From net investment income
(0.040) (.047) -- (0.538) (0.062)
From net realized gain on investments
(0.789) -- -- -- --
- ---------------- ---------- ------------- ---------------- ----------
Total distribution to shareholders
(0.838) (0.047) -- (0.538) (0.062)
- ------------------ ---------- ----------- ---------------- ----------
NET ASSET VALUE - END OF PERIOD
$12.19 $12.78 $10.56 $11.35 $10.85
================== ========== ============= ============== ==========
Total return2
3.69% 21.46% 5.60% 9.65% 9.81%
Ratios of expenses (to average net
assets) / Supplemental Data:
Expenses *
1.20% 1.20% 1.20%3 0.85% 0.85%
Net investment income *
0.98% 0.41% 2.84%3 5.09% 5.29%
Portfolio turnover
68% 50% 29% 11% 0%
NET ASSETS - END OF PERIOD
$171,694 $165,489 $136,267 $151,583 $ 138,242
=============== ========== ============= ================ ==========
<FN>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred
by the Fund, and had 1996 expenses been limited by state securities law, the
net investment income per share and the ratios would have been as follows:
Net investment
income (loss)
$(0.737) $ (1.268) $0.025 $(0.333) $(0.827)
Ratios (to average net assets):
Expenses
8.46 % 12.44% 2.50%3 9.01% 14.27%
Net investment income (loss)
(6.28 )% (10.83)% 1.54%3 (3.07)% (8.13)%
</TABLE>
1 Commencement of operations.
2 Represents aggregate total return for the period indicated.
3 Annualized.
<TABLE>
<CAPTION>
For the
period
11/1/96 1 to
12/31/96
-------------
<S> <C>
Per share data (for a share outstanding
throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
-------------
Income from investment operations:
Net investment income* 0.062
Net realized and unrealized gain (loss)
on investments (0.122)
-------------
Total from investment operations (0.060)
-------------
Less distributions to shareholders:
From net investment income --
From net realized gain on investments ---
-------------
Total distribution to shareholders
NET ASSET VALUE - END OF PERIOD $ 9.94
-------------
Total return2 (0.60)%
Ratios of expenses (to average net
assets) / Supplemental Data:
Expenses * 0.85%3
Net investment income * 3.92%3
Portfolio turnover 0%
NET ASSETS - END OF PERIOD $ 125,875
=============
<FN>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred
by the Fund, and had 1996 expenses been limited by state securities law, the
net investment income per share and the ratios would have been as follows:
Net investment
income (loss) $0.036
Ratios (to average net assets):
Expenses 2.50%3
Net investment income (loss) 2.27%3
</TABLE>
1 Commencement of operations.
2 Represents aggregate total return for the period indicated.
3 Annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
[Back Cover Page]
Manning & Napier Insurance Fund, Inc.
Moderate Growth Portfolio
Growth Portfolio
Maximum Horizon Portfolio
Small Cap Portfolio
Equity Portfolio
Bond Portfolio
Shareholder Reports and the Statement of Additional Information (SAI). Annual
and semiannual reports to shareholders provide additional information about each
portfolio's investments. These reports discuss the market conditions and
investment strategies that significantly affected the portfolios' performance
during their last fiscal year. The SAI provides more detailed information about
each portfolio. It is incorporated by reference into this prospectus.
How to Obtain These Reports and Additional Information.
You may obtain shareholder reports and the SAI or other information about
the fund without charge, by calling 1-800-466-3863 or sending written requests
to Manning & Napier Insurance Fund, Inc., P.O. Box 40610, Rochester, New York
14604.
You may review shareholder reports, the prospectus and SAI at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
You can get copies of these materials for a fee by writing to the Public
Reference Section of the Commission, Washington, D.C. 20549-6009. Information
about the public reference room may be obtained by calling 1-800-SEC-0330. You
can get the same reports and information free from the SEC's Internet web site
(http://www.sec.gov).
If someone makes a statement about the portfolios that is not in this
prospectus, you should not rely upon that information. Neither the fund nor its
distributor is offering to sell shares to any person to whom it may not lawfully
sell shares.
Investment Company Act file no. 811-07439
<PAGE>
MANNING & NAPIER INSURANCE FUND, INC.
Statement of Additional Information dated May 1, 1999
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with the Fund's Prospectus dated May 1, 1999, copies of
which may be obtained from Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, NY 14604.
TABLE OF CONTENTS
Page
----
DEFINITIONS B-2
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUND B-2
INVESTMENT POLICIES AND RISKS B-2
OTHER INVESTMENT POLICIES B-21
INVESTMENT RESTRICTIONS B-22
MANAGEMENT B-26
NET ASSET VALUE B-31
REDEMPTION OF SHARES B-31
TAXES B-32
SPECIAL CONSIDERATIONS B-33
DIVIDENDS AND DISTRIBUTIONS B-34
PERFORMANCE INFORMATION B-34
SHAREHOLDER COMMUNICATIONS B-35
FINANCIAL STATEMENTS B-35
APPENDIX - DESCRIPTION OF BOND RATINGS B-36
<PAGE>
DEFINITIONS
The "Fund" - Manning & Napier Insurance Fund, Inc.
"Advisor" - Manning & Napier Advisors, Inc., the Fund's investment advisor.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUND
The Fund currently offers shares of beneficial interest of six Portfolios (the
"Portfolios") with separate investment objectives and policies. The investment
objectives and policies of each of the Portfolios of the Fund are described in
the Prospectus. This Statement contains additional information concerning
certain investment practices and investment restrictions of the Fund.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this Statement of
Additional Information are not fundamental, and the Directors may change the
investment objectives and policies of a Portfolio without an affirmative vote of
shareholders of the Portfolio. Except as otherwise noted below, the following
descriptions of certain investment policies and techniques are applicable to all
of the Portfolios.
Convertible bonds purchased by the Portfolios may have a call feature. Warrants
purchased by each Portfolio may or may not be listed on a national securities
exchange. None of the portfolios currently intends to engage in "short sales
against the box". All of the Portfolios' policies regarding options discussed
below are fundamental.
INVESTMENT POLICIES AND RISKS
EQUITY INVESTMENTS
Common Stocks. Each portfolio, with the exception of the Bond Portfolio, may
purchase common stocks. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other shareholder or class of
shareholders, including holders of the entity's preferred stock and other senior
equity. Common stock usually carries with it the right to vote and frequently
an exclusive right to do so.
Preferred Stocks. Each portfolio may invest in preferred stocks. Preferred
stocks may pay a dividend at a fixed rate, and may entitle the holder to acquire
the issuer's stock by exchange or purchase for a predetermined rate.
Convertible Securities. Each portfolio may invest in securities that are
convertible at either a stated price or stated rate into underlying shares of
common stock, thus enabling the investor to benefit from increases in the market
price of the common stock. Convertible securities provide higher yields than the
underlying equity, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock. The principal factor
in selecting convertible bonds is the potential to benefit from movement in the
stock price. There is no minimum rating standard for the debt aspects of such
securities. Convertible bonds purchased by a portfolio may be subject to the
risk of being called by the issuer.
<PAGE>
Warrants. Each portfolio may purchase warrants. Warrants acquired by a
portfolio entitle it to buy common stock from the issuer at a specified price
and time. Warrants may be considered more speculative than certain other types
of investments because they (1) do not carry rights to dividends or voting
rights with respect to the securities which they entitle the holder to purchase,
and (2) do not represent any rights in the assets of the issuer.
REITs. Each portfolio may invest in shares of real estate investment trusts
("REITs"), which are pooled investment vehicles that invest in real estate or
real estate loans or interests. Investing in REITs involves risks similar to
those associated with investing in equity securities of small capitalization
companies. REITs are dependent upon management skills, are not diversified, and
are subject to risks of project financing, default by borrowers,
self-liquidation, and the possibility of failing to qualify for the exemption
from taxation on distributed amounts under the Internal Revenue Code of 1986, as
amended (the "Code").
Trust Certificates, Partnership Interests and Equity Participations. Each
portfolio may invest in equity securities that are interests in non-corporate
entities. These securities, which include trust certificates, partnership
interests and equity participations, have different liability and tax
characteristics than equity securities issued by a corporation, and thus may
present additional risks to the portfolio. However, the investment
characteristics of these securities are similar to those of traditional
corporate equity securities.
FIXED INCOME INVESTMENTS
Corporate Debt Obligations. Each portfolio may invest in corporate debt
obligations issued by financial institutions and corporations. Corporate debt
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
U.S. Government Securities. Each Portfolio may invest in debt obligations of
varying maturities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Direct obligations of the U.S. Treasury which are backed by
the full faith and credit of the U.S. Government, include a variety of Treasury
securities that differ only in their interest rates, maturities and dates of
issuance. U.S. Government agencies or instrumentalities which issue or
guarantee securities include, but are not limited to, the Federal Housing
Administration, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Governmental National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Maritime Administration, the Tennessee Valley Authority, District of
Columbia Armory Board and the Student Loan Marketing Association.
<PAGE>
Obligations of U.S. Government agencies and instrumentalities may or may not be
supported by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment. A Portfolio will invest in
securities of such instrumentality only when the Advisor is satisfied that the
credit risk with respect to any instrumentality is minimal.
Mortgage-Backed Securities. Each Portfolio may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies or instrumentalities
such as the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government. Obligations of FNMA and FHLMC are not
backed by the full faith and credit of the United States Government but are
considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest yield of
these mortgage-backed securities can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans with a maximum
maturity of 30 years. However, due to scheduled and unscheduled principal
payments on the underlying loans, these securities have a shorter average
maturity and, therefore, less principal volatility than a comparable 30-year
bond. Since prepayment rates vary widely, it is not possible to accurately
predict the average maturity of a particular mortgage-backed security. The
scheduled monthly interest and principal payments relating to mortgages in the
pool will be "passed through" to investors. Government mortgage-backed
securities differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing prepayments
on the underlying mortgages. Although these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities may be less effective than other types of securities
as a means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of these
securities likely will not rise as much as comparable debt securities due to the
prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
<PAGE>
Each Portfolio may also invest in collateralized mortgage obligations ("CMOs")
and real estate mortgage investment conduits ("REMICs"), which are rated in one
of the two top categories by Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"). CMOs are securities collateralized by
mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds
representing an interest in a pool of mortgages where the cash
flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuer's general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired in
sequence. Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
of other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
Asset-Backed Securities. Each portfolio may invest in asset-backed securities.
These securities, issued by trusts and special purpose corporations, are backed
by a pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Asset-backed securities present certain risks. For instance, in the case of
credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
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Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors to make payments on underlying assets, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default ensures
payment through insurance policies or letters of credit obtained by the issuer
or sponsor from third parties. The degree of credit support provided for each
issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could adversely
affect the return on an instrument in such a security.
The estimated life of an asset-backed security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be primarily a
function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments.
Consequently, asset-backed securities are subject to call risk and extension
risk (described below).
Below Investment Grade Debt Securities. Each portfolio may invest up to 20% of
its assets in corporate debt securities rated below investment grade. High
risk, high yield securities rated below BBB or lower by S&P or Baa or lower by
Moody's are "below investment grade" and are considered to have speculative
characteristics and involve greater risk of default or price changes due to
changes in the issuer's credit-worthiness. Market prices of these securities
may fluctuate more than high-rated securities and they are difficult to price at
times because they are more thinly traded and less liquid securities. Market
prices may decline significantly in periods of general economic difficulty which
may follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the portfolios' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. Each portfolio will also seek to minimize
risk by diversifying its holdings.
Yankee Bonds. Each portfolio may invest in U.S. dollar-denominated bonds sold
in the United States by non-U.S. issuers ("Yankee bonds"). As compared with
bonds issued in the United States, such bond issues normally carry a higher
interest rate but are less actively traded.
Obligations of Supranational Agencies. Currently, the Bond Portfolio and the
Equity Portfolio may purchase securities issued or guaranteed by supranational
agencies including, but not limited to, the following: Asian Development Bank,
Inter-American Development Bank, International Bank for Reconstruction and
Development (World Bank), African Development Bank, European Coal and Steel
Community, European Economic Community, European Investment Bank and the Nordic
Investment Bank. For concentration purposes, supranational entities are
considered an industry.
<PAGE>
Zero-Coupon Bonds. Some of the securities in which the portfolios invest may
include so-called "zero-coupon" bonds. Zero-coupon bonds are issued at a
significant discount from face value and generally pay interest only at maturity
rather than at intervals during the life of the security. Each portfolio is
required to accrue and distribute income from zero-coupon bonds on a current
basis, even though it does not receive that income currently in cash. Thus, the
portfolio may have to sell investments to obtain cash needed to make income
distributions. The discount in the absence of financial difficulties of the
issuer decreases as the final maturity of the security approaches. Zero-coupon
bonds can be sold prior to their maturity date in the secondary market at the
then prevailing market value, which depends primarily on the time remaining to
maturity, prevailing level of interest rates and the perceived credit quality of
the issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds that pay
interest currently.
Variable and Floating Rate Instruments. Certain of the obligations purchased by
a portfolio may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such as
a Federal Reserve composite index. The interest rate on these securities may be
reset daily, weekly, quarterly, or at some other interval, and it may have a
floor or ceiling rate. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates.
Short-Term Investments. For temporary defensive purposes during periods when
the Advisor determines that market conditions warrant, each portfolio may depart
from its investment goals and invest up to 100% of its assets in all types of
money market instruments (including securities guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
institutions deemed creditworthy by the Advisor, commercial paper rated A-1 by
S&P or Prime-1 by Moody's, repurchase agreements involving such securities and
shares of other investment companies as permitted by applicable law) and may
hold a portion of its assets in cash. For a description of the above ratings,
see the Appendix.
Risks of Fixed Income Securities. Investments in fixed income securities may
subject the portfolios to risks, including the following:
Interest Rate Risk. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. The volatility of
a security s market value will differ depending upon the security s duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are subject to
the risk that the issuer of the security could default on its obligations,
causing a portfolio to sustain losses on such investments. A default could
impact both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to both
call risk and extension risk. Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than scheduled, which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer
may exercise its right to pay principal on an obligation later than scheduled,
which would cause cash flows to be returned later than expected. This typically
results when interest rates have increased, and a portfolio will suffer from the
inability to invest in higher yield securities.
<PAGE>
Foreign Securities. Each of the portfolios may invest up to 25% of its assets
in foreign securities that are not publicly traded in the United States. The
portfolios' investments in foreign securities will be of the same types and
quality as the domestic securities in which the portfolios may invest when the
anticipated performance of foreign securities is believed by the Advisor to
offer more potential than domestic alternatives in keeping with the investment
goals of the portfolios. None of the portfolios will invest more than 25% of
its assets in securities issued by any one foreign government. Each portfolio
may invest without limit in equity securities of foreign issuers that are listed
on a domestic securities exchange or are represented by American Depository
Receipts that are listed on a domestic securities exchange or are traded in the
United States on the over-the-counter market. Foreign debt securities may be
denominated either in U.S. dollars or foreign currencies.
Each portfolio's restrictions on investment in foreign securities are
fundamental policies that cannot be changed without the approval of a majority,
as defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of the portfolio.
There are risks in investing in foreign securities not typically involved in
domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government regulation
of foreign issuers than in the United States. In addition, investments in
foreign countries are subject to the possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect the value of those investments. There
may also be imposition of withholding taxes. Foreign financial markets may have
less volume and longer settlement periods than U.S. markets which may cause
liquidity problems for a portfolio. In addition, costs associated with
transactions on foreign markets are generally higher than for transactions in
the U.S. These risks generally are greater for investments in securities of
companies in emerging markets, which are usually in the initial stages of their
industrialization cycle.
Obligations of foreign governmental entities are subject to various types of
governmental support and may or may not be supported by the full faith and
credit of a foreign government.
Currency Risks. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currency in which a
portfolio's investments are denominated relative to the U.S. dollar will affect
the portfolio's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. However, currency
exchange rates may fluctuate based on factors intrinsic to a country s economy.
Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, emerging markets are
subject to the risk of restrictions upon the free conversion of their currencies
into other currencies. Any devaluations relative to the U.S. dollar in the
currencies in which a portfolio's securities are quoted would reduce the
portfolio's net asset value per share.
<PAGE>
The initial phase of the introduction of a new European currency, the Euro, took
place on January 1, 1999. The introduction of the Euro will require the
redenomination of European debt and equity securities over a period of time,
which may result in various accounting differences and/or tax treatments that
otherwise would not likely occur. Additional questions are raised by the fact
that certain other EMU members, including the United Kingdom, have not
officially implemented the Euro. If the introduction of the Euro does not take
place as planned, there could be negative effects, such as severe currency
fluctuations and market disruptions.
HEDGING (DERIVATIVE TRANSACTIONS)
WRITING COVERED CALL AND SECURED PUT OPTIONS
As a means of protecting their assets against market declines, and in an attempt
to earn additional income, each Portfolio may write covered call option
contracts on its securities and may purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
covered call option contracts have been written.
When a Portfolio writes a call option on securities which it owns, it gives the
purchaser of the option the right to buy the securities at an exercise price
specified in the option at any time prior to the expiration of the option. If
any option is exercised, a Portfolio will realize the gain or loss from the sale
of the underlying security and the proceeds of the sale will be increased by the
net premium originally received on the sale of the option. By writing a covered
call option, a Portfolio may forego, in exchange for the net premium, the
opportunity to profit from an increase in the price of the underlying security
above the option's exercise price. A Portfolio will have kept the risk of loss
if the price of the security declines, but will have reduced the effect of that
risk to the extent of the premium it received when the option was written.
Each Portfolio will write only covered call options which are traded on national
securities exchanges. Currently, call options on a stock may be traded on the
Chicago Board Options Exchange and the New York, American, Pacific and
Philadelphia Stock Exchanges. Call options are issued by the Options Clearing
Corporation, which also serves as the clearing house for transactions with
respect to options. The price of a call option is paid to the writer without
refund on expiration or exercise, and no portion of the price is retained by the
Options Clearing Corporation or the exchanges listed above. Writers and
purchasers of options pay the transaction costs, which may include commissions
charged or incurred in connection with such option transactions.
Each Portfolio may write only covered call options. A call option is considered
to be covered if the option writer owns the security underlying the call or has
an absolute and immediate right to acquire that security without payment of
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities. A call option is also considered to be covered if the writer holds
on a unit-for-unit basis a call on the same security as the call written, with
the same expiration date and the exercise price of the call purchased is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained in cash or
other liquid securities in a separate account, and marked to market daily all in
accordance with the rules of the clearing corporations and of the exchanges and
securities laws.
<PAGE>
None of the Portfolios will sell (uncover) the securities against which options
have been written until after the option period has expired, the option has been
exercised or a closing purchase has been executed.
Options written by a Portfolio will have exercise prices which may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
market price of the underlying security at the time the options are written.
However, a Portfolio generally will not write so-called "deep-in-the-money"
options.
The market value of a call option generally reflects the market price of the
underlying security. Other principal factors affecting market value include
supply and demand, dividend yield and interest rates, the price volatility of
the underlying security and the time remaining until the expiration date.
If a call option on a security expires unexercised, a Portfolio will realize a
short-term capital gain in the amount of the premium on the option, less all
commissions paid. Such a gain, however, may be offset by a decline in the value
of the underlying security during the option period. If a call option is
exercised, a Portfolio will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security (exercise price minus
commission) plus the amount of the premium on the option, less all commissions
paid.
Call options may also be purchased by a Portfolio, but only to terminate
(entirely or in part) a Portfolio's obligation as a writer of a call option.
This is accomplished by making a closing purchase transaction; that is, the
purchase of a call option on the same security with the same exercise price and
expiration date as specified in the call option which had been written
previously. A closing purchase transaction with respect to calls traded on a
national securities exchange has the effect of extinguishing the obligation of
the writer of a call option. For example, a Portfolio may enter into a closing
purchase transaction to realize a profit on an option it had previously written,
to enable it to sell the security which underlies the option, to free itself to
sell another option or to prevent its portfolio securities from being purchased
pursuant to the exercise of a call. A Portfolio may also permit the call option
to be exercised. A closing transaction cannot be effected with respect to an
optioned security once a Portfolio has received a notice that the option is to
be exercised.
<PAGE>
The cost to a Portfolio of such a closing transaction may be greater than the
net premium received by a Portfolio upon writing the original call option. A
profit or loss from a closing purchase transaction will be realized depending on
whether the amount paid to purchase a call to close a position is less or more
than the amount received from writing the call. Any profit realized by a
Portfolio from the execution of a closing transaction may be partly or
completely offset by a reduction in the market price of the underlying security.
A Portfolio may also write secured put options and enter into closing purchase
transactions with respect to such options. A Portfolio may write secured put
options on national securities exchanges to obtain, through the receipt of
premiums, a greater return than would be realized on the underlying securities
alone. A put option gives the purchaser of the option the right to sell, and the
writer has the obligation to buy, the underlying security at the stated exercise
price during the option period. The secured put writer retains the risk of loss
should the market value of the underlying security decline below the exercise
price of the option.
During the option period, the writer of a put option may be required at any time
to make payment of the exercise price against delivery of the underlying
security. The operation of put options in other respects is substantially
identical to that of call options. The Fund will establish a separate account
consisting of liquid assets equal to the amount of the assets that could be
required to consummate put options. For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or assets will be placed in the account daily so that the value
of the account will equal the amount of such commitments by the Fund.
A put option is secured if a Portfolio maintains in a segregated account liquid
assets in an amount not less than the exercise price of the option at all times
during the option period. A Portfolio may write secured put options when the
Advisor wishes to purchase the underlying security for a Portfolio's portfolio
at a price lower than the current market price of the security. In such event a
Portfolio would write a secured put option at an exercise price which, reduced
by the premium received on the option, reflects the lower price it is willing to
pay. The potential gain on a secured put option is limited to the income earned
on the amount held in liquid assets plus the premium received on the option
(less the commissions paid on the transaction) while the potential loss equals
the difference between the exercise price of the option and the current market
price of the underlying securities when the put is exercised, offset by the
premium received (less the commissions paid on the transaction) and income
earned on the amount held in liquid assets.
A Portfolio may purchase put options on national securities exchanges in an
attempt to hedge against fluctuations in the value of its portfolio securities
and to protect against declines in the value of individual securities.
Purchasing a put option allows the purchaser to sell the particular security
covered by the option at a certain price (the "exercise price") at any time up
to a specified future date (the "expiration date").
<PAGE>
Purchase of a put option creates a "hedge" against a decline in the value of the
underlying security by creating the right to sell the security at a specified
price. Purchase of a put option requires payment of a premium to the seller of
that option. Payment of this premium necessarily reduces the return available on
the individual security should that security continue to appreciate in value. In
return for the premium paid, a Portfolio protects itself against substantial
losses should the security suffer a sharp decline in value. In contrast to
covered call option writing, where one obtains greater current income at the
risk of foregoing potential future gains, one purchasing put options is in
effect foregoing current income in return for reducing the risk of potential
future losses.
A Portfolio will purchase put options as a means of "locking in" profits on
securities held in the portfolio. Should a security increase in value from the
time it is initially purchased, a Portfolio may seek to lock in a certain profit
level by purchasing a put option. Should the security thereafter continue to
appreciate in value the put option will expire unexercised and the total return
on the security, if it continues to be held by a Portfolio, will be reduced by
the amount of premium paid for the put option. At the same time, a
Portfolio will continue to own the security. Should the security decline in
value below the exercise price of the put option, however, a Portfolio may
elect to exercise the option and "put" or sell the security to
the party that sold the put option to that Portfolio, at the exercise price.
In this case a Portfolio would have a higher return on the security than would
have been possible if a put option had not been purchased.
CERTAIN RISK AND OTHER FACTORS RESPECTING OPTIONS
Positions in options on securities may be closed only by a closing transaction,
which may be made only on an exchange which provides a liquid secondary market
for such options. Although a Portfolio will write options only when the Advisor
believes a liquid secondary market will exist on an exchange for options of the
same series, there can be no assurance that a liquid secondary market will exist
for any particular security option. If no liquid secondary market exists
respecting an option position held, a Portfolio may not be able to close an
option position, which will prevent that Portfolio from selling any security
position underlying an option until the option expires and may have an adverse
effect on its ability effectively to hedge its security positions. A secured put
option writer who is unable to effect a closing purchase transaction would
continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a secured put
writer would be unable to use the amount held in liquid assets as security for
the put option for other investment purposes until the exercise or expiration of
the option.
Possible reasons for the absence of a liquid secondary market on an exchange
include the following: (i) insufficient trading; (ii) restrictions that may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions that may be imposed with
respect to particular classes or series of contracts, or underlying securities;
(iv) unusual or unforeseen circumstances that may interrupt normal operations on
an exchange; (v) the facilities of an exchange or a clearing corporation may not
be adequate to handle unusual 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 contracts (or particular class or series of
contracts), in which event the secondary market on that exchange would cease to
exist, although outstanding contracts on the 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 timely execution of customers' orders.
<PAGE>
Each of the exchanges on which options on securities are traded has established
limitations on the number of options which may be written by any one investor or
group of investors. These limitations apply regardless of whether the options
are written in different accounts or through different brokers. It is possible
that a Portfolio and certain other accounts managed by the Advisor may
constitute such a group. If so, the options positions of the Portfolio may be
aggregated with those of other clients of the Advisor.
When the Portfolio writes an over-the-counter ("OTC") option, it will enter into
a arrangement with a primary U.S. government securities dealer, which would
establish a formula price at which the Portfolio would have the absolute right
to repurchase that OTC option. This formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the marked price of the underlying security
("in-the-money"). For an OTC option the Fund writes, it will treat as illiquid
(for purposes of the 15% of net assets restriction on illiquid securities) an
amount of assets used to cover written OTC options, equal to the formula price
for the repurchase of the OTC option less the amount by which the OTC option is
"in-the-money". The Fund will also treat as illiquid any OTC option held by it.
The Securities and Exchange Commission is evaluating the general issue of
whether or not the OTC options should be considered to be liquid securities, and
the procedure described above could be affected by the outcome of that
evaluation.
Although the Options Clearing Corporation has stated that it believes (based on
forecasts provided by the exchanges on which options are traded), that its
facilities are adequate to handle the volume of reasonably anticipated options
transactions, and although each exchange has advised the Options Clearing
Corporation that it believes that its facilities will also be adequate to handle
reasonably anticipated volume, there can be no assurance that higher than
anticipated trading activity or order flow or other unforeseen events might not
at times render certain of these facilities inadequate and thereby result in the
institution of special trading procedures or restrictions.
Each Portfolio will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Portfolio may execute. Therefore, frequent writing and/or purchasing of options
may increase the transaction costs borne by the portfolio.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
Each Portfolio, except for the Bond Portfolio, may enter into Stock Index
Futures Contracts to provide a hedge for a portion of the Portfolio's portfolio,
as a cash management tool, or as an efficient way to implement either an
increase or decrease in portfolio market exposure in response to changing market
conditions. A Portfolio may also use Index Futures as a substitute of a
comparable market position in the underlying securities. Although techniques
other than the sale and purchase of Stock Index Futures Contracts could be used
to adjust the exposure or hedge a Portfolio's portfolio, a Portfolio may be able
to do so more effectively and, perhaps, at a lower cost through the use of Stock
Index Futures Contracts.
<PAGE>
A Stock Index Futures Contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. Entering into a contract to buy units of a stock index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of a stock index is commonly
referred to as selling a contract or holding a short position. A stock index
future obligates the seller to deliver (and the purchaser to take) an amount of
cash equal to a specific dollar amount times the difference between the value of
a specific stock 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 stocks in the index is made. Each Portfolio intends to purchase and
sell futures contracts on the stock index for which it can obtain the best price
with consideration also given to liquidity.
A Portfolio will not enter into a Stock Index Futures Contract or option thereon
if, as a result thereof: the sum of the amount of initial margin deposits on any
such futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under the Commodity Futures Trading Commission ( CFTC ) rules
would exceed 5% of the liquidation value of the Portfolio's total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Portfolio's portfolio. Each Fund will comply with guidelines
established by the Securities and Exchange Commission with respect to covering
of obligations under futures contracts and will set aside liquid assets in a
segregated account in the amount prescribed.
Unlike when the Portfolios purchase or sell an equity security, no price would
be paid or received by the Portfolios upon the purchase or sale of a Stock Index
Futures Contract. Upon entering into a Futures Contract, the Portfolio would be
required to deposit in a segregated account in the name of the futures broker an
amount of cash or U.S. Treasury bills known as "initial margin". The amount of
initial margin required by the rules of the exchanges is subject to change. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that a Futures Contract margin does not
involve the borrowing of Funds by the Portfolio to finance the transactions.
Rather, initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Portfolio upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
broker, would be made on a daily basis as the price of the underlying stock
index fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking to the market". For example,
when the Portfolio has purchased a Stock Index Futures Contract and the price of
that underlying stock index has risen, that futures position will have increased
in value and the Portfolio will receive from the broker a variation margin
payment equal to that increase in value. Conversely, when the Portfolio has
purchased a Stock Index Futures Contract and the price of the stock index has
declined, the position would be less valuable and the Portfolio would be
required to make a variation margin payment to the broker.
<PAGE>
The loss from investing in futures transactions is potentially unlimited. To
limit such risk, the portfolios will not enter into Stock Index Futures
Contracts for speculation and will only enter into Futures Contracts which are
traded on established futures markets. The Portfolios may, however, purchase or
sell Stock Index Futures Contracts with respect to any stock index.
Nevertheless, to hedge a Portfolio's portfolio successfully, the Advisor must
sell Stock Index Futures Contracts with respect to indices whose movements will,
in its judgment, have a significant correlation with movements in the prices of
the Portfolio's portfolio securities.
Closing out an open Stock Index Futures Contract sale or purchase is effected by
entering into an offsetting Stock Index Futures Contract purchase or sale,
respectively, for the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less than the original
sale price, the Portfolio realizes a gain; if it is more, the Portfolio realizes
a loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Portfolio realizes a gain; if it is less, the Portfolio
realizes a loss. The Portfolios must also be able to enter into an offsetting
transaction with respect to a particular Stock Index Futures Contract at a
particular time. If the Portfolios are not able to enter into an offsetting
transaction, the Portfolios will continue to be required to maintain the margin
deposits on the Stock Index Futures Contract.
The Portfolios may elect to close out some or all of their futures positions at
any time prior to their expiration. The purpose of making such a move would be
either to reduce equity exposure represented by long futures positions or
increase equity exposure represented by short futures positions. The Portfolios
may close their positions by taking opposite positions which would operate to
terminate the Portfolios' position in the Stock Index Futures Contracts. Final
determinations of variation margin would then be made, additional cash would be
required to be paid or released to the Portfolio, and the Portfolio would
realize a loss or a gain.
Stock Index Futures Contracts may be closed out only on the exchange or board
of trade where the contracts were initially traded. Although the Portfolios
intend to purchase or sell Stock Index Futures Contracts only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular time. In such an event, it might not be possible to close a Stock
Index Futures Contract, and in the event of adverse price movements, the
Portfolio would continue to be required to make daily cash payments of variation
margin. However, in the event Stock Index Futures Contracts have been used to
hedge portfolio securities, the Portfolio would continue to hold securities
subject to the hedge until the Stock Index Futures Contracts could be
terminated. In such circumstances, an increase in the price of the securities,
if any, might partially or completely offset losses on the Stock Index Futures
Contract. However, as described below, there is no guarantee that the price of
the securities will, in fact, correlate with price movements in the Futures
Contract and thus provide an offset to losses on a Stock Index Futures Contract.
<PAGE>
There are several risks in connection with the use by the Portfolios of Stock
Index Futures Contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the Futures Contracts
and movements in the prices of securities which are the subject of the hedge.
The Advisor will, however, attempt to reduce this risk by entering into Stock
Index Futures Contracts on indices whose movements, in its judgment, will have a
significant correlation with movements in the prices of the Portfolio's
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Portfolios for hedging
purposes is also subject to the Advisor's ability to correctly predict movements
in the direction of the market. It is possible that, when the Portfolios have
sold Futures to hedge their portfolios against a decline in the market, the
index or indices on which the Futures are written might advance and the value of
securities held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the Futures and also would experience a
decline in value in its portfolio securities. However, while this might occur
to a certain degree, the Advisor believes that over time the value of the
Portfolio's portfolio will tend to move in the same direction as the securities
underlying the Futures, which are intended to correlate to the price movements
of the portfolio securities sought to be hedged. It is also possible that if the
Portfolios were to hedge against the possibility of a decline in the market
(adversely affecting stocks held in their portfolios) and stock prices instead
increased, the Portfolios would lose part or all of the benefit of increased
value of those stocks that it had hedged, because it would have offsetting
losses in their Futures positions. In addition, in such situations, if the
Portfolios had insufficient cash, they might have to sell securities to meet
their daily variation margin requirements. Such sales of securities might be,
but would not necessarily be, at increased prices (which would reflect the
rising market). The Portfolios might have to sell securities at a time when it
would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect correlation, or
no correlation at all, between price movements in the Stock Index Futures
Contracts and the portion of the portfolio to be hedged, the price movements in
the Futures Contracts might not correlate perfectly with price movements in the
underlying stock index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close Stock Index Futures Contracts through
offsetting transactions which could distort the normal relationship between the
index and futures markets. Second, the margin requirements in the futures market
are less onerous than margin requirements in the securities markets, and as a
result the futures market might attract more speculators than the stock market
does. Increased participation by speculators in the futures market might also
cause temporary price distortions. Due to the possibility of price distortion in
the futures market and also because of the imperfect correlation between price
movements in the stock index and movements in the prices of Stock Index Futures
Contracts, even a correct forecast of general market trends by the Advisor might
not result in a successful hedging transaction over a very short time period.
<PAGE>
Options on Futures give the purchaser the right, in return for the premium paid,
to assume a position in a Futures Contract (a long position if the option is
call and a short position if the option is a put), rather than to purchase or
sell the Stock Index Futures Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
Futures margin account which represents the amount by which the market price of
the Stock Index Futures Contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the Futures Contract. Alternatively, settlement
may be made totally in cash.
The Portfolios may seek to close out an option position on an index by writing
or buying an offsetting option covering the same index or contract and having
the same exercise price and expiration date. The ability to establish and close
out positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that this market will develop.
See "Risk Factors and Certain Other Factors Relating to Options" above for
possible reasons for the absence of a liquid secondary market on an exchange.
FUTURES ON SECURITIES
A futures contract on a security is a binding contractual commitment which, if
held to maturity, will result in an obligation to make or accept delivery,
during a particular month, of securities having a standardized face value and
rate of return. By purchasing futures on securities, a Portfolio will legally
obligate itself to accept delivery of the underlying security and pay the agreed
price; by selling futures on securities, it will legally obligate itself to make
delivery of the security against payment of the agreed price.
Open futures positions on securities are valued at the most recent settlement
price, unless such price does not reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the Board
of Directors.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While the Portfolio's futures contracts on securities will
usually be liquidated in this manner, it may instead make or take delivery of
the underlying securities whenever it appears economically advantageous for the
Portfolio to do so. A clearing corporation associated with the exchange on which
futures on securities or currency are traded guarantees that, if still open, the
sale or purchase will be performed on the settlement date.
FOREIGN CURRENCY TRANSACTIONS
In order to protect against a possible loss on investments resulting from a
decline in a particular foreign currency against the U.S. dollar or another
foreign currency, each Portfolio is authorized to enter into forward foreign
currency exchange contracts. In addition, each Portfolio is authorized to
conduct spot (i.e., cash basis) currency transactions or to use currency futures
contracts, options on such futures contracts, and options on foreign currencies
in order to protect against uncertainty in the future levels of
currency exchange rates.
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts involve an obligation to purchase or
sell a specified currency at a future date at a price set at the time of the
contract. Forward currency contracts do not eliminate fluctuations in the values
of portfolio securities but rather allow a Portfolio to establish a rate of
exchange for a future point in time. A Portfolio may enter into forward foreign
currency exchange contracts when deemed advisable by the Advisor under only two
circumstances.
First, when entering into a contract for the purchase or sale of a security in a
foreign currency, a Portfolio may enter into a forward foreign currency exchange
contract for the amount of the purchase or sale price to protect against
variations, between the date the security is purchased or sold and the date on
which payment is made or received, in the value of the foreign currency relative
to the U.S. dollar or other foreign currency. This hedging technique is known as
transaction hedging.
Second, when the Advisor anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, a Portfolio may enter into a forward contract to sell,
for a fixed amount, the amount of foreign currency approximating the value of
some or all of its portfolio securities denominated in such foreign currency.
This hedging technique is known as position hedging. With respect to any such
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines in the value of a particular foreign currency,
they also limit potential gains which might result from increases in the value
of such currency. A Portfolio will also incur costs in connection with forward
foreign currency exchange contracts and conversions of foreign currencies and
U.S. dollars.
A separate account of each Portfolio consisting of cash or liquid securities
equal to the amount of that Portfolio's assets that would be required to
consummate forward contracts entered into under the second circumstance, as set
forth above, will be established. For the purpose of determining the adequacy of
the securities in the account, the deposited securities will be valued at market
or fair value. If the market or fair value of such securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by such
Portfolios.
<PAGE>
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Portfolio is authorized to purchase and sell currency futures contracts and
options thereon. Currency futures contracts involve entering into contracts for
the purchase or sale for future delivery of foreign currencies. A "sale" of a
currency futures contract means the acquisition of a contractual obligation to
deliver the foreign currencies called for by the contract at a specified price
on a specified date. A "purchase" of a futures contract means the acquisition of
a contractual obligation to acquire the foreign currencies called for by the
contract at a specified price on a specified date. These investment techniques
will be used only to hedge against anticipated future changes in exchange rates
which otherwise might either adversely affect the value of portfolio securities
held by a Portfolio or adversely affect the prices of securities which a
Portfolio intends to purchase at a later date. Such instruments will be used
only in connection with permitted transaction or position hedging and not for
speculative purposes. The sum of the amount of initial margin deposits on any
such futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under CFTC rules will not exceed 5% of the liquidation value of a
Portfolio's total assets after taking into account unrealized profits and losses
on such contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of a Portfolio's portfolio. The Fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to covering of obligations under future contracts and will set aside
cash and/or liquid high grade securities in a segregated account with its
custodian in the amount prescribed.
Although the Portfolios intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time. In
addition, due to the risk of an imperfect correlation between securities in the
Portfolio's portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective in that, for example, losses on the portfolio securities
may be in excess of gains on the futures contract or losses on the futures
contract may be in excess of the gains on the portfolio securities that were the
subject of the hedge.
Brokerage fees are incurred when a futures contract is bought or sold and margin
deposits must be maintained. Although futures contracts typically require actual
delivery of and payment for financial instruments or currencies, the contracts
are usually closed out before the delivery date. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of financial instrument or
currency and the same delivery date. If the offsetting purchase price is less
than the original sale price, a Portfolio realizes a gain; if it is more, a
Portfolio realizes a loss. Conversely, if the offsetting sale price is more than
the original purchase price, a Portfolio realizes a gain; if it is less, a
Portfolio realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Portfolio will be able
to enter into an offsetting transaction with respect to a particular contract at
a particular time. If a Portfolio is not able to enter into an offsetting
transaction, a Portfolio will continue to be required to maintain the margin
deposits on the contract. The ability to establish and close out positions on
such options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop. See "Risk
Factors and Certain Other Factors Relating to Options" above for possible
reasons for the absence of a liquid secondary market on an exchange.
<PAGE>
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and a long position if the option is a put).
Upon exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accompanied by delivery of the
accumulated cash balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract, at exercise,
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
Call options sold by the Portfolios with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying the futures contract, or the placement
of cash or liquid securities in a segregated account to fulfill the obligations
undertaken by the futures contract. A put option sold by the Portfolio is
covered when, among other things, cash or liquid securities are placed in a
segregated account to fulfill the obligations undertaken.
FOREIGN CURRENCY OPTIONS
Each Portfolio is authorized to purchase and write put and call options on
foreign currencies. A call option is a short-term contract pursuant to which the
purchaser, in return for a premium, has the right to buy the currency
underlying the option at a specified price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the option period, to deliver the
underlying currency against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying currency at a specified price during the term of the option.
The writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option period, to buy the underlying currency
at the exercise price. The Portfolio will use currency options only in order to
hedge against the risk of fluctuations of foreign exchange rates related to
securities held in its portfolio or which it intends to purchase and to earn a
high return by receiving a premium for writing options. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investments generally.
Risks Associated with Hedging Strategies. There are risks associated with the
hedging strategies described above, including the following: (1) the success of
a hedging strategy may depend on the ability of the Advisor to accurately
predict movements in the prices of individual securities, fluctuations in
domestic and foreign markets and currency exchange rates, and movements in
interest rates; (2) there may be an imperfect correlation between the changes in
market value of the securities held by the portfolio and the prices of currency
contracts, options, futures and options on futures; (3) there may not be a
liquid secondary market for a currency contract, option, futures contract or
futures option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations, particularly requirements for
qualification as a "regulated investment company" under the Code, may restrict
trading in forward currency contracts, options, futures contracts and futures
options.
Even a small investment in derivative contracts can have a big impact on stock
market, currency and interest rate exposure. Derivatives can also make a
portfolio less liquid and harder to value, especially in declining markets.
<PAGE>
OTHER INVESTMENT POLICIES
Repurchase Agreements. Each portfolio may enter into repurchase agreements with
respect to portfolio securities. Under the terms of a repurchase agreement, the
portfolio purchases securities ("collateral") from various financial
institutions such as a bank or broker-dealer (a "seller") which the Advisor
deems to be creditworthy, subject to the seller's agreement to repurchase them
at a mutually agreed-upon date and price. The repurchase price generally equals
the price paid by the portfolio plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio securities).
The seller under a repurchase agreement is required to maintain the value of the
collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the portfolios' custodian either directly or through a securities depository.
Default by the seller would, however, expose the portfolio to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying securities. Repurchase agreements are considered to be loans by
the portfolio under the 1940 Act.
Securities Lending. Each portfolio may seek to increase its income by lending
portfolio securities. Such loans will usually be made to member firms (and
subsidiaries thereof) of the New York Stock Exchange and to member banks of the
Federal Reserve System, and would be required to be secured continuously by
collateral in liquid securities maintained on a current basis at an amount at
least equal to the market value of the securities loaned. If the Advisor
determines to make securities loans, the value of the securities loaned would
not exceed 30% of the value of the total assets of the portfolio.
Short Sales. Each portfolio may, within limits, engage in short sales "against
the box". A short sale is the sale of borrowed securities; a short sale against
the box means that a portfolio owns securities equivalent to those sold short.
No more than 25% of the net assets (taken at current value) of a portfolio may
be held as collateral for such sales at any one time. Such short sales can be
used as a hedge. The Fund has no current intention to engage in short sales
against the box.
Forward Commitments or Purchases on a When-Issued Basis. Each portfolio may
enter into forward commitments or purchase securities on a when-issued basis.
These securities normally are subject to settlement within 45 days of the
purchase date. The interest rate realized on these securities is fixed as of
the purchase date and no interest accrues to the portfolio before settlement.
These securities are subject to market fluctuation due to changes in market
interest rates. Each portfolio will enter into these arrangements with the
intention of acquiring the securities in question and not for speculative
purposes and will maintain a separate account consisting of liquid assets in an
amount at least equal to the purchase price.
Investment in Restricted Securities. Each Portfolio may invest in "restricted
securities" subject to the 15% of net assets limitation regarding illiquid
securities. Restricted securities are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933, as amended (the "1933 Act"). Such securities generally have been
considered illiquid because they may be resold only subject to statutory
restrictions and delays or if registered under the 1933 Act. The Securities and
Exchange Commission ("SEC") adopted Rule 144A to provide for a safe harbor
exemption from the registration requirements of the 1933 Act for resales of
restricted securities to "qualified institutional buyers". The result has been
the development of a more liquid and efficient institutional resale market for
restricted securities. Rule 144A securities may be liquid if properly
determined by the Board of Directors.
<PAGE>
The expenses of registration of restricted securities will be negotiated at the
time the securities are purchased by a Portfolio. When registration is required,
a considerable period may elapse between a decision to sell the securities and
the time the sale would be permitted. Thus, a Portfolio may not be able to
obtain as favorable a price as that prevailing at the time of the
decision to sell. A Portfolio may also acquire through private placements
securities having contractual resale restrictions, which might prevent the sale
of such securities at a time when such a sale otherwise would be desirable.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be changed
with respect to any Portfolio without the approval of a majority of the
outstanding voting securities of that Portfolio. Under the Investment Company
Act of 1940 and the rules thereunder, "majority of the outstanding voting
securities" of a Portfolio means the lesser of (1) 67% of the shares of that
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of that Portfolio are present in person or by proxy, and (2)
more than 50% of the outstanding shares of that Portfolio. Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, a Portfolio, as the case may be.
The Fund may not, on behalf of a Portfolio:
1. Borrow money, except from a bank for temporary or emergency purposes in
amounts not exceeding 10% of the portfolio's total assets. A borrowing
portfolio will not make additional investments while borrowings greater than 5%
of its total assets are outstanding.
2. With respect to 75% of its total assets, invest more than 5% of the value
of its total assets at the time of investment in securities of any one issuer
(other than obligations issued or guaranteed by the United States Government,
its agencies or its instrumentalities). None of the portfolios may purchase
more than 10% of the outstanding voting securities of any one issuer;
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government securities);
4. Invest more than 15% of its total net assets in securities of issuers
that are restricted from being sold to the public without registration under the
Securities Act of 1933 and illiquid securities, including repurchase agreements
with maturities of greater than seven days;
5. Invest assets in securities of any other investment company (closed-end
or open-end), except (1) by purchase in the open market involving only customary
brokers' commissions, (2) in connection with mergers, acquisitions of assets, or
consolidation, or (3) as otherwise permitted by law, including the 1940 Act.
Each of the portfolios may purchase shares of closed-end investment companies
that are traded on national exchanges to the extent permitted by applicable law.
6. Make loans, except that each portfolio may invest in debt securities and
repurchase agreements and may engage in securities lending;
7. Purchase securities on margin (but a Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions);
<PAGE>
8. Make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale "against-the-box"), and unless
not more than 25% of a Portfolio's net assets (taken at a current value) are
held as collateral for such sales at any one time;
9. Issue senior securities or pledge its assets, except that each Portfolio
may invest in futures contracts and related options;
10. Buy or sell commodities or commodity contracts, provided that each
Portfolio may enter into all types of futures and forward contracts on currency,
securities, economic and other indices and may purchase and sell options on such
futures contracts, or buy or sell real estate or interests in real estate,
although it may purchase and sell securities which are secured by real estate
and securities of companies which invest or deal in real estate.
11. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws;
12. Make investments for the purpose of exercising control or management;
13. Participate on a joint or joint and several basis in any trading account
in securities;
14. Under the Investment Company Act of 1940 and the rules and regulations
thereunder, each Portfolio is prohibited from acquiring the securities of other
investment companies if, as a result of such acquisition, such Portfolio will
own more than 3% of the total voting stock of the company; securities issued by
any one investment company will represent more than 5% of its total assets; or
securities (other than treasury stock) issued by all investment companies will
represent more than 10% of the total assets of a Portfolio. These investment
companies typically incur fees that are separate from those fees incurred
directly by the Portfolio. A Portfolio's purchase of
such investment companies would indirectly bear a proportionate share of the
operating expenses of such investment companies, including advisory fees. The
Portfolios will not purchase or retain securities issued by open-end investment
companies (other than money market funds for temporary investment).
15. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
16. Purchase foreign securities if as a result of the purchase of such
securities more than 25% of a Portfolio's assets would be invested in
foreign securities provided that this restriction shall not apply to foreign
securities that are listed on a domestic securities exchange or represented by
American depository receipts that are traded either on a domestic securities
exchange or in the United States on the over-the-counter market.
17. The Portfolio's investment policies with respect to options and with
respect to stock and currency futures and options on either are subject to the
following fundamental limitations: (1) with respect to any Portfolio, the
aggregate value of the securities underlying calls or obligations underlying
puts determined as of the date options are sold shall not exceed 25% of the
assets of the Portfolio; (2) a Portfolio will not enter into any option
transaction if immediately thereafter, the aggregate premiums paid on all such
options which are held at any time would exceed 20% of the total net assets of
the Portfolio; (3) the aggregate margin deposits required on all futures or
options thereon held at any time by a Portfolio will not exceed 5% of the total
assets of the Portfolio; (4) the security underlying the put or call is within
the investment policies of each Portfolio and the option is issued by the
Options Clearing Corporation; and (5) the Portfolio may buy and sell puts and
calls on securities and options on financial futures if such options are listed
on a national securities or commodities exchange.
<PAGE>
PORTFOLIO TURNOVER
An annual portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities (excluding
certain debt securities) for a year and dividing that amount by the monthly
average of the market value of such securities during the year. The Fund
expects that its turnover rate generally will be less than 100%. However,
turnover will in fact be determined by market conditions and opportunities, and
therefore it is impossible to estimate the turnover rate with confidence.
THE FUND
The Fund is an open-end management investment company incorporated under the
laws of the State of Maryland on July 26, 1984. Prior to February 1998, the
Fund was named Manning & Napier Fund, Inc. The Board of Directors may, at its
own discretion, create additional portfolios of shares, each of which would have
separate assets and liabilities.
Each share of a portfolio represents an identical interest in the investment
portfolio of that portfolio and has the same rights.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by portfolio except as
otherwise expressly required by law or when the Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a portfolio.
Income, direct liabilities and direct operating expenses of a portfolio will be
allocated directly to the portfolio, and general liabilities and expenses of the
Fund will be allocated among the portfolios in proportion to the total net
assets of the portfolio by the Board of Directors. The holders of shares have
no preemptive or conversion rights. Shares when issued are fully paid and
non-assessable and do not have cumulative voting rights.
Additional Portfolios may be created from time to time with different investment
objectives or for use as funding vehicles for different variable life insurance
policies or variable annuity contracts. Any additional Portfolios may be managed
by investment advisers other than the current Advisor. In addition, the
Directors have the right, subject to any necessary regulatory approvals, to
create more than one class of shares in a Portfolio, with the classes being
subject to different charges and expenses and having
such other different rights as the Directors may prescribe and to terminate any
Portfolio of the Fund.
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
The Directors and officers of the Fund are:
<S> <C> <C>
Name, address and age Position Principal occupations
with Fund During past five years
B. Reuben Auspitz* Vice Executive Vice President, Manning
1100 Chase Square President & & Napier Advisors, Inc. since 1993;
Rochester, NY 14604 Director Vice President and Director
DOB: 3/18/47 Exeter Fund, Inc. since 1985;
President and Director, Manning &
Napier Investor Services, Inc.
since 1990; Director and Treasurer
since 1990, President from
1990 to 1998, Chairman since March 1998,
Manning & Napier Advisory
Advantage Corporation; Director,
Manning & Napier Leveraged
Investing Co., Inc. since 1994; Director
and Chairman, Exeter Trust Co.
since 1994; Member, Qualified Plan
Services, L.L.C. (formerly
known as Fiduciary Services, L.L.C.)
since 1995; Member, Manning & Napier
Capital Co., L.L.C. since 1995.
Managing Director, Manning & Napier
Advisors, Inc. from 1983-1992.
Martin Birmingham Director Trustee, The Freedom Forum,
21 Brookwood Road 1980 - 1997; Advisory Director,
Pittsford, NY 14604 ACC Corporation, 1997; Director,
DOB: 10/30/21 Emeritus, ACC Corporation, 1994 - 1997;
Director, Exeter Fund, Inc. since 1994;
Advisory Trustee, The Freedom Forum,
Since 1997.
Stephen B. Ashley Director Chairman and Chief Executive
600 Powers Building Officer, The Ashley Group, since
16 West Main Street 1997; Chairman and CEO Sibley
Rochester, NY 14604 Mortgage Corp., 1975 to 1996;
DOB: 03/22/40 Chairman and CEO, Sibley Real
Estate Services, Inc., 1975 to
1997; Director, Genesee Corp.
since 1987; Director, Hahn
Automotive since 1994; Director,
Fannie Mae since 1995; Director,
Exeter Fund, Inc. since 1996.
Harris H. Rusitzky Director President, Blimpie of Central
One Grove Street New York and The Greening Group
Pittsford, NY 14534 since 1994; Director, Exeter
DOB: 1/9/35 Fund, Inc. since 1985.
Peter L. Faber Director Former Partner, Kaye, Scholer,
1211 Avenue of the Fierman, Hays & Handler from 1984-
Americas 1995; Partner, McDermott, Will &
New York, New York 10036 Emery since 1995; Director, Exeter
DOB: 4/29/38 Fund, Inc. since 1987.
Jodi Hedberg Corporate Senior Compliance Administrator,
1100 Chase Square Secretary Manning & Napier Advisors, Inc. from
Rochester, New York 14604 1994-1995; Compliance Manager, Manning
DOB: 11/26/67 & Napier Advisors, Inc. since 1995;
Corporate Secretary, Exeter Fund,
Inc. since 1997.
Beth H. Galusha Chief Chief Financial Officer, Manning &
1100 Chase Square Financial & Napier Advisors, Inc. since 1987;
Rochester, NY 14604 Accounting Treasurer, Manning & Napier
DOB: 6/23/61 Officer, Investor Services, Inc. since
Treasurer 1990; Director, Manning & Napier
Advisory Advantage Corporation
Since 1993; Member, Manning &
Napier Capital Co., L.L.C. since
1995; Treasurer, Exeter Trust
Company since 1995; Chief Financial
& Accounting Officer, Treasurer,
Exeter Fund, Inc. since 1997.
</TABLE>
* Interested Director of the Fund within the meaning of the Investment Company
Act of 1940 (the "1940 Act").
The only Committee of the Corporation is an Audit Committee whose members are B.
Reuben Auspitz, Harris H. Rusitzky and Stephen B. Ashley.
Directors affiliated with the Advisor do not receive fees from the Fund. Each
Director who is not affiliated with the Advisor shall receive an annual fee of
$2,500. Annual fees will be calculated monthly and prorated. Each Director who
is not affiliated with the Advisor shall receive $375 per Board Meeting attended
for each active Portfolio of the Fund, plus $500 for any Committee Meeting held
on a day on which a Board Meeting is not held.
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
Name. . . . . . . Position Aggregate Pension Est. Total
From Compensation Annual Compensation
Registrant Benefits from
upon Registrant
Retirement
B. Reuben Auspitz* Director $-0- N/A N/A $-0-
Martin Birmingham Director $11,500 N/A N/A $11,500
Harris H. Rusitzky Director $12,000 N/A N/A $12,000
Peter L. Faber Director $11,500 N/A N/A $11,500
Stephen B. Ashley Director $12,000 N/A N/A $12,000
</TABLE>
*Interested Director, within the meaning of the Investment Company Act of 1940
(the 1940 Act ).
THE ADVISOR
Manning & Napier Advisors, Inc. ("Advisor") acts as the Fund's investment
advisor. For the services performed, each Portfolio pays the Advisor a fee as
set forth in the Prospectus.
The Investment Advisory Agreement (the Agreement ) between the Fund and the
Advisor states that the Advisor shall give the Fund the benefit of its best
judgment and effort in rendering services thereunder, but the Advisor shall not
be liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon its own investigation and research or upon investigation and
research made by any other individual, firm or corporation, if such purchase,
sale or retention shall have been made and such other individual, firm
or corporation shall have been selected in good faith. The Agreement also
states that nothing contained therein shall, however, be construed to
protect the Advisor against any liability to the Fund or its security
holders by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under the Agreement.
<PAGE>
In the Agreement, the Fund agrees that the words "Manning & Napier" in its name
are derived from the name of the Advisor and are the property of the Advisor for
copyright and all other purposes and that therefore such words may be freely
used by the Advisor as to other investment companies or other investment
products; the Fund further agrees that, in the event that the Advisor ceases to
be the Fund's investment advisor for any reason, the Fund will (unless the
Advisor otherwise consents in writing) promptly take all necessary steps to
change its name to a name not including the words "Manning & Napier". The
Agreement also provides that it is agreed that the Advisor shall have no
responsibility or liability for the accuracy or completeness of the Fund's
Registration Statement under the 1940 Act or the Securities Act of 1933 except
for information supplied by the Advisor for inclusion therein; the Fund agrees
to indemnify the Advisor to the full extent permitted by the Fund's Articles of
Incorporation. The Advisor is the Fund's Transfer Agent.
For Period ended December 31, 1998 (unless otherwise indicated), the
aggregate total of fees paid by the Portfolios to the Advisor were as follows:
<TABLE>
<CAPTION>
Portfolio 1996 1997 1998
Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived
- ------------------------- ----- ------ ----- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Moderate Growth Portfolio N/A $201 N/A $1,358 N/A $1,478
----- ---- ------ ------ --- -------
Growth Portfolio. . . . . N/A $203 N/A $1,789 N/A $5,862
---- ---- ------ ------ --- -------
Maximum Horizon Portfolio N/A $207 N/A $1,519 N/A $1,658
----- ----- ---- ------- --- ------
Small Cap Portfolio . . . N/A $208 N/A $1,548 N/A $1,533
----- ----- ----- ------- --- ------
Equity Portfolio. . . . . N/A $212 N/A $1,561 N/A $1,652
----- ---- ------ ------ --- ------
Bond Portfolio. . . . . . N/A $ 99 N/A $ 649 N/A $724
</TABLE>
Manning & Napier Investor Services, Inc., acts as Distributor of the Fund shares
and is located at the same address as the Advisor and the Fund. There will be no
additional costs for this service.
PRINCIPAL SHAREHOLDERS
As of February 23, 1999 , the outstanding shares were allocated as
follows: the Advisor owns all of the outstanding shares of the Moderate Growth
Portfolio, Maximum Horizon Portfolio, Bond Portfolio; 98.1% of the Small Cap
Portfolio and Equity Portfolio; and 33.9% of the Growth Portfolio.
Variable Account A, a segregated asset account of Keyport Life Insurance
Company, 125 High Street, Boston, MA 02110 owns: 55.3% of the Growth
Portfolio; 1.9% of the Small Cap Portfolio; and 1.9% of the Equity Portfolio.
Variable Account J, a segregated asset account of Liberty Life Assurance
Company, 125 High Street, Boston, MA 02110 owns: 10.7% of the Growth
Portfolio.
<PAGE>
CUSTODIAN AND INDEPENDENT ACCOUNTANT
The custodian is Boston Safe Deposit and Trust Company, One Cabot Road, 3rd
Floor, Medford, MA 02155-5159. Boston Safe Deposit and Trust Company may, at
its own expense, employ a sub-custodian on behalf of the foreign securities held
by the Fund, provided that Boston Safe Deposit and Trust Company shall remain
liable for all its duties as custodian. The Fund's independent accountants are
PricewaterhouseCoopers, LLP , One Post Office Square, Boston, MA 02109.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Agreement states that in connection with its duties to arrange for the
purchase and the sale of securities held in the Portfolios of the Fund by
placing purchase and sale orders for the Fund, the Advisor shall select such
broker-dealers ("brokers") as shall, in the Advisor's judgment, implement the
policy of the Fund to achieve "best execution", i.e., prompt and efficient
execution at the most favorable securities price. In making such selection, the
Advisor is authorized in the Agreement to consider the reliability, integrity
and financial condition of the broker, the size and difficulty in executing the
order and the value of the expected contribution of the broker to the investment
performance of the Fund on a continuing basis. The Advisor is also authorized to
consider whether a broker provides brokerage and/or research services to the
Fund and/or other accounts of the Advisor. The Fund understands that a
substantial amount of its portfolio transactions may be transacted with primary
market makers acting as principal on a net basis, with no brokerage commissions
being paid by the Fund. Such principal transactions may, however, result in a
profit to market makers. In certain instances the Advisor may make purchases of
underwritten issues for the Fund at prices which include underwriting fees. The
Agreement states that the commissions paid to such brokers may be higher than
another broker would have charged if a good faith determination is made by the
Advisor that the commission is reasonable in relation to the services provided,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities as to the accounts as to which it exercises investment
discretion and that the Advisor shall use its judgment in determining that the
amount of commissions paid is reasonable in relation to the value of brokerage
and research services provided. The Advisor is further authorized to allocate
the orders placed by it on behalf of the Fund to such brokers or dealers who
also provide research or statistical material, or other services, to the Fund,
the Advisor, or any affiliate of either. Such allocation shall be in such
amounts and proportions as the Advisor shall determine, and the Advisor shall
report on such allocations regularly to the Fund, indicating the broker-dealers
to whom such allocations have been made and the basis therefore.
The research services discussed above may be in written form or through direct
contact with individuals and may include information as to particular companies
and securities as well as market, economic or institutional areas and
information assisting the Fund in the valuation of its investments. The research
which the Advisor receives for the Fund's brokerage commissions, whether or not
useful to the Fund may be useful to the Advisor in managing the accounts of the
Advisor's other advisory clients. Similarly, the research received for the
commissions of such accounts may be useful to the Fund.
<PAGE>
<TABLE>
<CAPTION>
The aggregate total brokerage commissions paid by the Portfolios were as
follows:
1996 1997 1998
Portfolio
<S> <C> <C> <C>
Moderate Growth Portfolio $ 40 $ 98 $ 167
----- ----- ------
Growth Portfolio. . . . . $ 91 $ 277 $1,378
----- ----- ------
Maximum Horizon Portfolio $ 164 $ 288 $ 312
----- ----- ------
Small Cap Portfolio . . . $ 348 $ 472 $ 502
----- ----- ------
Equity Portfolio. . . . . $ 422 $ 164 $ 383
----- ----- ------
Bond Portfolio. . . . . . $ 0 $ 0 $0
- ------------------------- ----- ----- ------
</TABLE>
There were no brokerage commissions paid to affiliates during the last three
fiscal years.
NET ASSET VALUE
The net asset value is determined on each day that the New York Stock Exchange
is open for trading. In determining the net asset value of the Fund's shares,
common stocks that are listed on national securities exchanges or the NASDAQ
National Market System are valued at the last sale price on the exchange on
which each stock is principally traded as of the close of the New York Stock
Exchange (which is currently 4:00 p.m., Eastern time), or, in the absence of
recorded sales, at the closing bid prices on such exchanges or on such System.
Short-term investments that mature in less than 60 days are normally valued
at amortized cost. Unlisted securities that are not included in such NASDAQ
are valued at the quoted bid prices in the over-the-counter market. All
securities initially expressed in foreign currencies will be converted to U.S.
dollars at the exchange rates quoted at the close of the New York markets. Short
securities positions are accounted for at value, using the same method of
valuation described above. Securities and other assets for which market
quotations are not readily available are valued by appraisal at their fair value
as determined in good faith by the Advisor under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors. The Advisor may use a pricing service to obtain the value of the
Fund's portfolio securities where the prices provided by such pricing service
are believed to reflect the fair market value of such securities. The methods
used by the pricing service and the valuations so established will be reviewed
by the Advisor under the general supervision of the Fund's Board of Directors.
Several pricing services are available, one or more of which may be used as
approved by the Fund's Board of Directors.
<PAGE>
REDEMPTION OF SHARES
PAYMENT FOR SHARES REDEEMED
Payment for shares presented for redemption may be delayed more than three days
only for (1) any period (A) during which the New York Stock Exchange is closed
other than customary weekend and holiday closings or (B) during which trading on
the New York Stock Exchange is restricted; (2) for any period during which an
emergency exists as a result of which (A) disposal by the Fund of securities
owned by it is not reasonably practicable or (B) it is not reasonably
practicable for the Fund to determine the value of its net assets; or (3) for
such other periods as the Securities and Exchange Commission may by order
permit.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash in conformity with applicable rules of the Securities and Exchange
Commission. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which the Portfolio is obligated to redeem shares
solely in cash up to the lesser of $250,000 or one per cent of the net asset
value of the Fund during any 90 day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, the Fund will have the
option of redeeming the excess in cash or in kind. If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash.
TAXES
Each Portfolio of the Fund intends to qualify each year and elect to be taxed as
a regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to the separate accounts of the Life Companies.
In order to qualify as a "regulated investment company," a Portfolio must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies
and (b) diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government Securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Portfolio and not more than 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 issuer (other than U.S. Government Securities). In
order to receive the favorable tax treatment accorded regulated investment
companies and their shareholders, moreover, a Portfolio must in general
distribute at least 90% of its interest, dividends, net short-term capital
gains, and certain other income each year.
<PAGE>
With respect to investment income and gains received by a Portfolio from sources
outside the United States, such income and gains may be subject to foreign taxes
which are withheld at the source. The effective rate of foreign taxes in which
a Portfolio will be subject depends on the specific countries in which its
assets will be invested and the extent of the assets invested in each such
country and therefore cannot be determined in advance.
A Portfolio's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be limited
by tax considerations. A Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income.
This difference may cause a portion of the Portfolio's distributions of book
income to constitute returns of capital for tax purposes or require the
Portfolio to make distributions exceeding book income in order to permit the
Portfolio to continue to qualify, and be taxed under Subchapter M of the Code,
as a regulated investment company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Portfolio has invested and their face
value ("original issue discount") is considered to be income to the Portfolio
each year, even though the Portfolio will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the net investment income of the Portfolio which must be
distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
This discussion of the federal income tax treatment of the Fund and its
shareholders is based on the law as of the date of this Statement of Additional
Information. It does not describe in any respect the tax treatment of any
insurance or other product pursuant to which investments in the Fund may be
made.
SPECIAL CONSIDERATIONS
The Portfolios serve as the underlying investments for Variable Contracts issued
through separate accounts of the Life Companies which may or may not be
affiliated.
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
Variable Contracts, which are in addition to the diversification requirements
imposed on the Portfolios by the 1940 Act and Subchapter M. Failure to satisfy
those standards would result in imposition of federal income tax on a Variable
Contract owner with respect to earnings allocable to the Variable Contract prior
to the receipt of payments thereunder. Section 817(h)(2) provides that a
segregated asset account that funds contracts such as the Variable Contracts is
treated as meeting the diversification standards if, as of the close of each
quarter, the assets in the account meet the diversification requirements for a
regulated investment company and no more than 55% of those assets consist of
cash, cash items, U.S. Government securities and securities of other regulated
investment companies. There is an exception for securities issued by the
Treasury Department in connection with variable life insurance policies.
<PAGE>
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, and each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Portfolio will be managed in such a manner as to comply with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios will declare and distribute dividends from net investment
income, if any, and will distribute its net realized capital gains, if any, at
least annually. Both dividends and capital gain distributions will be made in
shares of such Portfolios unless an election is made on behalf of a separate
account to receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
A Portfolio's yield is presented for a specified 30-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate of dividends and interest earned by the Portfolio during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Portfolio
outstanding during the base period and entitled to receive dividends and (B) the
net asset value per share of the Portfolio on the last day of the base period.
The result is annualized on a compounding basis to determine the Portfolio's
yield. For this calculation, interest earned on debt obligations held by a
Portfolio is generally calculated using the yield to maturity (or first expected
call date) of such obligations based on their market values (or, in the case of
receivables-backed securities such as GNMAs, based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates.
Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Portfolio made at the beginning of each period, then calculating the
average annual compounded rate of return which would produce the same investment
return on the $1,000 investment over the same period. Total return for a period
of one year or less is equal to the actual investment return on a $1,000
investment in the Portfolio during that period. Total return calculations
assume that all Portfolio distributions are reinvested at net asset value on
their respective reinvestment dates.
<PAGE>
From time to time, the Advisor may reduce its compensation or assume expenses in
respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield and
total return during the period of the waiver or assumption.
SHAREHOLDER COMMUNICATIONS
Owners of Variable Contracts issued by the Life Companies for which shares of
one or more Portfolios are the investment vehicle are entitled to receive from
the Life Companies unaudited semi-annual financial statements and audited
year-end financial statements certified by the Fund's independent public
accountants. Each report will show the investments owned by the Portfolios and
the market value thereof and will provide other information about the Fund and
its operations.
FINANCIAL STATEMENTS
The financial statements of the Fund are incorporated by reference into this
Statement of Additional Information. The financial statements with respect to
the Portfolios have been audited by PricewaterhouseCoopers, LLP ,
independent public accountants to such Portfolios. The Fund s annual report(s)
are incorporated herein by reference in reliance upon their authority as experts
in accounting and auditing. A copy of the 1998 Annual Report(s) to Shareholders
must accompany the delivery of this Statement of Additional Information.
<PAGE>
APPENDIX - DESCRIPTION OF BOND RATINGS 1
- --------------------------------------------
MOODY'S INVESTORS SERVICE, INC. ( MOODY'S ) SHORT-TERM PRIME RATING SYSTEM -
TAXABLE DEBT AND DEPOSITS GLOBALLY
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
Broad margins in earnings coverage of fixed financial charges and high
Internal cash generation.
Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody s rating on
a bank s ability to repay senior obligations extends only to branches located in
countries which carry a Moody s Sovereign Rating for Bank Deposits. Such branch
obligations are rated at the lower of the bank s rating Moody s Sovereign
Rating for Bank Deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody s ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by actions of the government controlling the currency of denomination.
In addition, risks associated with bilateral conflicts between an investor's
home country and either the issuer s home country or the country where an
issuer's branch is located are not incorporated into Moody s short-term debt
ratings.
If an issuer represents to Moody s that its short-term debt obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within the parenthesis beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody s evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment.
1 The ratings indicated herein are believed to be the most recent
ratings available at the date of this statement of additional information for
the securities listed. Ratings are generally given to securities at the time
of issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated do
not necessarily represent ratings which will be given to these securities on
the date of the fund's fiscal year-end.
<PAGE>
MOODY'S CORPORATE 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 the best 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 present 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
to be 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 which are rated Baa are considered as 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.
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.
Note: Moody s applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicated that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicated
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor s capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor s capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor s capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor s inadequate capacity to meet its financial
commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor s believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
STANDARD & POOR'S CORPORATE BOND RATINGS
Aaa: An obligation rated Aaa has the highest rating assigned by Standard & Poor
s. The obligor s capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated AA differs from the highest-rated obligations only in a
small degree. The obligor s capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor s capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor s capacity to meet its financial commitment on the obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor s capacity or willingness to meet its financial
commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D: An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor s believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments are jeopardized.
Plus (+) or Minus (-): The rating from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a)
(1) Articles of Incorporation. (Incorporated by reference to
Registrant's Registration Statement on Form N-1A Filed on December 1, 1995
with Accession Number 0001003369-95-000004 .)
(2) Articles Supplementary. (Incorporated by reference to Registrant's
Registration Statement on Form N-1A Filed on June 27, 1996 with Accession
Number 0001003369-96-000005 .)
(b) By-Laws. (Incorporated by reference to Registrant's Registration
Statement on Form N-1A Filed on December 1, 1995 with Accession Number
0001003369-95-000004 .)
(c) Not Applicable.
(d) Form of Investment Advisory Agreement.(Incorporated by reference to
Registrant's Registration Statement on Form N-1A Filed on June 27, 1996 with
Accession Number 0001003369-96-000005 .)
(e) Form of Distribution Agreement. (Incorporated by reference to
Registrant's Registration Statement on Form N-1A Filed on June 27, 1996
with Accession Number 0001003369-96-000005 .)
(f) Not Applicable.
(g) Form of Custodian Agreement. (Incorporated by reference to Registrant's
Registration Statement on Form N-1A filed on June 27, 1996 with Accession
Number 0001003369-96-000005 .)
(h)(1) Form of Transfer Agent Agreement between the Registrant and Manning
& Napier Advisors, Inc.(Incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on June 27, 1996 with Accession Number
0001003369-96-000005 .)
(2) Fund Participation Agreement between Manning & Napier Insurance
Fund, Inc., Manning & Napier Investor Services, Inc., Manning & Napier
Advisors, Inc. and Keyport Life Insurance Company. (Incorporated by reference
to Registrant's Registration Statement on Form N-1A filed on April 30, 1997
with Accession Number 0001003369-97-0000015 .)
(i) Opinion and Consent of Blazzard, Grodd & Hasenauer,
P.C.(Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on April 23, 1998 with Accession Number 0001003369-98-000009
(j) Opinion and Consent of Independent Accountants. Filed Herewith.
(k) Not Applicable.
(l) Purchase Agreement. (Incorporated by reference to Registrant's
Registration Statement on Form N-1A Filed on June 27, 1996 with Accession
Number 0001003369-96-000005 .)
(m) Not Applicable.
(n) Financial Data Schedules. Filed Herewith.
(o) Not Applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
Reference is made to subparagraph (b) of paragraph (7) of Article SEVENTH of
Registrant's Articles of Incorporation, which reflects the positions taken in
Investment Company Act Release No. 11330. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a trustee, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
SUB-ADVISERS
Manning & Napier Advisors, Inc. is the investment advisor of the Registrant. For
information as to the business, profession, vocation or employment of a
substantial nature of Manning & Napier Advisors, Inc., its directors and
officers, reference is made to Part B of this Registration Statement and to Form
ADV (File No. 801-10733) as filed under the Investment Advisers Act of 1940 by
Manning & Napier Advisors, Inc.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Not Applicable
(b) Manning & Napier Investor Services, Inc. is the Distributor
of the Registrant's shares.
<TABLE>
<CAPTION>
<S> <C> <C>
Name & Principal. . . . Positions & Offices Positions & Offices
Business Address. . . . with Distributor with Registrant
- ----------------------- -------------------- -------------------
B. Reuben Auspitz . . . President & Director President &
1100 Chase Square . . . Director
Rochester, NY 14604
Julie Raschella . . . . Director N/A
1100 Chase Square
Rochester, NY 14604
Beth H. Galusha Treasurer Chief Financial
1100 Chase Square . . . Officer, Treasurer
Rochester, NY 14604
Amy Williams. . . . . . Corporate Secretary N/A
1100 Chase Square
Rochester, NY 14604
George Nobiliski. . . . Director N/A
1100 Chase Square
Rochester, NY 14604
- -----------------------
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of Registrant except for the
records required by Rule 31a-1(b)(2)(a) and (b), which are in the possession of
the Custodian.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 30. UNDERTAKINGS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 4 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Rochester and State of New York on the 1st day of March, 1999.
Manning & Napier Insurance Fund, Inc.
(Registrant)
By:/s/B. Reuben Auspitz
B. Reuben Auspitz
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
/s/B. Reuben Auspitz Principal March 1, 1999
B. Reuben Auspitz Executive
Officer and
Director
/s/Martin F. Birmingham Director March 1, 1999
Martin F. Birmingham
/s/Harris H. Rusitzky Director March 1, 1999
Harris H. Rusitzky
/s/Peter L. Faber Director March 1, 1999
Peter L. Faber
/s/Stephen B. Ashley Director March 1, 1999
Stephen B. Ashley
/s/Beth H. Galusha Chief Financial March 1, 1999
Beth H. Galusha & Accounting
Officer,
Treasurer
<PAGE>
INDEX TO EXHIBITS
EX-99.B11 Opinion and Consent of Independent Accountants is filed
herewith.
EX-99.B(27) Financial Data Schedules are filed herewith.
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Manning & Napier Insurance Fund, Inc.;
We hereby consent to the following with respect to Post-effective Amendment No.
4 to the Registration Statement on Form N-1A (File No. 033-64667) under the
Securities Act of 1933, as amended, of Manning & Napier Insurance Fund, Inc.:
1. The incorporation by reference of our report dated February 5, 1999
accompanying the financial statements and financial highlights of the Manning &
Napier Insurance Fund Inc. as of December 31, 1998 into the Statement of
Additional Information.
2. The reference to our firm under the heading "Financial Highlights" in the
Prospectuses.
3. The reference to our firm under the headings "Financial Statements" and
"Custodian and Independent Accountants" in the Statement of Additional
Information.
Boston, Massachusetts /s/ PricewaterhouseCoopers LLP
February 26, 1999
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER BOND PORTFOLIO
[NUMBER] 1
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 144978
[INVESTMENTS-AT-VALUE] 154866
[RECEIVABLES] 13553
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 168419
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 16836
[TOTAL-LIABILITIES] 16836
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 134310
[SHARES-COMMON-STOCK] 13357
[SHARES-COMMON-PRIOR] 12743
[ACCUMULATED-NII-CURRENT] 7371
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 14
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 9888
[NET-ASSETS] 151583
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 8603
[OTHER-INCOME] 0
[EXPENSES-NET] 1231
[NET-INVESTMENT-INCOME] 7372
[REALIZED-GAINS-CURRENT] 14
[APPREC-INCREASE-CURRENT] 5955
[NET-CHANGE-FROM-OPS] 13341
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6858
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 614
[NET-CHANGE-IN-ASSETS] 13341
[ACCUMULATED-NII-PRIOR] 6857
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 724
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13046
[AVERAGE-NET-ASSETS] 144906
[PER-SHARE-NAV-BEGIN] 10.85
[PER-SHARE-NII] 0.552
[PER-SHARE-GAIN-APPREC] 0.486
[PER-SHARE-DIVIDEND] 0.538
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.35
[EXPENSE-RATIO] 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER EQUITY PORTFOLIO
[NUMBER] 5
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 186150
[INVESTMENTS-AT-VALUE] 177195
[RECEIVABLES] 10498
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 187693
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 15999
[TOTAL-LIABILITIES] 15999
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 140648
[SHARES-COMMON-STOCK] 14082
[SHARES-COMMON-PRIOR] 12954
[ACCUMULATED-NII-CURRENT] 1615
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 38386
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (8955)
[NET-ASSETS] 171694
[DIVIDEND-INCOME] 3216
[INTEREST-INCOME] 381
[OTHER-INCOME] 0
[EXPENSES-NET] 1982
[NET-INVESTMENT-INCOME] 1615
[REALIZED-GAINS-CURRENT] 38529
[APPREC-INCREASE-CURRENT] (33939)
[NET-CHANGE-FROM-OPS] 6205
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 628
[DISTRIBUTIONS-OF-GAINS] 10220
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 1128
[NET-CHANGE-IN-ASSETS] 6205
[ACCUMULATED-NII-PRIOR] 628
[ACCUMULATED-GAINS-PRIOR] 10077
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1652
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13973
[AVERAGE-NET-ASSETS] 165122
[PER-SHARE-NAV-BEGIN] 12.78
[PER-SHARE-NII] 0.115
[PER-SHARE-GAIN-APPREC] 0.133
[PER-SHARE-DIVIDEND] 0.049
[PER-SHARE-DISTRIBUTIONS] 0.789
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.19
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER GROWTH PORTFOLIO
[NUMBER] 3
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 639891
[INVESTMENTS-AT-VALUE] 618126
[RECEIVABLES] 12248
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 630374
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 15617
[TOTAL-LIABILITIES] 15617
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 613353
[SHARES-COMMON-STOCK] 51677
[SHARES-COMMON-PRIOR] 26149
[ACCUMULATED-NII-CURRENT] 14450
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 8719
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (21765)
[NET-ASSETS] 614757
[DIVIDEND-INCOME] 6003
[INTEREST-INCOME] 15484
[OTHER-INCOME] 0
[EXPENSES-NET] 7034
[NET-INVESTMENT-INCOME] 14453
[REALIZED-GAINS-CURRENT] 8719
[APPREC-INCREASE-CURRENT] (24073)
[NET-CHANGE-FROM-OPS] (901)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4332
[DISTRIBUTIONS-OF-GAINS] 19198
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 39407
[NUMBER-OF-SHARES-REDEEMED] 16050
[SHARES-REINVESTED] 2171
[NET-CHANGE-IN-ASSETS] 296529
[ACCUMULATED-NII-PRIOR] 4329
[ACCUMULATED-GAINS-PRIOR] 19198
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5862
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 19334
[AVERAGE-NET-ASSETS] 578262
[PER-SHARE-NAV-BEGIN] 12.17
[PER-SHARE-NII] 0.202
[PER-SHARE-GAIN-APPREC] 0.003
[PER-SHARE-DIVIDEND] 0.087
[PER-SHARE-DISTRIBUTIONS] 0.388
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.90
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER SMALL CAP PORTFOLIO
[NUMBER] 6
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 160365
[INVESTMENTS-AT-VALUE] 139156
[RECEIVABLES] 14465
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 153621
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 14424
[TOTAL-LIABILITIES] 14424
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 158299
[SHARES-COMMON-STOCK] 16632
[SHARES-COMMON-PRIOR] 12921
[ACCUMULATED-NII-CURRENT] 537
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1570
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (21209)
[NET-ASSETS] 139197
[DIVIDEND-INCOME] 989
[INTEREST-INCOME] 1364
[OTHER-INCOME] 0
[EXPENSES-NET] 1841
[NET-INVESTMENT-INCOME] 512
[REALIZED-GAINS-CURRENT] 1595
[APPREC-INCREASE-CURRENT] (19708)
[NET-CHANGE-FROM-OPS] (17601)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 27459
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 3711
[NET-CHANGE-IN-ASSETS] (17601)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 27459
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1533
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13856
[AVERAGE-NET-ASSETS] 152850
[PER-SHARE-NAV-BEGIN] 12.13
[PER-SHARE-NII] 0.031
[PER-SHARE-GAIN-APPREC] (1.666)
[PER-SHARE-DIVIDEND] 2.125
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.37
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER MODERATE GROWTH PORTFOLIO
[NUMBER] 2
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 157416
[INVESTMENTS-AT-VALUE] 157020
[RECEIVABLES] 12114
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 169134
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 15810
[TOTAL-LIABILITIES] 15810
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 140443
[SHARES-COMMON-STOCK] 14007
[SHARES-COMMON-PRIOR] 12741
[ACCUMULATED-NII-CURRENT] 4808
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 8469
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (396)
[NET-ASSETS] 153324
[DIVIDEND-INCOME] 1122
[INTEREST-INCOME] 5460
[OTHER-INCOME] 0
[EXPENSES-NET] 1773
[NET-INVESTMENT-INCOME] 4809
[REALIZED-GAINS-CURRENT] 8469
[APPREC-INCREASE-CURRENT] (4340)
[NET-CHANGE-FROM-OPS] 8938
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4553
[DISTRIBUTIONS-OF-GAINS] 8400
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 1266
[NET-CHANGE-IN-ASSETS] 8938
[ACCUMULATED-NII-PRIOR] 4552
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1478
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13799
[AVERAGE-NET-ASSETS] 147833
[PER-SHARE-NAV-BEGIN] 11.33
[PER-SHARE-NII] 0.343
[PER-SHARE-GAIN-APPREC] 0.293
[PER-SHARE-DIVIDEND] 0.357
[PER-SHARE-DISTRIBUTIONS] 0.659
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.95
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0001003369
[NAME] MANNING & NAPIER INSURANCE FUND, INC.
[SERIES]
[NAME] MANNING & NAPIER MAXIMUM HORIZON PORTFOLIO
[NUMBER] 4
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[PERIOD-TYPE] 12-MOS
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 186161
[INVESTMENTS-AT-VALUE] 174843
[RECEIVABLES] 10511
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 185354
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 15335
[TOTAL-LIABILITIES] 15335
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 155855
[SHARES-COMMON-STOCK] 15943
[SHARES-COMMON-PRIOR] 12690
[ACCUMULATED-NII-CURRENT] 2068
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 23414
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (11318)
[NET-ASSETS] 170019
[DIVIDEND-INCOME] 2693
[INTEREST-INCOME] 1087
[OTHER-INCOME] 0
[EXPENSES-NET] 1991
[NET-INVESTMENT-INCOME] 1789
[REALIZED-GAINS-CURRENT] 24566
[APPREC-INCREASE-CURRENT] (19874)
[NET-CHANGE-FROM-OPS] 6481
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2062
[DISTRIBUTIONS-OF-GAINS] 26832
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 3253
[NET-CHANGE-IN-ASSETS] 6481
[ACCUMULATED-NII-PRIOR] 1186
[ACCUMULATED-GAINS-PRIOR] 26833
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1658
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13981
[AVERAGE-NET-ASSETS] 165467
[PER-SHARE-NAV-BEGIN] 12.89
[PER-SHARE-NII] 0.127
[PER-SHARE-GAIN-APPREC] (.079)
[PER-SHARE-DIVIDEND] 0.163
[PER-SHARE-DISTRIBUTIONS] 2.115
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.66
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
